ECON5001 - Microeconomics - 2008 Semester 1 - Mid - Semester exam ECON5001 - 2004

Discipline of Economics ECON 5001: MICROECONOMICS

Mid-Semester Test (Friday September 10, 2004)

Instructions

1. The test lasts for 1? hours. Maximum marks = 40.

2. The test consists of two parts. You must answer ALL questions in both parts.

(i). Part A Multiple Choice: 20 questions (1 mark each). Answer on the sheet provided.

(ii). Part B Problems: 2 problems (10 marks each). Answer in the booklet provided.

3. Put your name, SID, and stream on the multiple choice answer sheet, and the exam booklet. Failure to comply may result in a mark of zero.

4. This is a closed book exam: no notes are allowed. Non-programmable calculators are permitted.

5. University of Sydney Examination Regulations apply. No person may leave the examination room in the first 30 minutes or in the last 20 minutes of the exam.

6. GOOD LUCK!

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Part A: Multiple Choice (20 marks)

1. The slope of an indifference curve reveals:

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.

2. Jane is trying to decide which courses to take next semester. She has narrowed

down her choice to two courses Econ 1 and Econ 2. Now she is having trouble. She just cannot decide which of the two courses to take. It’s not that she is indifferent between the two courses, she just cannot decide. An economist would say that this is an example of preferences that:

are not transitive. are incomplete.

violate the assumption that more is preferred to less. all of the above.

If a consumer must spend her entire income on some combination of two commodities and chooses to spend it all on just one of the commodities then: a. b. c. d.

4.

The change in the price of one good has no effect on the quantity demanded of another good. These goods are:

complements. substitutes. both inferior.

both Giffen goods. none of the above.

The income-consumption curve for Dana between QA and QB is given by the equation QA = QB. His budget constraint is given as:

120 = QA + 4QB

How much QA will Dana consume to maximize utility? a. b. c. d. e.

0. 24. 30. 60.

More information is needed to answer this question. a. b. c. d. e.

the other commodity is an economic bad.

the other commodity must have zero marginal utility.

the other commodity generates less utility per dollar spent on the good. the two commodities must be perfect substitutes. a. b. c. d. a. b. c. d. e.

3.

5.

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6. Assume that beer is a normal good. If the price of beer rises, then the

substitution effect results in the person buying ______ of the good and the income effect results in the person buying ______ of the good.

a. b. c. d.

7.

more, more. more, less. less, more. less, less.

Which of the following will cause the price of beer to rise? a. b. c. d.

A shift to the right in the demand curve for beer. A shift to the left in the supply curve of beer. both (a) and (b). none of the above.

8.

Blanca would prefer a certain income of $20,000 to a gamble with a 0.5 probability of $10,000 and a 0.5 probability of $30,000. Based on this information: a. b. c. d.

we can infer that Blanca neutral.

we can infer that Blanca is risk averse. we can infer that Blanca is risk loving. we cannot infer Blanca's risk preferences.

Wanting to invest in the computer games industry, you select Whizbo, Yowzo and Zowiebo as the three best firms. Over the past 10 years, the three firms have had good years and bad years. The following table shows their performance:

Number Good Year Bad Year of Good Company Revenue Revenue Years Whizbo $8 million $6 million 8 Yowzo $10 million $4 million 4 Zowiebo $30 million $1 million 1 9.

Refer to the table above. Where is the highest expected revenue, based on the 10 years' past performance? a. b. c. d. e.

Whizbo. Yowzo. Zowiebo.

Whizbo and Yowzo. Yowzo and Zowiebo.

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10. The price of good A goes up. As a result the demand for good B shifts to the

left. From this we can infer that:

a. b. c. d. e.

good A is used to produce good B. good B is used to produce good A. goods A and B are substitutes. goods A and B are complements. none of the above.

11. A firm uses two factors of production. Irrespective of how much of each factor

is used, both factors always have positive marginal products which imply that

a. isoquants are relevant only in the long run. b. isoquants have negative slope. c. isoquants are convex.

d. isoquants can become vertical or horizontal. e. none of the above.

12. A firm's marginal product of labor is 4 and its marginal product of capital is 5.

If the firm adds one unit of labor, but does not want its output quantity to change, the firm should

a. use five fewer units of capital. b. use 0.8 fewer units of capital. c. use 1.25 fewer units of capital. d. add 1.25 units of capital.

13. If input prices are constant, a firm with increasing returns to scale can expect

a. costs to double as output doubles.

b. costs to more than double as output doubles. c. costs to go up less than double as output doubles.

d. to hire more and more labor for a given amount of capital, since marginal product increases.

e. to never reach the point where the marginal product of labor is equal to the wage.

14. Which of the following is not an expression for the cost minimizing combination of inputs?

a. b. c. d. e.

MRTS = MPL / MPK. MPL / w = MPK / r. MRTS = w / r. MPL / MPK = w / r. None of these.

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