SAMPLE QUESTIONS: INTRODUCTORY MICROECONOMICS 1.

The properties of indifference curves include the following: a) b) c) d) it is downward sloping it exhibits diminishing marginal rate of substitution it never crosses each other all of the above

2. Suppose espresso is free, then to maximize total utilit , a consumer should drin! espresso until his"her marginal utilit is: a) b) c) d) at a maximum zero e#uals the price of tea no longer diminishing

$.%hen demand is elastic, a) & one percent change in price leads to less than one percent change in #uantit demanded b) 'hanges in price have no effect on total revenue c) & one percent change in price leads to less than one percent change in #uantit supplied d) & rise in price decreases total revenue (. Suppose there are two goods, x and . & consumption bundle & ields the same amount of total utilit as consumption bundle ), then a) b) c) d) & and ) must have the same amount of x and & is on a higher indifference curve than ) ) is on a higher indifference curve than & & and ) are on the same indifference curve

*. Suppose we have a production possibilit frontier +,,-) that is a straight line. .n the /axis, we have coconuts and on the x/axis, we have pineapples. %hich of the following statements best describe this ,,-0 a) The opportunit costs of producing an additional pineapple is the same at ever point b) The opportunit cost of producing an additional pineapple increases as the amount of coconuts produced increases c) The opportunit cost of producing an additional pineapple decreases as the amount of coconuts produced decreases d) The opportunit cost of producing an additional pineapple is zero at ever point 1. 2f goods & and ) are substitutes, a decrease in the price of good ) will a) increase the demand for good &

b) increase the #uantit demanded of good ) c) decrease the demand for good & d) both b and c 3. Suppose the demand curve for agricultural products is inelastic, then a) the demand curve will be relativel steep b) bu ers are relativel unresponsive to changes in price c) total farm income will decrease if the mar!et price falls d) all of the above 4. &s the price of apples that the producers can charge rises, the producer surplus in the apple mar!et a) increases b) decreases c) does not change d) ma increase, decrease, or sta the same 5. 2f the price of good ) decreased, ou would expect the a) demand of good ) to increase b) #uantit demanded of good ) to decrease c) #uantit demanded of good ) to increase d) demand curve of good ) to shift to the left 16. The demand curve shows a) the maximum amount consumers are willing to pa for particular units of a good b) the minimum amount consumers are willing to pa for particular units of a good c) the average amount consumers are willing to pa for particular units of a good d) that consumers want to pa the lowest price

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True or false and explain. Illustrate with a graph where appropriate. 1. a) rent control for apartments creates surplus of rental apartments -alse. There is an excess demand for apartments, a shortage of apartment rental.

b) Since demand for agricultural products is inelastic, higher prices mean lower incomes for farmers -alse. The ; change in price is larger than the ; change in #uantit . ,rice and total revenue move in the same direction.

2. State whether each of the following events will result in a movement along the demand curve for <ac! in the )ox Sourdough 'heeseburger or whether it will cause the curve to shift. 2f the demand curve shifts, indicate whether it will shift to the left or the right and draw a graph to illustrate the shift.

a) The price of =c>onald?s )ig =ac hamburger increases. The price of substitute goods increases. The demand curve for <ac! in the )ox Sourdough 'heeseburger shifts upward.

b) )ecause of a shortage of potatoes, the price of -rench fries increases. The price of complement goods increases. The demand curve for <ac! in the )ox Sourdough 'heeseburger shifts downward.

$. >efine marginal utilit . ,rovide an argument wh to maximize total utilit over good x and good , the consumer should consume until the ratio of marginal utilities over price is the same across both goods. =arginal @tilit is an additional utilit gained from consuming an additional unit of good. 2t is the same as marginal benefit. 2f the marginal utilit per dollar is not the same for good x and good , there is a net gain on the original budget allocation. Thus, his total utilit is not maximized. -or example, the total spending on good x and is A(66. =@ per dollar for good x is 12"1B 12utils"AC =@ per dollar for good is 11"2 B 4utils"A. 2f he consumes A2 less on good , he is giving up 1 unit of good and can consume 2 more units of good x. The marginal utilit lost from giving up good is 11utils. The marginal utilit gain from good x is 2(utils. 9et gained is 4utils. Thus, he is not maximizing his total utilit . 7e should spend more on good x and spend less on good until the ratio is the same for both goods. 8ational Spending 8ule is satisfied.