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SAMPLE QUESTIONS: INTRODUCTORY MICROECONOMICS

1. The properties of indifference curves include the following:

a) it is downward slopingb) it exhibits diminishing marginal rate of substitutionc) it never crosses each otherd) 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) at a maximumb) zeroc) e#uals the price of tea

d) no longer diminishing

$.%hen demand is elastic,

a) & one percent change in price leads to less than one percent change in #uantitdemanded

b) 'hanges in price have no effect on total revenuec) & one percent change in price leads to less than one percent change in #uantit

suppliedd) & rise in price decreases total revenue

(. Suppose there are two goods, x and . & consumption bundle & ields the sameamount of total utilit as consumption bundle , then

a) & and must have the same amount of x and b) & is on a higher indifference curve than c) is on a higher indifference curve than &d) & and are on the same indifference curve*. Suppose we have a production possibilit frontier +-) that is a straight line. nthe /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 everpointb) The opportunit cost of producing an additional pineapple increases as the amountof coconuts produced increasesc) The opportunit cost of producing an additional pineapple decreases as the amountof coconuts produced decreasesd) The opportunit cost of producing an additional pineapple is zero at ever point

. f goods & and are substitutes, a decrease in the price of good will

a) increase the demand for good &

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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 steepb) buers are relativel unresponsive to changes in pricec) total farm income will decrease if the mar!et price fallsd) all of the above

4. &s the price of apples that the producers can charge rises, the producer surplusin the apple mar!et

a) increasesb) decreases

c) does not changed) ma increase, decrease, or sta the same

5. f the price of good decreased, ou would expect the

a) demand of good to increaseb) #uantit demanded of good to decreasec) #uantit demanded of good to increased) 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 goodb) the minimum amount consumers are willing to pa for particular units of a goodc) the average amount consumers are willing to pa for particular units of a goodd) that consumers want to pa the lowest price

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S78T &9S%8S

True or false and explain. Illustrate with a graph whereappropriate.

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 lowerincomes for farmers

-alse. The ; change in price is larger than the ; change in #uantit. rice and totalrevenue move in the same direction.

2. State whether each of the following events will result in a movement along thedemand curve for

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a) The price of =c>onald?s ig =ac hamburger increases.The price of substitute goods increases.The demand curve for efine marginal utilit. rovide an argument wh to maximize total utilit overgood x and good , the consumer should consume until the ratio of marginal utilitiesover price is the same across both goods.

=arginal @tilit is an additional utilit gained from consuming an additional unit ofgood. t is the same as marginal benefit.

f the marginal utilit per dollar is not the same for good x and good , there is a netgain 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 1"2 B 4utils"A. f he consumes A2 lesson 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 1utils. The marginal utilit gainfrom good x is 2(utils. 9et gained is 4utils. Thus, he is not maximizing his totalutilit. 7e should spend more on good x and spend less on good until the ratio isthe same for both goods. 8ational Spending 8ule is satisfied.