Exam 2 Pink Econ 25100 Fall 2010

Exam 2 Pink Econ 25100 Fall 2010 - ECON 251 Exam 2 Pink...

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Econ 251 Page 1 of 11 Fall 2010 Exam 2 Pink ECON 251 Exam 2 Pink Fall 2010 Candy bars Bags of potato chips Quantity Total Utility Quantity Total Utility 0 0 0 0 1 10 1 8 2 16 2 14 3 18 3 18 4 19 4 21 5 19 5 23 1. Liz consumes two goods, candy bars and potato chips. Her budget is $4 per day. The price of a candy bar is $1.00 and the price of a bag of chips is 50 cents. Her utility is in the table above. What is Liz’s marginal utility from purchasing the 4 th candy bar? a. 1 b. 3 c. 19 d. 38 2. For Liz to maximize her utility given her budget, what combination of candy bars and potato chips should she eat? a. 4 candy bars and 0 bags of potato chips b. 3 candy bars and 2 bags of potato chips c. 2 candy bars and 4 bags of potato chips d. 1 candy bar and 5 bags of potato chips 3. Elle has a weekly income of $100. She only consumes manicures and dresses. The price of a manicure is $10 and the price of a dress is $20. What is the equation for Elle’s budget line? a. Q manicures = 10 - 2Q dresses b. 100 = 10Q manicures - 20Q dresses c. Q manicures = 2Q dresses - 10 d. Q manicures = 2Q dresses - 100 4. Elle has a weekly income of $100. She only consumes manicures and dresses. The price of a manicure is $10 and the price of a dress is $20. What is her marginal rate of substitution when she is maximizing her utility? (Assume that the quantity of dresses is measured on the X-axis and the quantity of manicures is measured on the Y-axis.) a. ½ b. 2 c. 10 d. 20
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Econ 251 Page 2 of 11 Fall 2010 Exam 2 Pink
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Econ 251 Page 3 of 11 Fall 2010 Exam 2 Pink 5. If the price of a good increases and, as a result, the quantity demanded of that good increases : a. we say the good is a Giffen good b. the income effect of the price increase is greater than the substitution effect c. the good must be an inferior good d. all of the above Use the graph above to answer the following question. 6. Based on the graph, the substitution effect of the decrease in the price of juice _______ the quantity of juice from __________. a. Increases; 1 to 3 b. Increases; 3 to 4 c. Increases; 1 to 4 d. Decreases; 4 to 3 7. Gus consumes only pizza and Coke. Suppose both goods are normal goods for Gus. If the price of pizza falls, then Gus’s real income and the income effect will make him to consume pizzas. a. increases; less b. increases; more c. decreases; less d. decreases; more
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Econ 251 Page 4 of 11 Fall 2010 Exam 2 Pink 8. Mary consumes two goods: good X (measured on the X axis) and good Y (measured on the Y axis). If her marginal rate of substitution is 3 when she is maximizing her utility given her budget, then, at that point, a. The slope of Mary’s budget line is -1/3. b. Mary is willing to give up 3 units of good Y for one unit of good X. c.
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This note was uploaded on 02/27/2012 for the course ECON 251 taught by Professor Blanchard during the Fall '08 term at Purdue University-West Lafayette.

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Exam 2 Pink Econ 25100 Fall 2010 - ECON 251 Exam 2 Pink...

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