## Transcribed Text

1. Suppose that, holding prices constant, Alice has preferences over the number of
books she purchases that look like the table shown. Draw Alice's Engel curve and
then determine which of the following statements is true.
a. Books are a normal good to Alice over all income ranges.
b. Books are an inferior good to Alice when income increases beyond $25,000.
c. Books are a normal good to Alice when income increases beyond $25,000.
d. We cannot determine whether books are normal or inferior without more
information.
2. Suppose that Sonya faces an increase in the price of pasta, as depicted here,
moving her from an optimum bundle of rice and pasta at A to an optimal bundle at
B. Based on the graph, which of the following statements is true?
a. For pasta, the substitution effect and income effect work in opposite
directions, but the substitution effect is dominant.
b. For pasta, the substitution effect and income effect work in the same
directions, but the substitution effect is much stronger.
c. For pasta, the substitution effect and income effect work in the same
directions but the income effect is much stronger.
d. For pasta, the substitution effect and income effect work in the same
direction, and are of the same approximate size.
3. Suppose that Grover consumes two goods, cookies and milk. Grover's income
expansion path is shown in the diagram below. Use the information in the diagram
to determine which of the following statements is false.
a. At low levels of income, milk is a normal good for Grover.
b. At high levels of income, cookies become an inferior good for Grover.
c. At low levels of income, cookies are a normal good for Grover.
d. At high levels of income, milk becomes an inferior good for Grover.
4. Josie gets great pleasure from eating flan. Her preferences for flan and tofu are
given in the graph below:
Suppose that Josie's income is $40, and that tofu costs $1. Draw budget constraints
for Josie given three different prices for flan: $5, $8, and $10. Find the optimal
consumption of flan at each of those prices. What shape does Josie's demand curve
for flan look like, and what is its demand elasticity?
a. Josie's demand curve is downward sloping and relatively flat, indicating
elastic demand.
b. Josie's demand curve is downward sloping and steep, indicating inelastic
demand.
c. Josie's demand curve is a horizontal line, indicating perfectly elastic demand.
d. Josie's demand curve is a vertical line, indicating perfectly inelastic demand.
5. Consider the following statement: “If pizza and calzones are substitutes, then the
substitution effect of a price change will be in a different direction than if pizza
and calzones are complements.” Which of the following is most accurate regarding
the previous statement?
a. The statement is false: the substitution effect will be in the same direction
whether the two goods are substitutes or complements.
b. The statement is true and based on the fact that there is no substitution effect
with perfect complements.
c. The statement is true and based on the fact that there is no substitution effect
with perfect substitutes.
d. The statement is false and based on the fact that there is no income effect
with perfect complements.
6. At a price of $3 each, Yoshi (an average New Yorker) drinks 200 44oz.
sodas
each year. Concerned about burgeoning obesity, the Mayor of New York proposes
a $0.50 tax on such drinks. He then proposes compensating consumers for the
price increase by mailing each resident a check for $100. What will happen to
Yoshi's consumption of soda under the new plan?
a. His consumption of soda will increase.
b. His consumption of soda will decrease.
c. His consumption of soda may increase or decrease.
d. His consumption of soda will be unaffected.
7. A principles of microeconomics instructor regularly asks her class to give an
example of an inferior good. “No matter how poor we might be,” the students tell
her, “ramen noodles are an inferior good.” Which of the following statements is
true?
a. Ramen noodles are inferior goods at all levels of income.
b. Ramen noodles are normal goods at all levels of income.
c. Ramen noodles may be inferior goods at low levels of income, but they will
be normal goods at higher levels of income.
d. Ramen noodles may be inferior at high levels of income, but they will be
normal goods at very low levels of income.
8. Can you determine whether a good is normal or inferior by looking at the shape of
a single indifference curve?
a. No, you need more than one indifference curve to determine whether a good
is normal or inferior.
b. Yes, if the indifference curve is flat enough, one of the goods is inferior.
c. Yes, if the slope of the indifference curve changes enough.
d. Yes, if the indifference curve is steep enough, one of the goods is inferior.
9. Kim's utility function is given by U = 5X +2Y, where MUX = 5 and MUY = 2.
Suppose that at the prices PX and PY of good X and good Y, respectively, Kim is
consuming (optimally) some positive amount of good X and some positive amount
of good Y. What is the price of good X in terms of the price of good Y?
a. PX = 2.5PY
b. PX = 5PY
c. PX = 2PY
d. PX = 0.4PY
10. Kim's utility function is given by U = 5X +2Y, where MUX = 5 and MUY = 2.
Suppose that at the prices PX and PY of good X and good Y, respectively, Kim is
consuming (optimally) some positive amount of good X and some positive
amount of good Y. How will her consumption change if PX doubles, while PY
does not change?
a. Kim will consume half as much of good X, and consume more of good Y.
b. Kim will consume less of both goods.
c. Kim will consume the same amount of good X, and consume less of good
Y.
d. Kim will consume only good Y and none of good X.
