# Quiz2

Document Sample

```					                                                                                               1

Economics 101---Summer, 2003, Section 2
Instructor: Wenzhuo Shang
Quiz #2

Name:                                        Student ID Number (Last 5-Digits):
Part A: Multiple Choices (Each is worth 4 points.)

Consider the following data on demand for 2 goods shoes, (S) and coats (C). The notation is
as follows: PS = price of shoes, PC = price of coats, I = income, DS = demand for shoes, DC
= demand for coats.
DS, I = 1000                                      DS, I = 2000
PS PC = 10        I    DS, PC=10 DC                    PS PC =10        I     DS, PC = 10         DC
10.00 10.00 1000.00         30.50      69.50           10.00 10.00 2000.00         60.50          139.50
22.00 10.00 1000.00         13.48      70.34           22.00 10.00 2000.00         27.12          140.34
26.00 10.00 1000.00         11.30      70.62           26.00 10.00 2000.00         22.84          140.62
30.00 10.00 1000.00         9.70       70.90           30.00 10.00 2000.00         19.70          140.90
34.00 10.00 1000.00         8.48       71.18           34.00 10.00 2000.00         17.30          141.18
38.00 10.00 1000.00         7.51       71.46           38.00 10.00 2000.00         15.41          141.46
42.00 10.00 1000.00         6.73       71.74           42.00 10.00 2000.00         13.87          141.74
46.00 10.00 1000.00         6.08       72.02           46.00 10.00 2000.00         12.60          142.02
DS, I=1000                                             DS, I = 2000
PC = 60          DS, PC=60                             PC=60            DS, PC = 60
30.00 60.00 1000.00         11.70      10.82           30.00 60.00 2000.00         21.70          22.48
38.00 60.00 1000.00         9.09       10.91           38.00 60.00 2000.00         16.98          22.58
42.00 60.00 1000.00         8.16       10.96           42.00 60.00 2000.00         15.30          22.62

1. What is the price elasticity of demand for shoes with an income of \$1,000 when the price
of coats is \$10.00 as the price of shoes goes from \$30 to \$34. (Use the arc method.)
a. -1.074
b. -1.109
c. -1.038
d. -1.067
e. 1.026

2. What is the cross price elasticity of shoe demand with respect to the price of coats when
income is \$1,000, the price of shoes is \$30.00 and the price of coats goes from \$10 to
\$60. (Use the arc method.)
a. -1.074
b. 0.1323
c. 0.1308
d. -1.067
e. 1.026

3. What is the income elasticity of shoe demand when the prices of shoes and coats are
respectively \$46 and \$10 and the income goes from \$1000 to \$2000? (Use the arc method.)
a. 1.074
b. 1.109
c. 1.047
d. – 1.067
e. – 1.038
2

Part B: Problem Solving

1. a) Draw the two budget lines on the same graph with the given information. Label them
BL1 and BL2, respectively. Describe in few words what the change from BL1 to
BL2 represents. (11 points totally)
BL1 p1 = 2, p2 = 4, I = 36
BL2 p1 = 2, p2 = 4, I = 24

b) Draw the two budget lines on the same graph with the given information. Label them
BL1 and BL2, respectively. Describe in few words what the change from BL1 to
BL2 represents. (11 points totally)
BL1 p1 = 3, p2 = 2, I = 24
BL2 p1 = 4, p2 = 2, I = 24
3

2. For this problem p1 = 16, p2 = 20 and I = 240. Below is a table of alternative
consumption choices and the utility and the marginal utility they provide. What is the

q1            q2              u           MU1           MU2
0             15            0.000        0.000           ∞
1            13.75         19.257        0.351         9.629
2            12.5          26.592        0.532         6.648
4             10           35.566        0.890         4.446
6             7.5          40.537        1.352         3.379
8              5           42.295        2.115         2.644
10             2.5          39.764        3.977         1.989

3. For this problem, assume p1 = 5 and p2 = 8. If MU1 = 10 and MU2 = 15, then should the
consumer increase his consumption of good one or good two? Explain. (8 points toally)

```
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
 views: 0 posted: 11/25/2012 language: Unknown pages: 3