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201RQ1F1 - UNIVERSITY OF WATERLOO Department of Economics...

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UNIVERSITY OF WATERLOO -- Department of Economics -- Professor J. Cuenca Economics 201-05: Review Questions for the First Term Test - Fall 2011 1. The price elasticity of demand for a commodity is 2 in absolute terms, and the marginal revenue equals $10. Calculate the price of this commodity. MR = P(1 + 1/PED) 2. Starting from a point such as Z, where individual A and individual B have equal endowments of good X and good Y, (a) draw A's and B's indifference curves (both passing through point Z) on the same set of axes, showing that individual A has a relative preference for good X over good Y (by comparison to individual B's preferences). (b) Briefly justify in words the relative positions of A's and B's indifference curves. 3. With words only, define the following concepts in the way it was done in class: (a) Engel's law; (b) the income consumption curve. (c) To which of the three "effects" of a price change (SE, IE, TE) is the price consumption curve related? 4. Draw a diagram showing an indifference curve, a budget line, and the point of consumer equilibrium (A).
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