ECON 231
FALL 2007 First Midterm
Each question is worth 4 points, duration of the exam is 50 minutes.
1)
If two goods, “x” and “y”, are perfect substitutes, then which of the following best represents the utility
function for the two goods?
(a)
(b)
(c)
(d)
(e)
Uxy
Ux*y
U  x2  y2
None of the above.
Any of the above.
X
Figure 1
Y
2)
Figure 1 shows Büşra’s indifference map and budget lines for X and Y. Which of the following statements
is(are) TRUE?
(a)
(b)
(c)
(d)
(e)
3)
X and Y are complement goods.
X is an inferior good.
Neither X nor Y is an inferior good.
Both X and Y is inferior goods.
None of the above.
If Hasan likes watching movies (M) but hates to study economics (S), which of the following might best
represent his utility function for watching movies and studying economics?
(a)
U  M S
(b)
U M2  S
(c)
(d)
(e)
U  S2  M
S
U
M
None of the above.
Y
d
b
c
a
X
Figure 2
4)
Süleyman’s budget line and an indifference map are shown in Figure 2. Which of the following best describes
his preferences?
(a)
(b)
(c)
(d)
(e)
dcb
a  c d
d a  b
ac b
Both (b) and (c) are correct
Use following information for questions 5-7. Suppose a consumer has income of 150, and faces prices P X = 5 and
Py = 25. Her goal is to maximize her utility, described by the function U = X 0,5Y where X is the amount of X
consumption and Y is the amount of Y consumption.
5)
What is the utility maximizing X consumption?
6)
(a)
10
(b)
15
(c)
20
(d)
30
(e)
None of the above.
(f)
What is the maximum amount of Y she can consume?
(a)
(b)
(c)
(d)
(e)
7)
What would be the income level of the consumer so that she consumes 2 units of Y?
(a)
(b)
(c)
(d)
(e)
8)
30
10
6
4
None of the above.
450
300
150
75
None of the above
If the prices of all goods decrease by the same percentage and income increases by the same percentage, what
will happen to the budget line?
(a)
(b)
(c)
(d)
(e)
9)
The budget line rotates inward from the intercept on the vertical axis.
The budget line rotates outward from the intercept on the horizontal axis.
The budget line shifts outward without a change in slope.
The budget line shifts in without a change in slope.
Nothing.
The slope of an indifference curve reveals:
(a)
(b)
(c)
(d)
(e)
That preferences are complete.
The marginal rate of substitution of one good for another good.
The ratio of market prices.
That preferences are transitive.
None of the above.
Figure 3
10)
Figure 3 shows the demand curve for music CDs. If the market price is 10 YTL, what is the price elasticity of
demand?
(a)
(b)
(c)
(d)
(e)
11)
–1
–10
–500
None of the above.
Given information is not enough.
Which of the following will most likely cause the demand curve for Ferdi Tayfur’s compact discs to shift to
the right? (Assume that Ferdi Tayfur CDs are inferior goods and substitute with Orhan Gencebay CDs but not
substitute with Sezen Aksu CDs.)
(a)
(b)
(c)
(d)
(e)
An increase in the price of the Ferdi Tayfur compact discs.
An increase in consumers’ incomes.
An increase in the price of Orhan Gencebay’s compact discs.
An increase in the price of Sezen Aksu’s compact discs.
All of the above.
12)
The assumption of transitive preferences implies that indifference curves must:
(a)
(b)
(c)
(d)
(e)
13)
If Px = Py, then when the consumer maximizes utility,
(a)
(b)
(c)
(d)
(e)
14)
X must equal Y.
MUX must equal MUY.
MUX may equal MUY, but it is not necessarily so.
X and Y must be substitutes.
X and Y must be complements.
With respect to consuming food and shelter, two consumers face the same prices and both claim to be in
equilibrium. We therefore know that
(a)
(b)
(c)
(d)
(e)
15)
They both have the same marginal utility for food.
They both have the same marginal utility for shelter.
The slopes of their indifference curves at the equilibrium are equal to each other.
None of the above.
All of the above.
If the demand function for good X is given as Qx = 100 - 2Px + Py which one(s) of the below is(are) correct?
(Qx: Quantity demanded for good X, Px: Price of good X, Py: Price of good Y)
a)
b)
c)
d)
e)
X is an inferior good.
X and Y are substitutes.
X and Y complements.
Both (a) and (b) are correct.
None of the above.
Yaşar consumes good A and B. If the price of good A declines at the same time Yasar’s income rises which
one(s) of the below is(are) always correct?
16)
a)
b)
c)
d)
e)
17)
not cross one another.
have a positive slope.
be L-shaped.
be convex to the origin.
all of the above.
Yaşar consumes more from good A.
Yaşar consumes more from good B.
Yaşar is better off.
All of the above.
Both (a) and (c) are correct.
If Fatma becomes richer which one(s) of the below is (are) correct? (Assume that leisure is a normal good.)
(a)
(b)
(c)
(d)
(e)
Fatma will work less if Fatma’s income rise is due to a lottery.
Fatma will work less if Fatma’s income rise is due to an increase in wage rate.
Fatma will work more if Fatma’s income rise is due to a lottery.
Fatma will work more if Fatma’s income rise is due to an increase in wage rate.
Both (a) and (c) are correct.
18)
Consider the following three market baskets:
If baskets B and C are on the same indifference curve, and if
preferences satisfy all four of the usual assumptions, then:
(a)
(b)
(c)
(d)
(e)
19)
Food
15
13
14
A
B
C
C is preferred to A.
A is preferred to B.
both (a) and (b) are correct.
None of the above.
Given information is not enough.
Clothing
18
19
17
Which one of the below is the most likely Hasan’s indifference curve for 25 Ykr (O.25 YTL) and 1
YTL?
25 Ykr
25 Ykr
25 Ykr
1 YTL
1 YTL
b)
25 Ykr
25 Ykr
d)
1 YTL
e)
1 YTL
Y
3
A
2
1
X
1
Figure 4
c)
1 YTL
At figure 4 Şeyma’s indifference curve is drawn. At point A what is the marginal utility of Y?
20)
a)
b)
c)
d)
e)
0
1
2
3
Given information is not enough.
At figure 4 Şeyma’s indifference curve is drawn. What should be the PX/PY ratio so that Seyma’s
optimum consumption would be at point A?
21)
a)
b)
c)
d)
e)
1/3
1
3
Never.
None of the above.
Use following information for questions 22-25. Suppose a consumer faces prices PX = 3 and Py = 2. Her
goal is to maximize her utility, described by the function U = X 0,5Y0,5 where X is the amount of X
consumption and Y is the amount of Y consumption.
22)
What is the maximum amount can this consumer purchase from good X?
a)
b)
c)
d)
e)
23)
What is the utility maximizing consumption of good Y for this consumer?
a)
b)
c)
d)
e)
24)
2/3
3/2
3/2 times optimum consumption of good X.
2/3 times optimum consumption of good X.
None of the above.
When would this consumer purchase 100 units of good X?
a)
b)
c)
d)
e)
25)
2
3
1,5
Given information is not enough.
None of the above.
When his income is 300 YTL.
When his income is 400 YTL
When his income is 600 YTL
When the price of good X rises.
None of the above.
Assume that the consumer faces given price levels for good X and Y (P X = 3 and Py = 2) and has
the income level of 8. What would be the demand price elasticity of good Y at the optimum
consumption level for this consumer?
(a)
(b)
(c)
(d)
(e)
-1/4
-4
¼
None of the above
Given information is not enough