ECON 361 practice and regular Exam 1 Conceptual Questions

question

a graph that plots the consumers level of consumption of a good against the consumers income is called a(n)

answer

Engel Curve

question

which of the following would cause an unambiguous decrease in the equilibrium price in the market?

answer

an increase in supply and decrease in demand

question

which of the following goods would we expect to have the most inelastic demand:

answer

toothpicks

question

For a given utility function U(x,y)=xy, what happens to the indifference curve U(x,y)=100 as the income increases from I=10 to I=20?

answer

nothing

question

an endogenous variable in a the producer's cost minimization problem is:

answer

the quantity of inputs

question

suppose the production function 3K^1/3L^2/3. what is the elasticity of demand?

answer

question

suppose that the demand for widgets Qw=100-3Pw+4Pg where Pg is the price of gadgets and Pw is the price of widgets. which of the following is true?

answer

widgets and gadgets are demand substitutes

question

Farmer John owns A acres of farm and is trying to maximize profits (π) by looking at the price of corn (PC) and the price of soybeans (PS) choosing how many acres of corn (C) to plant and how many acres of soybeans (S) to plant. Identify the truthfulness of the following statements:

answer

Both I and II are false

question

If a consumer's preferences over goods x and y are complete, transitive and satisfy the "more is better" assumption, what is true?

answer

the consumers preference can be represented with a utility function

question

Suppose when the price of good x decreases, the income effect is negative. What can we say?

answer

good x is an inferior good

question

Suppose a firm is producing sandals using labor L and capital K. The firm faces decreasing returns to scale. When they use 3 units of labor and 4 units of capital the produce Q = 100. If they use 9 units of labor and 12 units of capital which of the following could be a possible level of output?

answer

Q = 250

question

What happens to the Q = 100 isoquant after technological progress has occured?

answer

shift inward toward the region

question

Suppose a firm is currently using L = 6 units of labor and that APL = 4 and MPL = 2. What can we
say about the average product at L = 6?

answer

average product is decreasing

question

Suppose that you have a graph that has good x on the x-axis and good y on the y-axis. What happens to the budget line as the price of good y increases?

answer

Moves inward along the y-axis, doesn't move on x-axis

question

Suppose the budget line is BL : x + y = 8 and suppose the tangency condition is satisfied at basket (x, y) = (3, 5). Identify the truthfulness of the following statements:I. Basket (x, y) = (3, 5) is the consumer's utility maximizing basket.
II. The slope of the indifference curve at point (x, y) = (3, 5) is equal to the slope of the budget line.

answer

I is false; II is true.

question

The marginal rate of substitution MRSx,y(x,y) is equal to

answer

The negative slope of the indifference curve at point (x, y).

question

Suppose the the demand curve for good x is given by x = 1/2Px. what is the income elasticity of demand whenI=10 and Px =2?

answer

question

Which of the following statements represents normative analysis?

answer

Farmers should be subsidized to produce corn for ethanol as it will lead to a reduced dependence on foreign oil.

question

Suppose the demand curve is QD = 135 − 5P . Identify the truthfulness of the following statements:
I. There is at least one point (Q, P ) on the demand curve where the price elasticity of demand is equal to εP,Q = −20.
II. There is at least one point (Q, P ) on the demand curve where the price elasticity of demand is equal to εP,Q = −1.

answer

Both I and II are true

question

Suppose that Philip is currently spending all of his income on 5 units of food (F) and 3 units clothing (C). At his current consumption he has marginal utilities MUF = 1 and MUC = 2 and he faces prices PF = 1 and PC = 3. What can he do to increase his utility?

answer

Consume more F and less C.

question

which of the following statements is a comparative statics statement:

answer

when the demand shifts from D1 to D2, the price shifts from P1 to P2

question

Identify the truthfulness of the following statements.
Statement I. When the marginal product of labor is falling, the average product of labor is falling.
Statement II. When the marginal product curve lies above the average product curve, then average product is rising

answer

I is false, II is true

question

An endogenous variable in a consumers choice problem is

answer

a basket of goods

question

he marginal rate of technical substitution MRTSL,K(L,K) is equal to

answer

the negative slope of the isoquant at point (L,K)

question

suppose that for all the combinations of good z and good y, the marginal rate of substitution of good x for god y is equal to twenty, MRSx,y = 20. what can we say about the consumer's preference for good x and good y?

answer

the consumer views good x and good y as perfect substitutes

question

Suppose the production function is Q = 3K + L. What is the elasticity of substitution?

answer

infinity

question

Suppose a firm faces production function Q1 = KL and Q2 = KL + K, what can we say?

answer

There has been labor-saving technological change.

question

suppose the consumer has a Cobb-Douglass utility function, the budget line is BL: x +y = 8, and suppose the tangency condition is satisfied at basket (x,y)= (3,5). identify the truthfulness of the following statements:
I. Basket (x, y) = (3, 5) is the consumer's utility maximizing basket.
II. The slope of the indifference curve at point (x, y) = (3, 5) is equal to the slope of the budget line.

answer

both I and II are true

question

Which of the following utility functions has diminishing marginal rate of substitution

answer

U(x,y)=x1/2y.

question

suppose that the customer faces a utility function U(x,y)=2x^2 +y^2 , and faces Pz=1, Py=1 and I=12. what is the optimal basket?

answer

none of the other baskets are the optimal basket

question

If indifference curves are upward sloping, this violates the assumption that preferences:

answer

require that more to be better

question

what preference indicated with these indifference curves:

answer

I like good y but don't care about good x.

