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# Midterm2F2009aAnswerKey-1 - Econ 001 Midterm 2(Dr Stein...

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Econ 001: Midterm 2 (Dr. Stein) Answer Key November 16, 2009 Instructions: This is a 60-minute examination. Write all answers in the blue books provided. Show all work. Use diagrams where appropriate and label all diagrams carefully. Write your name and your Recitation Instructor's name in every blue book that you use. This exam is given under the rules of Penn's Honor system. All blue books, blank or filled, must be handed in at the end of this exam. No blue books may be taken from the room. The use of Programmable Calculators is in violation of Departmental rule. It is strictly forbidden! The Midterm has 2 parts. Part 1 consists of 9 multiple-choice questions. Please write you answers in blue book 1. Part 2 consists of 2 short answer questions. Please use a separate blue book for each answer. Part I: Multiple Choice Questions (Best 8 out of 9: 4 points each/32 points total): 1. Jack spends all his money on pizzas and books. Now, due to the recession, both his income and the price of pizza decrease by 10% whereas the price of book stays the same. Which of the following is true? a. The income in terms of pizza decreases. b. The income in terms of pizza increases. c. If pizza is an inferior good, then the quantities demanded for pizza increase. d. If book is an inferior good, then the quantities demanded for books decrease. 2. Now suppose the price of books also decreases by 10% and that a book is a normal good. Compared with the quantity demanded before the recession, which of the following is true? a. The quantity demanded of pizza increases. b. The quantity demanded of books increases. c. Both quantities increase. d. None of the above.

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3. Consider the standard labor-leisure model from class. Suppose that wages go up and we observe that time spent on leisure activities increases. This implies that a. the substitution effect dominated the income effect b. the income effect dominated the substitution effect c. leisure is a normal good d. labor supply will be upward sloping e. both (a) and (c) are correct f. both (c) and (d) are correct g. both (b) and (c) are correct h. both (b) and (d) are correct 4. Based on the following information, what are the total fixed costs? Quantity ATC AVC MC 2 11 3 2 5 a. 16 b. 6 c. 21 d. 27 5. Using the information from the previous question. If we know that for this firm marginal productivity is decreasing, what can we say about the Marginal Cost of the 4 th unit? a.
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Midterm2F2009aAnswerKey-1 - Econ 001 Midterm 2(Dr Stein...

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