midterm3 sample1

# midterm3 sample1 - PRINCIPLES OF MICROECONOMICS Midterm...

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PRINCIPLES OF MICROECONOMICS Midterm Test #3, Sample #1 Answers Time Allowed : 50 Minutes This total marks in this test are 50. The test is divided into two parts: Part I - problem format - is worth 40 marks (40 of the total mark of 50) Part II - multiple choice- is worth 10 marks (10 of the total mark of 50) (5 multiple choice questions worth 2 marks each) SHOW YOUR WORK WHERE APPLICABLE . YOU MUST USE A PEN; PENCIL IS NOT ELIGIBLE FOR REMARKING Print your name and student number clearly on the front of the exam and on any loose pages. Name: _______________________________________ (Family Name) (Given Name) Student # : ______________________ There are 7 pages to the exam. - 1/7 -

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Principles of Microeconomics: Midterm Test #3, Sample #1 Answers Part I Place your answers (and work where necessary) in the space provided. Clearly label all axes, curves, and points. 1. Derivation of Demand (10 marks) In the space below, draw a diagram to demonstrate the derivation of two points of a relatively elastic demand curve (not perfectly elastic) for a good X from indifference curve and budget line analysis given an increase in the price of X. The subsections below help you through this exercise. Clearly label your diagram. a) Draw a diagram of a budget line reflecting the initial prices of X (Pxo) and Y (Py) and the individual's income. Label your axes and intercepts (3 marks) b) Show the quantity of X (Xo) at initial consumer equilibrium. (2 marks) c) Draw a budget line representing an increase in the price of X to Px 1 . (1 marks) d) Indicate the quantity of X 1 at consumer equilibrium for the new budget line. (1 mark) e) Draw an elastic demand diagram reflecting the information from your indifference curve and budget line diagram. (3 marks) a) 1 mark: correct axes for Qx/Qy diagram: Qy (all other goods) and Qx 1 mark: intercepts of original budget line: Inc/Py and Inc/Pxo (or something similar) 1 mark: linear budget line b) 1 mark: Convex indifference curve (no positive slope) 1 mark: Xo at tangency of indifference curve and budget line c) 1 mark: inward rotation of budget line around fixed y-intercept d) 1 mark: X1 (or whatever designation) from tangency of new budget line and an indifference curve e) 1 mark: Xo from indifference curve diagram and Pxo for a point on demand 1 mark: X 1 from indifference curve diagram and Px1 > Pxo for second demand point 1 mark: X 1 % decrease relative to Xo greater than Px1 % increase relative to Pxo (basically an attempt at a noticeably flat D) - 2/7 - Qx Qy (all other goods) Qx Px Inc/Py Inc/Pxo Inc/Px1 Pxo Px1 Xo X1 Xo X1
Principles of Microeconomics: Midterm Test #3, Sample #1 Answers 2. Demand and Consumer Surplus (10 marks) a) Suppose that the quantity demanded of digital cameras is 10,000 at \$300/camera and 15,000 at \$240/camera. What is the equation for Demand if Demand is linear? (2 marks) 1 mark: slope = -0.012 from something like (300 – 240)/(10,000 – 15,000)

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midterm3 sample1 - PRINCIPLES OF MICROECONOMICS Midterm...

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