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3110 Midterm Exam Practice

# 3110 Midterm Exam Practice - Georgia Institute of...

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Georgia Institute of Technology School of Economics ECON 3110-JK Advanced Microeconomics Analysis FAll 2011 Prep-Midterm ---(October 11, 2011) ( 1) Most microeconomic models assume that decision makers wish to A) make themselves as well off as possible. B) act selfishly. C) make others as well off as possible. D) None of the above. Answer: A 2) Society faces trade-offs because of A) government regulations. B) greedy corporations. C) faceless bureaucrats. D) scarcity. Answer: D 3) Suppose the demand for Digital Video Recorders (DVRs) is given by Q =250 - .25 p + 4 p c , where Q is the quantity of DVRs demanded (in 1000s), p is the price of a DVR, and p c is the price of cable television. How much does demand for DVRs change if the p rises by \$40? 4) Consider the demand functions: A) Qd = 250 - 2P B) Qd = 300 - 3P. Which of the demand functions reflects a higher level of consumer incomes? BUzz would also recommend discussing this prep-midterm with your classmates. Please, let me know if you have some difficulties in a problem-solving :)

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5) The above figure shows a graph of the market for pizzas in a large town. No pizzas will be demanded unless price is less than 6) Suppose an individual inverse demand curve is given as P = 2 - 1/2 q i , where q i is the quantity demanded by individual i. There are 50 individual consumers with this identical, individual inverse demand curve. Solve for the market demand curve. Answer: Solve for the individual, regular demand curve, q i = 4 - 2P. Multiply the individual demand curve by 50 to yield Q D = 200 - 100P. 7) Suppose the market demand curve for pizza can be expressed as QD = 100 - 2P + 3Pb, where QD is the quantity of pizza demanded, P is the price of a pizza, and Pb is the price of a burrito. What is the slope of this demand function, and what information does the slope provide? Answer: The slope is -2. The slope tells us how a change in the price of pizzas affects the quantity of pizzas demanded. An increase in the price of pizzas by \$1 will result in a decrease of the quantity demanded by two pizzas. 8) Use supply-and-demand graphs to explain why parking is free at the suburban shopping mall but one typically must pay to park when shopping downtown. Answer:
See the above figure. At the suburban shopping mall, the only cars typically on the lot belong to shoppers and employees. Mall lots are usually built to be large enough to handle peak crowds. For the relevant quantities, the supply curve is horizontal at a price of zero. As a result, the quantity demanded never exceeds the amount that is provided freely. Downtown, shoppers compete with a larger quantity and greater variety of drivers for parking spaces. The quantity that is available freely is not enough to accommodate all of those who wish to park downtown. 9) When two goods are substitutes, a shock that raises the price of one good causes the price of the other good to A) remain unchanged. B) decrease. C) increase. D) change in an unpredictable manner. Answer: C

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