Name:__________________________________

McMaster I.D. #__________________________

McMaster University
Economics 2GG3
Dr. Robert Jefferson
Mid Term Examination 1
Friday, September 30, 2016
Instructions:
1.

2.

3.

On the FRONT of your Scantron (SIDE 1), fill out the items in the box at the top
(your McMaster i.d. number (9 digits), name, date, signature, course, section (C01),
instructor name (R. Jefferson)
On the FRONT of your Scantron (SIDE 1) use a dark lead pencil to bubble in your
Student Number, the Version number (1), and your section number.
Leave blank Sheet Number and Seat Number.
Be sure to fill in 1 in the column marked VERSION

4.

You have 75 minutes. No student may leave before 7:45. Hand in the computer card
AND the question paper.
5. There are 25 multiple-choice questions. Answer by completely filling in the box. If
you change an answer then completely erase your previous answer.
You will be given one mark for each correct answer and zero marks for missing,
incorrect or multiple answers.
6. Permitted examination aid: Casio FX-991 calculator. Dictionaries or any other
books are not permitted.
7. All cell phones, pagers, and other electronic devices must be turned OFF and put
away. Proctors will confiscate any such device seen on the desk of an exam
candidate.

Economics 2GG3, Fall, 2016

Midterm I, Version 1

Page 1 of 12

1.

A consumer with utility function U(x,y) has a budget of m and faces

prices Px and Py
dy y
The rate at which the consumer must give up y to get one more x

is
dx x
a. Px/Py
b. Py/Px
c.
Py/Px
d. MUy/MUx
e. MUx/MUy

2.

If she spends all of her income on bagels and tacos, Tammy can just afford 9 bagels
and 10 tacos per day. She could also use her entire budget to buy 3 bagels and 12
tacos per day. The price of one bagel is 4 ducats.
What is Tammys daily income?
a.
b.
c.
d.
e.

3.

Income (budget) = 166 ducats

Income (budget) = 160 ducats
Income (budget) = 156 ducats
Income (budget) = 150 ducats
Income (budget) = something other than 150, 156, 160, or 166 ducats

Suppose there are two goods, the prices of both goods are positive, and a
consumers income is also positive.
If the consumers income doubles and the price of both goods triple,
the consumers budget line gets steeper and shifts inward.
the consumers budget line gets steeper and shifts outward.
the consumers budget line gets flatter and shifts inward.
the slope of the consumers budget line does not change but the budget
line shifts outward away from the origin.
e. the slope of the consumers budget line does not change but the budget
line shifts inward toward the origin.
a.
b.
c.
d.

Economics 2GG3, Fall, 2016

Midterm I, Version 1

Page 2 of 12

4.

If the price of food is PF, the price of clothing is PC, and the utility function (U)
between food consumed (F) and clothing consumed (C) can be represented as
1
2

1
2

U ( F , C ) F C F C FC ,
dC C
then the marginal rate of substitution of clothing for food

equals
dF F

a. C F
C F
b.
F C
c.
PC PF
d.
PF PC
e.

5.

Colin has indifference curves with the equation x2 constant 4 x11 2 , where larger
constants correspond to higher indifference curves.
If good 1 is drawn on the horizontal axis and good 2 on the vertical axis,
what is the slope of Colins indifference curve when his consumption bundle is (16,
21)?
a.
b.
c.
d.
e.

6.

4
16/21
21/16
0.5
21

Blake spends his entire income on 9 sacks of acorns and 4 crates of butternuts.
The price of acorns is 6 dollars per sack and his income is 90 dollars.
He can just afford a commodity bundle with A sacks of acorns and B crates of
butternuts that satisfies the budget equation
a.
b.
c.
d.
e.

6A +3B = 90.
12A + 18B = 180.
12A + 18B = 90.
6A + 9B = 180.
9A + 4B = 90.

Economics 2GG3, Fall, 2016

Midterm I, Version 1

Page 3 of 12

7.

Wanda Littlemores utility function is U(x, y) = x + 30y 2y2.

Her income is $64.
If the price of x is $1 and the price of y is $10, how many units of good x will
Wanda demand?
a.
b.
c.
d.
e.

8.

20 < x*
15 < x* 20
10 < x* 15
5 < x* 10
x* 5

The prices of goods x and y are each $4.

