INTER MICRO
Econ 2200
Midterm #1 fall 2011
Section I
Answer Four of the following six questions. Each question is worth 5 points.
a. What is the difference between the Income Effect and a Change in Income?
b. True or False: The slope of the budget line represents the rate at which the consumer is willing to trade one good for another at any given bundle. Explain.
c. An Engel curve can be both positively and negatively sloped, why does this happen?
d. What do we mean by the term “Consumer Surplus”?
e. Han gets utility from consuming soda. He neither likes nor dislikes water. Place water on the horizontal axis and soda on the vertical axis. Draw a set of Han’s IC curves.
f.
Ralph and Rebecca are talking about how much they like going to the gym and how much they like going to movies. A session at the gym costs the same as the cost to see a movie.
Ralph says, that for his current consumption of gym sessions and movies, he values one more movie twice as much as he values one more session at the gym. Rebecca is studying economics, and she tells him that he cannot be choosing at his optimal bundle given his preferences exhibit a diminishing marginal rate of substitution. Is Rebecca correct?
Explain.
Section II
Answer Three of the following four questions. Show all your calculations. Each question is worth 20 points. Answer only three questions.
Q1. The market for fresh oranges is characterized by the following:
Qd = 40 – 2.5Po + 0.1Y and a supply function of the form QS = 1.5P – 8. Where Po is the price of oranges and quantity is measured in bushels.
a. Calculate the equilibrium price and quantity of oranges when Y = $200.
b. Draw a graph using the demand and supply curves given and show the equilibrium outcome. c. Calculate the elasticity of demand at equilibrium. Also calculate income elasticity. Interpret your results for both elasticities.
d. What would be the consequence for the market if the government imposed a minimum price of $20 per
Midterm #1 fall 2011
Section I
Answer Four of the following six questions. Each question is worth 5 points.
a. What is the difference between the Income Effect and a Change in Income?
b. True or False: The slope of the budget line represents the rate at which the consumer is willing to trade one good for another at any given bundle. Explain.
c. An Engel curve can be both positively and negatively sloped, why does this happen?
d. What do we mean by the term “Consumer Surplus”?
e. Han gets utility from consuming soda. He neither likes nor dislikes water. Place water on the horizontal axis and soda on the vertical axis. Draw a set of Han’s IC curves.
f.
Ralph and Rebecca are talking about how much they like going to the gym and how much they like going to movies. A session at the gym costs the same as the cost to see a movie.
Ralph says, that for his current consumption of gym sessions and movies, he values one more movie twice as much as he values one more session at the gym. Rebecca is studying economics, and she tells him that he cannot be choosing at his optimal bundle given his preferences exhibit a diminishing marginal rate of substitution. Is Rebecca correct?
Explain.
Section II
Answer Three of the following four questions. Show all your calculations. Each question is worth 20 points. Answer only three questions.
Q1. The market for fresh oranges is characterized by the following:
Qd = 40 – 2.5Po + 0.1Y and a supply function of the form QS = 1.5P – 8. Where Po is the price of oranges and quantity is measured in bushels.
a. Calculate the equilibrium price and quantity of oranges when Y = $200.
b. Draw a graph using the demand and supply curves given and show the equilibrium outcome. c. Calculate the elasticity of demand at equilibrium. Also calculate income elasticity. Interpret your results for both elasticities.
d. What would be the consequence for the market if the government imposed a minimum price of $20 per