17. If a good is normal, then the Engel curve A. Slopes upward B. Slopes downward C. Is vertical D. Is horizontal

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1 Sample Exam 1 1. Suppose that when the price of hot dogs is $2 per package, there is a demand for 10,000 bags of hot dog buns. When the price of hot dogs is $3 per package, the demand for hot dog buns falls to 8,000 bags. What is the cross-price elasticity of demand for hot dogs and hot dog buns? A..8 B. -.8 C. 2 D If the demand for a good increases a the same time the supply of the good decreases, what happens to equilibrium price and quantity? A. Equilibrium quantity increases, but the effect on equilibrium price is ambiguous B. Equilibrium quantity decreases, but the effect on equilibrium price is ambiguous C. Equilibrium price increases, but the effect on equilibrium quantity is ambiguous D. Equilibrium price decreases, but the effect on equilibrium quantity is ambiguous 3. Suppose the demand function for cable TV service is given by Q CTV = xP CTV xM + 0.3xP STV, where Q CTV is the quantity of cable TV demanded (thousands of households), P CTV is the price of cable TV, M is income and P STV is the price of satellite TV service. If consumers' income is $50,000 and the price of satellite TV service is $90, then the demand curve for cable TV would be given by A. Q CTV = xP CTV B. Q CTV = xP CTV C. Q CTV = xP CTV xM + 0.3xP STV D. Q CTV = xP CTV 4. According to Table 2.1, which presents hypothetical data on price elasticity of demand, which of the following is true about lamb? A. Each 2.7% change in the price of lamb causes a 1% change in the quantity demanded of lamb B. The demand for lamb is inelastic C. Each 1% change in the price of lamb causes a 2.7% change in the quantity demanded of lamb D. Lamb is a normal good

2 5. A change in the quantity supplied of a good is represented as a A. Movement along a supply curve B. Shift of a supply curve C. Movement along the supply function D. Shift of the supply function 6. Suppose that you can hire a worker in one-hour increments. For working up to 4 hours, the total benefit of the worker (in dollars) is B(0) = 0, B(1) = 25, B(2) = 45, B(3) = 60 and B(4) = 70. What is the marginal benefit of the second hour of the worker's time? A. $10 B. $20 C. $25 D. There is not enough information to answer the question 7. Refer to Table 3.2, which shows some costs and benefits of having your car repaired. Suppose you use your car to deliver pizzas, for which you earn $10 per hour. If your mechanic lowers the amount she charges by $50, what happens to your best choice of hours to spend on car repairs? A. It increases by 1 hour B. It decreases by 1 hour C. It doesn't change D. It decreases by 2 hours 8. Suppose that you can hire your mechanic for up to six hours. The total benefit and total cost functions are B(H) = 300H - 20H 2 and C(H) = 55H + 60H 2. The corresponding formulas for marginal benefit and marginal cost are MB(H) = H and MC(H) = H. How many hours should you hire your mechanic? A Hours B Hours C. 6 Hours D. 0 Hours

3 9. "If the cost of college tuition goes up, then fewer people should go to college." This statement A. Is always true B. Is true only for students for whom the cost of college would exceed the benefits of attending college C. Would never be true D. Ignores the opportunity costs of attending college 10. According to the No Marginal Improvement Principle for Boundary Choices, if X* is a best choice, then A. If only a marginal increase in the activity level is possible, the MB <= MC at X* B. If only a marginal increase in the activity level is possible, the MB >= MC at X* C. If only a marginal decrease in the activity level is possible, the MB <= MC at X* D. MB = MC at X* 11. Figure 3.2 shows the total cost and total benefit curves for a professional guitarist. If the guitarist is currently practicing 7 hours per day, then A. They should practice more because net benefits would increase B. They should practice less because net benefits would decrease C. They should practice less because net benefits would increase D. They should practice more because net benefits would decrease

4 12. Frieda enjoys cooking and baking. Her utility function is U(C, B) = 6C + 3B, where C is the number of hours she spends cooking and B is the hours she spends baking. What is Frieda's MRS of cooking with baking? A. 1/6 B. 2 C. 6 D. Cannot be determined from the given information 13. Which of the following is NOT a reason why economists are interested in understanding consumer behavior? A. Economists are often called upon to evaluate public policies that impact the well-being of consumers B. It is important for businesses to be able to accurately predict consumers' choices C. To understand the conditions under which trade will take place D. To predict the value of a company's stock 14. A marginal rate of substitution formula tells us A. The rate at which the consumer is willing to exchange one good for another, given the level of utility B. The rate at which the consumer is willing to exchange one good for another, given the amounts consumed C. The rate at which the consumer is willing to exchange one good for another, given the consumer's income D. The rate at which the consumer is willing to exchange one good for another, given the prices of the goods 15. Suppose Bart's MRS for sodas with chips is 6 bags of chips per soda. Also assume that Lisa's MRS for sodas with chips is 8 bags of chips per soda. Assuming that these rates of substitution don't depend on the amounts consumed, which of the following trades would make Bart and Lisa better off? A. Bart gives Lisa 9 bags of chips in exchange for a soda B. Bart gives Lisa 7 bags of chips in exchange for a soda C. Bart gives Lisa 6 bags of chips in exchange for a soda D. No mutually beneficial trade can occur here 16. Suppose Frank is completely indifferent between drinking Coke or drinking Pepsi. Then Frank's indifference curves for Coke and Pepsi would be A. Linear B. L-shaped C. Convex D. Positively sloped

5 17. If a good is normal, then the Engel curve A. Slopes upward B. Slopes downward C. Is vertical D. Is horizontal 18. When the government provides food stamps to low-income households, A. The household definitely purchases more food B. The household purchases less food C. Purchases of food may increase or decrease D. The household's utility is greater than if they received cash aid 19. Which of the following statements is true? A. Corner solutions always satisfy the tangency condition B. Interior solutions may or may not satisfy the tangency condition C. Interior solutions always satisfy the tangency condition D. Whenever the consumer purchases good X but not good Y, then MRS XY <= P X /P Y at the chosen bundle 20. If a change in the price of one good does not cause a shift in the demand curve of another good, then the two goods are A. Substitutes B. Complements C. Normal D. Not related 21. An increase in a consumer's income will cause the budget line to A. Shift outward B. Shift inward C. Become steeper D. Become flatter 22. When the price elasticity of demand is large in magnitude, a increase in the price leads to a reduction in the amount purchased and the demand curve is relatively. A. Slight; substantial; steep B. Slight; slight; flat C. Large; slight; steep D. Slight; substantial; flat

6 Sample Exam 1 2 Key 1. (p. 25) B 2. (p. 12) C 3. (p. 3) B 4. (p. 16) C 5. (p. 5) A 6. (p. 7) B 7. (p. 2) C 8. (p. 12) A 9. (p. 3) B 10. (p. 18) A 11. (p. 3) C 12. (p. 23) B 13. (p. 1) D 14. (p. 16) B 15. (p. 17) D 16. (p. 18) A 17. (p. 23) A 18. (p. 12) C 19. (p. 8) C 20. (p. 19) D 21. (p. 4) A 22. (p. 17) D