Denise has $80 to spend and is considering choosing 10 units of x and 10 units of y.
Denise has strictly convex preferences and more of each good is better for her.
Where x is drawn on the horizontal axis and y is drawn on the vertical axis, the
slope of her indifference curve at the bundle (10, 10) is 2.
a.
b.
c.
d.
e.

9.

The bundle (10, 10) is the best she can afford.

She would be better off consuming more of good y and less of good x.
She would be better off consuming more of good x and less of good y.
She must dislike one of the goods.
More than one of the above is true.

Sophies utility function is U(x, y) = (x + 2)(y + 3).

If her marginal rate of substitution dy dx y x is 2
and she is consuming 12 units of good x,
how many units of good y must she be consuming?
a.
b.
c.
d.
e.

24 < y
20 < y 24
16 < y 20
12 < y 16
y 12

Economics 2GG3, Fall, 2016

Midterm I, Version 1

Page 4 of 12

10.

Moniques utility function is U ( x1 , x2 ) x1 x2 .

Her income is $40.
The price of good 2 is $2.
Good 1 is priced as follows: The first 8 units cost $2 per unit and any additional
units cost $1 per unit.
What consumption bundle does Monique choose?
a.
b.
c.
d.

11.

x1 = 10, x2 = 10
x1 = 14, x2 = 6
x1 = 16, x2 = 8
x1 = 18, x2 = 6

Anita consumes goods x and y.

Her indifference curves are described by the formula y k x 3 .
Higher values of k correspond to better indifference curves.
a.
b.
c.
d.
e.

Anita likes good y and hates good x.

Anita prefers bundle (8, 9) to bundle (9, 8).
Anita prefers bundle (11, 9) to bundle (9, 11).
Anita likes good x and hates good y.
More than one of the above statements are true.

Economics 2GG3, Fall, 2016

Midterm I, Version 1

Page 5 of 12

12.

Figure above shows Jeremys indifference map and budget lines for bread and
cheese. Which of the following statements is TRUE?
a.
b.
c.
d.
e.

Cheese is a Giffen good for Jeremy.

Both bread and cheese are inferior goods for Jeremy.
Neither cheese nor bread is an inferior good for Jeremy.
Cheese is an inferior good for Jeremy.
Bread is an inferior good for Jeremy.

Economics 2GG3, Fall, 2016

Midterm I, Version 1

Page 6 of 12

13.

Joannes utility function is given by U J xAJ 2 xBJ , where x AJ denotes her

consumption of apples and xBJ her consumption of bananas.
Colleens utility function is given by U C 3xCA 2 xBC , where x CA denotes her
consumption of apples and xBC her consumption of bananas.
Joanne and Colleen shop at the same grocery store.
a. When we observe that Joanne leaves the store with some bananas, then
we can deduce that Colleen also buys some bananas.
b. There exist prices of apples and bananas such that both consumers buy
strictly positive amounts of both goods.
c. When we observe that Joanne leaves the store with some apples and
some bananas, then we can deduce that Colleen also buys some apples
and some bananas.
d. When we observe that Joanne leaves the store with some apples, then we
can deduce that Colleen also buys some apples.
e. Apples and bananas are perfect complements for Joanne.

14.

Miss Muffet insists on consuming 2 units of whey per 1 unit of curds.

If the price of curds is $6 and the price of whey is $5,
then if Miss Muffets income is m, her demand for curds will be
a. 6m 5
b. 5c 6w m
c. m 16
d. 5m
e. m 17

Economics 2GG3, Fall, 2016

Midterm I, Version 1

Page 7 of 12

15.

If Lancelots utility function is U x3A xB , the price of apples is pA, the price of
bananas is pB , and his income is m, then Lancelots demand for apples will be
a. m pA pB
b. 3 pB m 4 pA
c. m 3 pA
d. 0.75 pAm
e. 3m 4 pA

16.

Ingrids utility function is U x1 , x2 4 x11 2 x2 .

If the price of Good 1 is $2, the price of Good 2 is $8, and her income is $240, how
many units of Good 1 will Ingrid choose?
a.
b.
c.
d.
e.

17.

144
121
100
64
16

Patricia was maximizing her utility subject to her budget constraint.

Then prices changed.
After the price change (at the new prices), she consumes a different (new) bundle
of goods, and she is better off.
Therefore, we conclude that
a.
b.
c.
d.

The new bundle costs more at the old prices than does the old bundle.
The new bundle costs less at the old prices than does the old bundle.
Patricias tastes changed when the prices changed.
The new bundle costs exactly the same amount at both the old prices and
the new prices.

