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exam12000final - 14.03 Exam 1 Fall 2000 DO NOT OPEN THIS...

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14.03 Exam 1 Fall 2000 DO NOT OPEN THIS EXAM UNTIL TIME IS ANNOUNCED! There are 80 points on this exam and you have 80 minutes to complete it. The points can be used as a guideline for how many minutes to spend on each problem. If you are uncertain of the answer to a problem, move on to the next problem and return to the question at the end of the exam, time permitting. There are three parts to the exam : Part I is TRUE-FALSE-UNCERTAIN AND WHY. Part II is short answer. Part III is short answer with multiple parts to each question. For all questions, you must explain your answers with one or two sentences or graphs. Answers without explanations will receive zero credit. NOTE: When we refer to “well-behaved” indifference curves, we mean the following properties: convex, diminishing MRS, differentiable. In other words, the standard indifference curves drawn on the blackboard.
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14.03 Exam 1 Fall 2000 Part I: 5 points each True, False, or Uncertain AND WHY. You must explain your answer with one or two sentences and/or graphs. Answers without justification receive zero points. 5 points each. 1. A consumer with convex, ‘well-behaved’ indifference curves is indifferent between two bundles of X and Y: (4,1) and (2,9). She therefore prefers the bundle (3,8) to either of the first two. 2. If employers have monopsony power in the labor market in Hawaii, lowering the minimum wage in Hawaii will reduce employment. 3. Ivan spends his entire income on two goods. One of them is a Giffen good. If the price of the Giffen good rises and the price of the other good remains constant, his demand for the other good must fall. 4. The “new goods bias” is unlikely to be an important element of the bias in the Consumer Price Index, since very few consumers purchase new goods at the initially high prices at which they are offered. [Your answer should define the new goods bias and be specific about
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