ECO 312 exam one- problems and homework answers
Identify the truthfulness of the following statements. I. Diminishing marginal utility and increasing total utility are incompatible with each other. II. When marginal utility is negative, total utility is decreasing.
I is false and II is true
an endogenous variable is
a variable determined within the economic system being studied
Suppose that a consumer has the utility function U = 5x + 7y. If x is measured on the horizontal axis. what will the slope be?
the indifference curves will be straight lines with slopes -5/7
suppose that demand is linear Qd= 100 - 12P. at P=5 and Q = 40, the price elasticity of demand is: A. -3/2 B. -2/3 C. -2 D. -12
A. -3/2
let the price elasticity of demand for a soft drink be -2. in the year 2005, the per capita consumption of soft drinks was about 500 cans per person, and the average price was $1 per can. if we suppose that demand for the soft drink is liner, Qd= a - bP, where a and b are constants, Qd is quantity demanded and P is price, an estimate of the demand equation could be: A. Qd= 1500 - 1000P B. Qd= 1500 - 2P C. Qd= 1000-1500P D. Qd= 100- 2P
A. Qd= 1500 - 1000P
another term for equilibrium would be A. a point of stability B. a point of scarcity C. a point of infinite supply D. a point of insatiable wants
A. a point of stability
a manager cares about the number of workers under her command. she can choose between two projects: project A allows her to hire workers who must be paid Wa each, project B allows her to hire workers who must be paid Wb each. She is allocated a budget of $100 that she can allocate to either project. Which of the following accurately represents the managers problems? A. the objective function is Max (WaN +WbN), where N is the number of workers and Wi is the wage of the worker on project i (I=A+B); the constraint is Wa +Wb <= $100. B. the objective function is Max (Na + Nb), where Ni is the number or workers on the project i (i= A,B); the constraint is WaNA + WbNb <= $100, where Wi is the wage on project i (i= A,B) C. the objective function is Max (N), where N is the number of workers under the manager's control; the constraint is Wa + Wb <= $100, where Wi is the wage on project i (i= A,B)
B. the objective function is Max (Na + Nb), where Ni is the number or workers on the project i (i= A,B); the constraint is WaNA + WbNb <= $100, where Wi is the wage on project i (i= A,B)
suppose that the supply of apples can be represented by the following equation: Qs= 2P + 500. further suppose that the demand for apples can be represented by the following equation: Qd = 900 - 3P. which of the following is the equilibrium price in the market for apples? A. 100 B. 50 C. 80 D. 10
C. 80
Consider the utility function U = min (5x, 7y). The indifference curves for this utility function will be
L-shaped
if the own-price elasticity of demand for Starbucks Coffee is Ed = -0.5, then a price increase will cause total revenue to: stay the same, increase, or decrease
increase. its inelastic so if P increases, then TR increases. if the elasticity is > -1, then its an inelastic demand. if the elasticity is < -1, then its an elastic demand. if the elasticity is = -1, then its unit elastic
examines how endogenous variables change as exogenous factors change
comparative statics
exogenous vs endogenous
endogenous will always be determined within the model.
consider the following demand in the market for coffee in GR: Qd= 90 - 2P. If the equilibrium price and quantity are: P=10, Qd=80, what is true about the own-price elasticity of demand?will it be elastic, inelastic, or unit-elastic
it is inelastic. the change in Q / change in P is -2, you would multiply this by the P/Q to get -.25. -.25 is greater than -1 so, it would be inelastic.
If I prefer steak to burritos, burritos to pasta and pasta to steak:
my preferences violate transitivity assumption
assuming we have a linear demand curve, is the ELASTICITY of demand the same as the SLOPE of the demand curve? (yes or no)
no, they are not the same. the elasticity of demand is Ed= (change in Q/change in P) x (P/Q). the slope= the change in Q/change in P
economics is the study of
the allocation scarce resources to unlimited wants
microeconomic examines
the economic behavior of individual economic decision units
Suppose the marginal rate of substitution of x for y is given by MRSx, y = 5y/7x. what will the curve look like? Cobb-douglas, perfect subs, perfect complements
the indifference curve will be bowed towards the origin (like Cobb-Douglas)
Suppose that a consumer has utility function U= Ax^2 y^2 with MUx = 2Ay^2 x and MUy = 2Ax^2 y. Which of the following statements is FALSE?
the indifference curves are bowed away from the origin
the cross price elasticity of demand for good X with respect to the price of good Y is: Ecross= 3. what does this tell you about the relationship between good X and Y?
they are substitute goods. if Ecross > 0, it implies that the two goods are substitutes. If Ecross is <0, it implies that the two goods are compliments.
The assumption that preferences are complete requires the consumer
to rank any 2 baskets. that is, for them to be able to state that one of the following is true regarding preferences: A is preferred to B, or B is preferred to A, or A and B are equally preferred.
If indifference curves are upward sloping (towards the north-east), this violates the assumption that preferences
violates the assumption that more is better
