ECON 310 Fall 2005 Exam 1 Version B Name Multiple Choice circle the letter of the best response 4 points each 1 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 Comparative Statics b Equilibrium Analysis c Opportunity Cost d Constrained Optimization e More than one of the above is NOT one of the three basic analytical tools 2 Normative Analysis a typically focuses on issues of social welfare b attempts to answer prescriptive questions such as What should be done c often involves value judgments d differs from Positive Analysis e All of the above answers are correct 3 Consider the market for Los Angeles Angels of Anaheim baseball hats Between 2002 and 2005 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 All of the above answers are correct e Exactly two and only two of the above answers are correct 4 Consider a market in which Demand is given by D p 240 8 p for 0 p 30 and Supply is given by S p 2 p 10 for p 5 In this market a Inverse demand is given by PD q 240 8q b Equilibrium quantity is q 40 c Equilibrium price is p 40 d Demand is unit elastic at the equilibrium price e More than one of the above answers is correct 5 Consider the market for Mighty Ducks of Anaheim hockey jerseys Suppose there is a simultaneous increase in Supply and decrease in Demand in this market Which of the following best describes the resulting change in equilibrium price and quantity a Equilibrium price and quantity must both decrease b Equilibrium price and quantity must both increase c Equilibrium price must decrease equilibrium quantity must increase d Equilibrium price must decrease equilibrium quantity could increase decrease or remain the same e Equilibrium price must increase equilibrium quantity could increase decrease or remain the same 6 The Cross Price Elasticity of Demand for Coke with respect to the Price of Pepsi is 52 This value implies that a Coke is a normal good b Pepsi is a normal good c the demand for Coke satisfies the Law of Demand d An increase in the price of Pepsi will lead to a decrease in demand for Coke e A decrease in the price of Pepsi will lead to a decrease in demand for Coke 7 Suppose that a 5 increase in the price of cars reduces quantity of cars demanded by 10 This suggests that a Income Elasticity of Demand for cars is positive b Price Elasticity of Demand for cars is 510 2 c Price Elasticity of Demand for cars is 510 12 d the Law of Supply is violated in the market for cars e More than one of the above answers is correct 8 Suppose that demand for paper is given by the inverse function PD q 20 15 q It follows that demand is unit elastic a only at a price of p 20 15 100 b only at a price of p 12 20 10 c only at a price of p 15 20 4 d only at a price of p 12 15 101 e at all prices 9 Wayne s preferences are summarized by the utility function U x1 x2 2 x1 x2 As a result his marginal utility functions are MU 1 1 x1 and MU 2 1 It follows that a he realizes the same level of satisfaction from x1 x2 9 2 as from x1 x2 1 6 b MRS1 2 takes on the same value at x1 x2 4 2 as at x1 x2 4 8 c d e his preferences are convex All of the above answers are correct Exactly two and only two of the above answers are correct 10 Jason spends his entire income on x1 t shirts and x 2 12 packs of Mountain Dew At per unit prices of p1 15 and p 2 4 he can afford the bundle A 2 10 but cannot afford the bundle B 5 1 From here we can infer that a he could also afford the bundle C 3 6 b he could not afford the bundle D 4 5 c if he spent his entire income on Mountain Dew he could afford to purchase more than 17 12 packs of Mountain Dew d even if he spent his entire income on Mountain Dew he could not afford to purchase 20 12 packs of Mountain Dew e All of the above answers are correct 11 Consider a market in which both the Law of Demand and Law of Supply hold and further D 8 40 and S 8 20 It must be that a there is excess supply at a price of p 10 b there is excess demand at a price of p 5 c the equilibrium price is less than p 8 d in equilibrium exactly q 30 are traded e None of the above answers are correct 12 James likes both x1 peanut butter and x 2 grape jelly He always gets the same additional satisfaction from 2 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 U x1 x 2 2 x1 x 2 a b U x1 x 2 min x1 2 x 2 c d e U x1 x 2 x1 2 x 2 U x1 x 2 x1 2 x 2 Any of the above utility functions is consistent with the stated preferences For questions 13 through 15 consider the following scenario Qihong has income of I which he uses to purchase x1 Playstation 2 games and x 2 Pizzas Each unit of x1 costs p1 each unit of x 2 costs p 2 13 If I 150 p1 40 and p 2 10 a he can afford to purchase x1 2 and x 2 7 but would not have any money left over to spend on other goods b he can afford to purchase x1 1 and x 2 11 and would still have some money left over to spend on other goods c he can afford to purchase x1 3 and x 2 2 but would not have any money left over to spend on other goods d he cannot afford to purchase x1 3 and x2 4 e More than one of the above answers is correct 14 Suppose Qihong is spending all of his income on Playstation 2 games and Pizzas In order to increase his consumption of Playstation 2 Games by one unit he must decrease his consumption of Pizzas by p1 units a b c d e 15 I units p1 p2 units p1 p1 units p 2 None of the above answers are correct Focusing on Qihong s budget …