Economics 2GG3, Fall, 2016

Midterm I, Version 1

Page 8 of 12

18.

Imelda consumes strawberries which cost her 10 pesos a box and bananas which
cost her 9 pesos a bunch.
With her income of 192 pesos she buys 12 boxes of strawberries and 8 bunches of
bananas.
Beth, with an income of 90 shillings, consumes strawberries at a cost of 3 shillings
a box and bananas at a cost of 6 shillings a bunch.
Assuming their preferences are identical,
a. each prefers her own bundle to the others.
b. they would both be indifferent between their own bundles and the
others.
c. Beth would prefer Imeldas consumption bundle to her own.
d. Imelda would prefer Beths consumption bundle to her own.
e. we cant make any of the above statements without more information.

19.

Hillary has an initial endowment of $500 and is interested in two things: how many
visits she can make to the doctor and how much money will be left over to spend on
other consumption goods.
Hillarys preferences over doctor visits and other consumption goods are strictly
convex.
When a trip to the doctor costs $50, Hillary sees the doctor 7 times.
After health care reform, a visit to the doctor will cost $10 but her taxes will rise by
$400.
a. Hillary will be exactly as well off after health care reform as she was
before health care reform.
b. Hillary will be made worse off by health care reform.
c. Hillary will be made better off by health care reform.
d. We cannot determine how health care reform will affect Hillary.

Economics 2GG3, Fall, 2016

Midterm I, Version 1

Page 9 of 12

20.

Michel consumes two goods and his utility function is U x12 x23 .
The price of good 2 does not change and his income does not change, but the price
of good 1 increases.
a. The substitution effect reduces the demand for good 2, and since the
income effect is zero, the demand for good 2 falls.
b. The substitution effect of the price change increases the demand for
good 2 and decreases the demand for good 1.
c. The income effect is zero, since his income remained constant.
d. The substitution effect on the demand for good 2 is zero, since the price
of good 2 did not change.
e. More than one of the above statements is true.

21.

Goods 1 and 2 are perfect complements and a consumer always consumes them in
the ratio of 2 units of good 2 to 1 unit of good 1.
If the consumer has an income of $2,730 and if the price of good 2 changes from
$4 to $8, while the price of good 1 stays at $5, then the income effect of the price
change
a.
b.
c.
d.
e.

22.

is exactly twice as strong as the substitution effect.

is half as strong as the substitution effect.
is 4 times as strong as the substitution effect.
does not change the demand for good 1.
accounts for the entire change in demand.

Peter considers x and y to be perfect substitutes.

They originally cost $10 and $9 respectively. His income is $720.
One day the price of x drops to $8.
a.
b.
c.
d.

The substitution effect increases the quantity of x by 90.

The income effect increases the quantity of y by 90.
The substitution effect increases the quantity of y by 80.
The income effect increases the quantity of x by 80.

Economics 2GG3, Fall, 2016

Midterm I, Version 1

Page 10 of 12

23.

Data on the prices, quantities sold and average incomes of buyers of Jolt Cola and
Coke, over several years, are shown below:

Year

Price of Jolt

Price of Coke

2010
2011
2012
2013

$1.00 / can
$1.00 / can
$1.00 / can
$1.40 / can

$1.00 / can
$1.40 / can
$1.40 / can
$1.40 / can

Average
Income of
Cola Buyers
$25,000
$25,000
$35,000
$35,000

Quantity of Jolt
Sold
15,000 cases
25,000 cases
15,000 cases
5,000 cases

What is the own-price elasticity of Jolt Cola?

a.
b.
c.
d.
e.

-1.67
-0.33
-0.6
-3.00
not determinable, since all of the variables are changing

Economics 2GG3, Fall, 2016

Midterm I, Version 1

Page 11 of 12

24.

The inverse demand function for grapes is described by the equation p = 676 9q,
where p is the price in dollars per crate and q is the number of crates of grapes
demanded per week.
When p = $37 per crate, what is the price elasticity of demand for grapes?
a. 37 639
b. 333 71
c. 9 71
d. 9 676
e. 71 37

25.

If the demand function for tickets to a show is q = 1,000 10p, at what price will
total ticket revenue be maximized?
a.
b.
c.
d.
e.

$25
$50
$250
$500
none of the above.

Economics 2GG3, Fall, 2016

Midterm I, Version 1

Page 12 of 12