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Mid-termA6-1IntermediateMicroeconomicsMid-termTest2005(A)Name:StudentNo.:Class:No.12345678910AnswerFNo.11121314151617181920AnswerNo.21222324252627282930AnswerSection1Trueorfalse.（20points,2pointseach）1.Withquasi-linearpreferences,theequivalentvariationandthecompensatingvariationinincomeduetoapriceincreaseofonegoodarethesame.2.Ifallpricesdoubleandincometriples,thenthebudgetlinewillbecomesteeper.3.Aconsumerwhocanborrowandlendatthesameinterestrateshouldpreferanendowmentwithahigherpresentvaluetoanendowmentwithalowerpresentvalue,nomatterhowheplanstoallocateconsumptionoverthecourseofhislife.4.Themarginalrateofsubstitutionmeasuresthedistancebetweenoneindifferencecurveandthenextone.5.FredhasaCobb-Douglasutilityfunctionwithexponentsthatsumto1.Sallyconsumesthesametwogoods,butthetwogoodsareperfectsubstitutesforher.Despitethesedifferences,FredandSallyhavethesamepriceoffercurves.6.Foraconsumerwhohasanallowancetospendandnoendowmentofgoods,adecreaseinthepriceofaGiffengoodconsumedmakeshimbetteroff.7.Alice'sutilityfunctionisU(x,y)=x2y.Steve'sutilityfunctionisU(x,y)=x2y+2x.AliceandStevehavethesamepreferencessinceSteve'sutilityfunctionisamonotonictransformationofAlice's.8.Susanisanetborrowerwhentheinterestrateis10%andanetsaverwhentheinterestrateis20%.Adecreaseintheinterestratefrom20%to10%maymakeSusanworseoff.9.IfsomeonehasaCobb-Douglasutilityfunctionandnoincomefromanysourceotherthanlaborearnings,thenanincreaseinwageswillnotchangetheamountthatpersonchoosestowork.10.Iftwoassetshavethesameexpectedrateofreturnbutdifferentvariances,arisk-averseinvestorshouldalwayschoosetheonewiththesmallervariance,nomatterwhatotherassetssheholds.Mid-termA6-2Section2SingleChoice.(80points,4pointseach)11.Whenthepriceswere($5,$1),Vanessachosethebundle(x,y)=(6,3).Nowatthenewprices,(px,py),shechoosesthebundle(x,y)=(5,7).ForVanessa'sbehaviortobeconsistentwiththeweakaxiomofrevealedpreference,itmustbethatA.4pypx.B.px4py.C.5pypx.D.py=5px.E.Noneoftheabove.12.Henry'sutilityfunctionisx2+16xw+64w2,wherexishisconsumptionofxandwishisconsumptionofw.A.Henry'spreferencesarestrictlynon-convex.B.Henry'sindifferencecurvesarestraightlines.C.Henryhasablisspoint.D.Henry'sindifferencecurvesarehyperbolas.E.Noneoftheabove.13.Inacertainkingdom,thedemandfunctionforryebreadwasq=381-3pandthesupplyfunctionwasq=5+7p,wherepisthepriceinpesoandqisloavesofbread.Thekingmadeitillegaltosellryebreadforapriceabove32pesoperloaf.Toavoidshortages,heagreedtopaybakersenoughofasubsidyforeachloafofbreadsoastomakesupplyequaldemand.Howmuchwouldthesubsidyperloafhavetobe?A.21pesoB.14pesoC.8pesoD.5.6pesoE.Noneoftheabove.14.Ifthereareonlytwogoods,ifmoreofgood1isalwayspreferredtoless,andiflessofgood2isalwayspreferredtomore,thenindifferencecurvesA.slopedownward.B.slopeupward.C.maycross.D.couldtaketheformofellipses.E.Noneoftheabove.Mid-termA6-315.Clarissa'sutilityfunctionisU(r,z)=z+120r-r2,whereristhenumberofroseplantsshehasinhergardenandzisthenumberofzinnias.Shehas250squarefeettoallocatetorosesandzinnias.Roseseachtakeup4squarefeetandzinniaseachtakeup1squarefoot.Shegetstheplantsforfreefromagenerousfriend.Ifsheacquiresanother100squarefeetoflandforhergardenandherutilityfunctionremainsunchanged,shewillplantA.99morezinniasandsomemoreroses.B.20morerosesand20morezinnias.C.25morerosesandnomorezinnias.D.100morezinniasandnomoreroses.E.Noneoftheabove.16.Janetconsumestwocommoditiesxandy.Herutilityfunctionismin{x+2y,y+2x}.Shechoosestobuy10unitsofgoodxand20unitsofgoody.Thepriceofgoodxis$1.Janet'sincomeisA.$40.B.$50.C.$30.D.$20.E.Thereisnotenoughinformationintheproblemtodetermineherincomebecausewearenottoldthepriceofgoody.17.Bernice’sutilityfunctionismin{x,y},wherexisherconsumptionofearringsandyismoneyleftforotherstuff(xandycanbefractional).Ifhehadanincomeof$12andwaspayingapriceof$4forapairofearrings,thenifthepriceofearringswentupto$6,theequivalentvariationofthepricechangewouldbeA.$4.80.B.$3.43.C.$1.71.D.$9.60.E.$4.11.18.Jane'sutilityfunctionisU(x,y)=x+2y,wherexisherconsumptionofgoodXandyisherconsumptionofgoodY.Herincomeis$2.ThepriceofYis$2.ThecostperunitofXdependsonhowmanyunitsshebuys.ThetotalcostofxunitsofXisthesquarerootofx.A.Thebundle(1/4,3/4)isJane'sutilitymaximizingchoice,givenherbudget.B.Thebundle(1,1/2)isJane'sutilitymaximizingchoice,givenherbudget.C.Givenherbudget,JanewouldmaximizeherutilitybyspendingallofherincomeongoodX.D.Givenherbudget,JanewouldmaximizeherutilitybyspendingallofherincomeongoodY.E.Noneoftheabove.Mid-termA6-419.Ambrose'sbrotherFrancishasanincomeof$100andautilityfunctionU(x1,x2)=50x11/2+x2,wherex1ishisconsumptionofnutsandx2ishisconsumptionofberries.Thepriceofnutsis$5andthepriceofberriesis$1.HowmanyunitsofnutswillFrancisdemand?A.30B.25C.20D.90E.Noneoftheabove.20.MissMuffetconsumesonlywheyandcurds.Sheinsistsonconsuming2unitsofwheyper1unitofcurds.Ifthepriceofcurdsis$5andthepriceofwheyis$6,thenifMissMuffet'sincomeism,herdemandforcurdswillbeA.5c+6w=m.B.6m/5.C.5m.D.m/5.E.m/17.21.Hollyconsumesxandy.Thepriceofxis4andthepriceofyis4.Holly'sonlysourceofincomeisherendowmentof6unitsofxand6unitsofywhichs