11. Consider the production function presented below. If the firm decides to employ
6 units of capital and 1 worker, what is the firm's output?
a. 3600
b. 1200
c. 500
d. 600
12. Consider the production function presented below. Plot the combinations of labor
and capital that can be used to produce 600 units of output on a graph, with labor
on the horizontal axis and capital on the vertical axis, and connect the dots to
form the production isoquant corresponding to 600 units of output. Which of the
following best describes the isoquant you have graphed?
a. The production isoquant is upward sloping and curved.
b. The production isoquant is downward sloping and curved.
c. The production isoquant is a horizontal line.
d. The production isoquant is downward sloping and straight.
13. The table below represents the production function for Hawg Wild, a small
catering company specializing in barbequed pork. The numbers in the cells
represent the number of customers that can be served using various combinations
of labor and capital.
Suppose that Hawg Wild employs 5 units of capital and 2 workers, but that the
owner, Billy Porcine, is considering adding his nephew to the payroll. What will
the marginal product of Billy's nephew be?
a. 21
b. 79
c. 84
d. 61
14. The table below represents the production function for Hawg Wild, a small
catering company specializing in barbequed pork. The numbers in the cells
represent the number of customers that can be served usingvarious combinations
of labor and capital.
Suppose that Hawg Wild employs 5 units of capital and 2 workers, but that the
owner, Billy Porcine, is considering adding another meat smoker to the kitchen
(which will raise the amount of capital input to 6 units). What will the marginal
product of the smoker be?
a. 40
b. 61
c. 44
d. 30
15. Suppose that a firm's production function is given by Q = K0.33L0.67, where MPK
= 0.33K−0.67L0.67 and MPL = 0.67K0.33L−0.33. As L increases, what happens to
the marginal product of labor? What happens to the marginal product of capital?
a. MPL increases; MPK increases
b. MPL increases; MPK decreases
c. MPL decreases; MPK increases
d. MPL decreases; MPK decreases
16. The table below represents the production function for Hawg Wild, a small
catering company specializing in barbequed pork. The numbers in the cells
represent the number of customers that can be served using various combinations
of labor and capital.
Hawg Wild employs 5 units of capital and 2 workers. Billy is considering the
choice between hiring another worker or buying another smoker. If smokers cost
$8 and workers cost $12, then at the margin, what is the most costeffective
choice for Billy to make?
a. Hire another worker.
b. Buy another smoker.
c. Since either one will increase output, it doesn't matter which one Billy
chooses.
d. There is not enough information here to answer this question.
17. Heather enjoys knitting scarves with tassels. To do so she requires skeins of yarn
and the tassels. Her preference over yarn and tassels is given by the indifference
curve U. An initial budget constraint, BC1, representing her budget of $100 and
the price of yarn being $2 per skein and $1 per tassel, and her optimal
consumption point, A, are also given. Now presume her local yarn store,
KnitWits, has a sale where yarn is now $1. Heather is willing to adjust her budget
as to keep her on indifference curve U, using the savings to fund other hobbies.
Use the infinite line drawing tool to draw the new budget constraint with the new
price of yarn such that Heather will consume on indifference curve U. Label this
BC2. Next, use the double drop line to identify her new optimal consumption
bundle, A'. Finally, using the highlighter tool, on the tassel axis, highlight the size
of the substitution effect as she substitutes away from using 50 tassels. Label this
SubEffect.
18. Here you are given Adam's and Betty's demand for gasoline in gallons per month.
Presuming they are the only two consumers in the market, use the line drawing
tool to draw the demand curve for the market. Label it D_Total.
19. Here you are given Adam's and Betty's demand for gasoline in gallons per month.
Presuming they are the only two consumers in the market, use the multipoint
line
drawing tool to draw the demand curve for the market. Label it D_Total.
20. Below is the shortrun
production function for a given firm with five units of
capital. Use the multipoint
line drawing tool to plot the firm's shortrun
production function as a function of labor from L=0 to L=5. Label the curve
SR_Production.
Capital, K Labor, L Output, Q
5 0 0
5 1 8
5 2 14
5 3 17
5 4 19
5 5 20
21. Below is the shortrun
production function for a given firm with five units of
capital. Use the multipoint
line drawing tool to plot the firm's shortrun
marginal
productivity of labor function as a function of labor from L=1 to L=5. Label the
curve MPL.
Capital, K Labor, L Output, Q
5 0 0
5 1 22
5 2 32
5 3 39
5 4 45
5 5 50

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