ECON 310 – Spring 2006 (ticket #16388) Name: ______________________ Exam 1 - Version M Multiple Choice: (circle the letter of the best response; 4 points each) 1) Consider a market in which demand is given by the function ppD 2100)( −=. In this market, demand is a. elastic at all possible prices. b. inelastic at all possible prices. c. elastic at all prices above 25=p . d. inelastic at all prices above 25=p . e. None of the above answers are correct. 2) Consider a consumer with an Engel curve for commodity one that is negatively sloped at the current level of income. It follows that a. commodity one is a normal good. b. commodity one is an inferior good. c. the “Law of Demand” is violated for commodity one. d. the consumer’s Income Consumption curve must be positively sloped. e. More than one of the above answers is correct. 3) Consider the market for lemons. Suppose demand in this market were to increase, with no change in supply. This change would result in a. an increase in both equilibrium price and equilibrium quantity. b. an increase in equilibrium price but a decrease in equilibrium quantity. c. a decrease in both equilibrium price and equilibrium quantity. d. an increase in equilibrium price but potentially an increase, decrease, or no change in equilibrium quantity. e. None of the above answers are correct. 4) Paula’s utility is given by 2132)( xxXU+=. It follows that a. her indifference curves are positively sloped. b. 121== MUMU. c. she considers the two goods to be “perfect complements” to each other. d. the bundle )6,1(=A is preferred to the bundle )2,5(=B (that is, BA f ). e. More than one of the above answers is correct. 5) The value of Indirect Utility should a. increase if the price of good one were to decrease. b. decrease if the price of good two were to increase. c. increase if income were to increase. d. decrease if income were to decrease. e. All of the above answers are correct.6) Retief is indifferent between )16,2(=A and )4,6(=B (that is, BA~). Which of the following must be true? a. “His utility function is 21)( xxXU+=.” b. “If his preferences are monotonic, then he prefers the bundle )2,36(=C to the bundle )4,6(=B (that is, CB p ).” c. “If his preferences are transitive, then the bundle )8,8(=D must be more desirable than the bundle )4,6(=B but less desirable than the bundle )16,2(=A (that is, ADBpp).” d. “If his preferences are convex, then he prefers the bundle )10,4(=E to the bundle )16,2(=A (that is, EA p ).” e. More than one of the above statements must be true. 7) Normative Analysis a. attempts to answer prescriptive questions (such as “What should be done…?”) b. often involves “value judgments.” c. typically focuses on issues of social welfare. d. differs from Positive Analysis. e. All of the above answers are correct. 8) By definition, good one is a Giffen good if a. an increase in income leads to increased consumption of good one. b. an increase in 1p leads to increased consumption of good one. c. a decrease in 2p leads to increased consumption of good one. d. the optimal level of consumption changes as a result of a change in preferences. e. income elasticity of demand is equal to zero. 9) The Cross-Price Elasticity of Demand for Coke with respect to the Price of Pepsi is (.48). This value implies that: a. A decrease in the price of Pepsi will lead to a decrease in demand for Coke. b. An increase in the price of Pepsi will lead to a decrease in demand for Coke. c. Coke is a normal good. d. Pepsi is a normal good. e. the demand for Coke satisfies the Law of Demand. 10) Consider a market in which both the Law of Demand and Law of Supply hold, and further 20)8( =D and 50)8(=S . It must be that: a. the equilibrium price is greater than 8=p . b. there is “excess supply” at a price of 12=p . c. there is “excess demand” at a price of 6=p . d. in equilibrium exactly 35*=q are traded. e. More than one of the above answers is correct.For questions 11 through 14, consider a firm that produces output according to the production function LKKLF 40),( = . For this firm, LKMPL20= and KLMPK20= . 11) Hiring 40 units of labor and 10 units of capital a. would produce 10204010= units of output. b. would produce 40201040= units of output. c. would produce 800)10)(40(40 = units of output. d. would produce less output than hiring 15 units of labor and 20 units of capital. e. More than one of the above answers is correct. 12) For this firm, the Marginal Product of Labor is a. “Increasing,” since LKKLF 40),( = becomes larger as more labor is hired. b. “Diminishing,” since LKMPL20= becomes smaller as more labor is hired. c. “Increasing,” since KLMPK20= becomes larger as more labor is hired. d. “Constant,” since 400))((=KLMPMP , which does not depend upon the amount of labor hired. e. positive for low levels of labor, but negative for high levels of labor. 13) The Marginal Rate of Technical Substitution a. is “Constant,” since it does not depend upon the choice of ),( KL. b. is “Diminishing,” since it gets closer to zero as we move along any isoquant by way of decreasing K and increasing L. c. is given by LKKLF 40),( =. d. is given by LKMPMPKL= . e. More than one of the above answers is correct. 14) This production process exhibits a. Decreasing Returns to Scale, since ),(),( KLSFSKSLF< for any 1>S. b. Constant Returns to Scale, since ),(),( KLSFSKSLF= for any 1>S . c. Increasing Returns to Scale, since ),(),( KLSFSKSLF > for any 1>S . d. Increasing Returns to Scale, since the production function is of the form baKALKLF =),( (that is, a Cobb-Douglas production function) with 140 >=A. e. More than one of the above answers is correct.15) Consider a market in which demand is given by the linear function ppD 4200)( −= . If price were to decrease from 40=p to 30=p , Consumers’ Surplus would a. remain constant at a value of 5,000. b. increase by 200. c. increase by 400. d. increase by 600. e. increase by 800. 16) The income elasticity of demand for “Fresh Peas” is 05.1=ε. This value suggests that a. “Fresh Peas” are a substitute for “Green Beans,” since 105.1 >=ε. b. “Butter” is a complement to “Fresh Peas,” since 005.1 >=ε.