**Question 1**

Let Q_{D}= -5P + 54 and Q_{S}= P – 6. Equilibrium can be found at

Answer

**Question 1**

Let Q_{D}= -5P + 54 and Q_{S}= P – 6. Equilibrium can be found at

Answer

Q = 4; P = 10

Q = 6; P = 10

P = 6; Q = 0

Q =; P = 2

5 points

**Question 2**

Suppose a production possibilities frontier can be expressed as 9X^{2}+ Y^{2}= 81 what is the opportunity cost of going from 1 unit of X to 2 units of X (in terms of units of Y)?

Answer

a. 45

b. sqrt of 45

c. sqrt of 72 – sqrt of 45

d. 1

5 points

**Question 3**

The Ricardian notion that of diminishing returns implies that

Answer

As more input is used more output will be made.

As more input is used less output will be made.

As more input is used the increase in output will increase.

As more input is used the increase in output will decrease.

5 points

**Question 4**

Suppose the equilibrium quantity is

Answer

2

3

4

5

5 points

**Question 5**

If the production possibilities frontier can be expressed as 4X^{2}+ Y^{2}= 16 then the point X = 1; Y = 4 is

Answer

outside the production possibilities frontier

on the production possibilities frontier

inside the production possibilities frontier

in the wrong quadrant to be on the graph

5 points

**Question 6**

If society is producing a combination of goods on its production possibilities frontier

Answer

it must be employing all available resources.

it must be growing.

it is using all the available natural resources but may not be using all available labor resources.

Both a and b.

5 points

**Question 7**

Suppose right (R) and left (L) shoes are only useful if produced in equal proportion and societal happiness is expressed as min(R,L). The contour lines would be

Answer

downward sloping lines

upward sloping lines

L-shaped

backward L-shaped

5 points

**Question 8**

If*Y*=*X*^{2}*+*Z^{2}, the contour lines

Answer

are concentric circles.

are parabolas.

are hyperbolas.

intersect whenever either *X* or *Z* is zero.

5 points

**Question 9**

Suppose you can write generic supply and demand curves such that Q_{S}= A + BP and Q_{D}= D + CP. Equilibrium price is given by

Answer

** **

5 points

**Question 10**

The underlying reason early economists believed a (short-run) supply curve would be upward sloping is because of

Answer

decreasing average costs

increasing average cost

decreasing marginal costs

increasing marginal costs

5 points

**Question 11**

If an individual has a constant *MRS *of shoes for sneakers of 3/4 (that is, he or she is always willing to give up 3 pairs of sneakers to get 4 pairs of shoes) then, if sneakers and shoes are equally costly, he or she will

Answer

buy only sneakers.

buy only shoes.

spend his or her income equally on sneakers and shoes.

wear sneakers only 3/4 of the time.

5 points

**Question 12**

Suppose a cup of coffee at the campus coffee shop is $2.50 and a cup of hot tea is $1.25. Suppose a student’s beverage budget is $20 per week. What is the algebraic expression of the budget?

Answer

5 points

**Question 13**

If bundles of goods *A *and *B *lie on the same indifference curve, one can assume the individual

Answer

prefers bundle *A* to bundle *B*.

prefers bundle *B* to bundle *A*.

enjoys bundle *A* and *B* equally.

bundle *A* contains the same goods as bundle *B*.

5 points

**Question 14**

The X-intercept of the budget constraint represents

Answer

how much of good *Y* can be purchased if no good *X* is purchased and all income is spent.

how much of good *X* can be purchased if no good *Y* is purchased and all income is spent.

total income divided by the price of *X*.

a and c.

5 points

**Question 15**

Suppose an individual’s MRS (of steak for beer) is 2:1. That is, at the current consumption choices he or she is willing to give up 2 beers to get an extra steak. Suppose also that the price of a steak is $1 and a beer is 25¢. Then in order to increase utility the individual should

Answer

buy more steak and less beer.

buy more beer and less steak.

continue with current consumption plans.

Not enough information to answer the question.

5 points

**Question 16**

If an individual’s indifference curve map does not obey the assumption of a diminishing*MRS*, then

Answer

the individual will not maximize utility.

the individual will buy none of good *X*.

tangencies of indifference curves to the budget constraint may not be points of utility maximization.

the budget constraint cannot be tangent to an appropriate indifference curve.

5 points

**Question 17**

An increase in an individual’s income without changing relative prices will

Answer

rotate the budget constraint about the X-axis.

shift the indifference curves outward.

shift the budget constraint outward in a parallel way.

rotate the budget constraint about the Y axis.

5 points

**Question 18**

Suppose a teenager has $20 and likes both rap music (R) and country music (C) with a set of preferences so that U = C^{1/2}R^{1/2}. Suppose that the iTunes price of a rap music song isand the price of a country music song is. Which level of utility is affordable?

Answer

9

16

25

5 points

**Question 19**

The point of tangency between a consumer’s budget constraint and his or her indifference curve represents

Answer

complete satisfaction for the consumer.

the equivalence of prices the consumer pays.

constrained utility maximization for the consumer.

the least he or she can spend.

5 points

**Question 20**

Suppose a cup of coffee at the campus coffee shop is $2.50 and a cup of hot tea is $1.25. Suppose a student’s beverage budget is $20 per week. Suppose the student simply prefers more caffeine to less and that the tea sold has the same amount of caffeine as the coffee. The student will buy

Answer

all tea.

all coffee.

a mix of coffee and tea.

there is insufficient information to know.

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