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Prelim 1 Solutions

Prelim 1 Solutions - Economics 3010 Fall 2010 Professor...

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Economics 3010 Professor Daniel Benjamin Fall 2010 Cornell University EXAM #1 SOLUTIONS I. True / False / Uncertain Your grade on these questions will depend on the generality, completeness, and persuasiveness of your explanation, not simply on whether the “true” or “false” is correct. The objective here is to provide an answer that convinces; not merely an answer that is “not wrong.” At the very least, make sure that you give clear definitions for the relevant economic terms used in the question. Please use a separate blue book for this section. (5 points) 1) When economists say that Policy A is better for society than Policy B, they are engaged in positive economics. False. 1.5 points : Positive economics is the study of what is , of how the economy works. 1.5 points : Normative economics is the study of what should be , of what is the best policy or institutional arrangement. 2 points : When economists say that Policy A is better for society than Policy B, they are engaged in normative economics. (5 points) 2) A linear demand curve has the same own price elasticity of demand at each point. False. 1 point : A linear demand curve has the form Q d = a bP . 1 point : It’s elasticity of demand at a point is given by ( Q d / P ) ( P / Q d )… 1 point : …which equals b ( P / Q d )… 1 point : …which equals b ( P / ( a bP ))… 1 point : …which varies with P .
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