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CSUN ECON 310 - Exam 1

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ECON 310 – Spring 2006 (ticket #16386) Name: ______________________ Exam 1 - Version U Multiple Choice: (circle the letter of the best response; 4 points each) 1) The Income Elasticity of Demand for “product X” is estimated to be 27.,=IXε. Based upon this value, we can infer that a. “product Y” is a complement to “product X.” b. “product Y” is a substitute for “product X.” c. “product X” is a normal good. d. “product X” is an inferior good. e. More than one of the above answers is correct. 2) Rory’s marginal utility for pizza a. provides a measure of the degree to which he would substitute tacos for pizza. b. provides a measure of how his utility changes as he consumes more pizza (with consumption of all other goods fixed). c. must be negative if his preferences are “transitive.” d. must be equal to zero if his preferences are “monotonic.” e. None of the above answers are correct. 3) Consumer’s Surplus a. provides a measure of “benefits from consumption” for a consumer. b. is the difference between the maximum amount a consumer is willing to pay for a good and the amount actually paid. c. should increase if prices decreases (with all other factors fixed). d. should decrease if prices increases (with all other factors fixed). e. All of the above answers are correct. 4) Consider a market in which demand is given by the function ppD 3100)( −= and supply is given by the function ppS 2)(=. In equilibrium a. 20 units will be traded. b. 40 units will be traded. c. trade will take place at a price of $40 per unit. d. there is “excess supply.” e. More than one of the above answers is correct. 5) Michelle has income of 100=I, which she devotes to consumption of 1x and 2x . Each unit of 1x costs 21=p ; each unit of 2x costs 52=p . If her income were to increase to 125=I (with prices fixed), then her budget line would a. shift outward. b. shift inward. c. become steeper. d. become flatter. e. None of the above answers is necessarily correct.6) The “Price Consumption Curve (for commodity one)” directly illustrates a. the relation between the price of commodity one and the quantity of commodity one purchased, all other factors fixed. b. the utility maximizing combinations of commodity one and commodity two as income is varied, all other factors fixed. c. the utility maximizing combinations of commodity one and commodity two as the price of commodity one is varied, all other factors fixed. d. the relation between price of good one and Consumer’s Surplus. e. None of the above answers are correct. 7) Which of the following is NOT one of the “three basic analytical tools” (or “three key analytical tools”) upon which nearly all microeconomic analysis relies? a. Indirect Utility. b. Comparative Statics. c. Equilibrium Analysis. d. Constrained Optimization. e. More than one of the above is NOT one of the “three basic analytical tools.” 8) Suppose the price of good one decreases, with income and all other prices fixed. The Equivalent Variation in Income a. must always be exactly equal to the change in Consumer’s Surplus brought about by the price decrease. b. specifies the amount of additional income that the consumer would have to be given in place of the price decrease, so that she would be just as well off as she is after the price decrease with her actual income. c. will be negative for an inferior good. d. is equal to the summation of the distance below the demand curve but above price paid over all units of the good which are consumed. e. More than one of the above answers is correct. 9) Consider the market for “Los Angeles Lakers basketball jerseys.” Between 2004 and 2006 equilibrium price and equilibrium quantity in this market both increased. Which of the following are possible explanations of this observed change in equilibrium? a. “A decrease in Demand, with no change in Supply.” b. “A simultaneous increase in Demand and decrease in Supply.” c. “A simultaneous increase in both Demand and Supply.” d. “An increase in Supply, with no change in Demand.” e. More than one of the above explanations could be correct. 10) Jason likes both =1x(peanut butter) and =2x(grape jelly). He always gets the same additional satisfaction from “3 more ounces of peanut butter” as he does from “one more ounce of grape jelly.” Which of the following utility functions is consistent with these preferences? a. () { }21213,min, xxxxU = b. ()21213, xxxxU = . c. ()21213, xxxxU += d. ()21213, xxxxU += e. Any of the above utility functions is consistent with the stated preferences.For questions 11 through 13, consider a consumer with preferences consistent with the indifference curves illustrated below. The budget line of this consumer is also illustrated. 11) This consumer considers the bundle )2,35(),(21=xx to be a. exactly as desirable as the bundle )4,15(),(21=xx. b. exactly twice as good as the bundle )2,15(),(21=xx . c. exactly half as good as the bundle )4,35(),(21=xx . d. All of the above statements are correct. e. None of the above are correct. 12) If this consumer were to purchase 42=x , how many units of good one could she purchase when spending all of her income? a. 451=x . b. 351=x. c. 251=x . d. 151=x . e. More than 151=x, less than 351=x, but without additional information we cannot determine the exact maximum level of consumption of good one. 13) In order to maximize utility, this consumer should purchase the bundle a. )4,35(=X . b. )0,45(=X . c. )2,15(=X . d. )4,15(=X . e. )6,15(=X . 2x 1x 0 0 45 9 25=u 2 4 6 15 35 100=u 50=uFor questions 14 through 16, consider a firm that produces output by using two inputs, (labor)=L and (capital)=K. The “ 200=q isoquant” and the “ qq= isoquant” are illustrated below. 14) Based upon the shape of the isoquants above, it appears as if a. KLMRTS, is constant. b. KLMRTS, is diminishing. c. 0>LMP , but 0<KMP . d. 0>KMP , but 0<LMP . e. None of the above answers are correct. 15) Which of the following production functions is possibly consistent with the isoquants illustrated above? a. LLKLF 10),(211−= . b. LKKLF41),( = c. }10,5min{),( KLKLF = . d. KLKLF 62),( += . e. None of these functions is possibly consistent with the isoquants illustrated above.


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