question

suppose a firm is producing sandals using labor L and capital K. the firm faces constant returns to scale. when they use 3 units of labor and 4 units of capital to produce Q=100. if they use 12 units of labor and 16 units of capital which of the following could be a possible level of output.

answer

Q=400

question

consider a market with only two consumers. the consumer 1 has demand curve P=12-2Q and consumer 2 has demand curve p=10-Q. when the market price is P=2, what is the market demand?

answer

question

Which of the following would allow us to estimate the demand curve in a given market:

answer

two eauilibrium points, one before and one after a shift in the supply curve

question

Which of the following goods would we expect to have the most elastic demand:

answer

fresh tomatoes

question

Under what circumstances is the demand curve upward-sloping?

answer

When the good is an inferior good and the income effect outweighs the substitution effect.

question

which of the following would cause an unambiguous decrease in the equilibrium quantity in a market?

answer

a leftward shift in supply and a leftward shift in demand

question

Suppose the consumer is currently spending all of their income, the prices are Px = 20 and Py = 10 and the marginal utilities are MUx = 6 and MUy = 4. What can we say about the consumer?

answer

the consumer could increase utility by consuming more of good y and less of good x.

question

Which of the following would always cause the substitution effect to be negative when the price of x decreases:

answer

utility function with increasing MRSx,y.

1 of 40

question

a graph that plots the consumers level of consumption of a good against the consumers income is called a(n)

answer

Engel Curve

question

which of the following would cause an unambiguous decrease in the equilibrium price in the market?

answer

an increase in supply and decrease in demand

question

which of the following goods would we expect to have the most inelastic demand:

answer

toothpicks

question

For a given utility function U(x,y)=xy, what happens to the indifference curve U(x,y)=100 as the income increases from I=10 to I=20?

answer

nothing

question

an endogenous variable in a the producer's cost minimization problem is:

answer

the quantity of inputs

question

suppose the production function 3K^1/3L^2/3. what is the elasticity of demand?

answer

question

suppose that the demand for widgets Qw=100-3Pw+4Pg where Pg is the price of gadgets and Pw is the price of widgets. which of the following is true?

answer

widgets and gadgets are demand substitutes

question

answer

Both I and II are false

question

If a consumer's preferences over goods x and y are complete, transitive and satisfy the "more is better" assumption, what is true?

answer

the consumers preference can be represented with a utility function

question

Suppose when the price of good x decreases, the income effect is negative. What can we say?

answer

good x is an inferior good

question

answer

Q = 250

question

What happens to the Q = 100 isoquant after technological progress has occured?

answer

shift inward toward the region

question

Suppose a firm is currently using L = 6 units of labor and that APL = 4 and MPL = 2. What can we
say about the average product at L = 6?

answer

average product is decreasing

question

Suppose that you have a graph that has good x on the x-axis and good y on the y-axis. What happens to the budget line as the price of good y increases?

answer

Moves inward along the y-axis, doesn't move on x-axis

question

answer

I is false; II is true.

question

The marginal rate of substitution MRSx,y(x,y) is equal to

answer

The negative slope of the indifference curve at point (x, y).

question

Suppose the the demand curve for good x is given by x = 1/2Px. what is the income elasticity of demand whenI=10 and Px =2?

answer

question

Which of the following statements represents normative analysis?

answer

Farmers should be subsidized to produce corn for ethanol as it will lead to a reduced dependence on foreign oil.

question

answer

Both I and II are true

question

answer

Consume more F and less C.

question

which of the following statements is a comparative statics statement:

answer

when the demand shifts from D1 to D2, the price shifts from P1 to P2

question

answer

I is false, II is true

question

An endogenous variable in a consumers choice problem is

answer

a basket of goods

question

he marginal rate of technical substitution MRTSL,K(L,K) is equal to

answer

the negative slope of the isoquant at point (L,K)

question

answer

the consumer views good x and good y as perfect substitutes

question

Suppose the production function is Q = 3K + L. What is the elasticity of substitution?

answer

infinity

question

Suppose a firm faces production function Q1 = KL and Q2 = KL + K, what can we say?

answer

There has been labor-saving technological change.

question

answer

both I and II are true

question

Which of the following utility functions has diminishing marginal rate of substitution

answer

U(x,y)=x1/2y.

question

suppose that the customer faces a utility function U(x,y)=2x^2 +y^2 , and faces Pz=1, Py=1 and I=12. what is the optimal basket?

answer

none of the other baskets are the optimal basket

question

If indifference curves are upward sloping, this violates the assumption that preferences:

answer

require that more to be better

question

what preference indicated with these indifference curves:

answer

I like good y but don't care about good x.

question

answer

Q=400

question

consider a market with only two consumers. the consumer 1 has demand curve P=12-2Q and consumer 2 has demand curve p=10-Q. when the market price is P=2, what is the market demand?

answer

question

Which of the following would allow us to estimate the demand curve in a given market:

answer

two eauilibrium points, one before and one after a shift in the supply curve

question

Which of the following goods would we expect to have the most elastic demand:

answer

fresh tomatoes

question

Under what circumstances is the demand curve upward-sloping?

answer

When the good is an inferior good and the income effect outweighs the substitution effect.

question

which of the following would cause an unambiguous decrease in the equilibrium quantity in a market?

answer

a leftward shift in supply and a leftward shift in demand

question

Suppose the consumer is currently spending all of their income, the prices are Px = 20 and Py = 10 and the marginal utilities are MUx = 6 and MUy = 4. What can we say about the consumer?

answer

the consumer could increase utility by consuming more of good y and less of good x.

question

Which of the following would always cause the substitution effect to be negative when the price of x decreases:

answer

utility function with increasing MRSx,y.

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