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1. If the price of insurance goes up, people will become less risk averse.

2. Suppose that a consumer has some wealth w and is considering investing some amount x in risky asset. This asset could earn a return of Rg in the good time and earn Rb in bad time. Let Rg >0 and Rb <0 for simplicity. If the consumer pays a tax of the rate t on investment earning and is risk averse, then a. his investment should go up with the introduction of tax b. his investment should go down with the introduction of tax c. his investment would remain constant d. not enough information to predict.

3. If the mean is plotted on the horizontal axis, and the variance on the vertical, then indifference curves for a risk averter must slope upward and to the right. 4. If you invest half your money in a risk-free asset and half your money in a risky asset such that the standard deviation of the return on the risky asset is s, then the standard deviation of the return on your investment portfolio is s/2. 5. The equivalent variation in income from a tax is the amount of extra income that a consumer would need in order to be as well off after the tax is imposed as he was originally. 6. The demand curve is inelastic for inferior goods and elastic for normal goods. 7. If the demand curve for a good is given by the equation q = 2/p, where q is quantity and p is price, then at any positive price, the elasticity of demand will be -1. 8. A production isoquant is a locus of combinations of inputs that are equally profitable.

9. If there are constant returns to scale, then doubling the amount of any input will exactly double the amount of output. 10. If there is one input used in production and if there are decreasing returns to scale, then the marginal product for the input will be diminishing. 11. If the price of the output of a profitmaximizing, competitive firm rises and all other prices stay constant, then the firms output cannot fall. 12. If there are increasing returns to scale, then average costs are a decreasing function of output. 13. The total cost function c(w1, w2, y) expresses the cost per unit of output as a function of input prices and output. 14. Average cost can never rise while marginal costs are declining. 15. The cost function C(y) = 100 + 3y2 has marginal cost less than average cost for all positive levels of output. 16. An upward sloping supply curve can be explained by the fact that: I. II. III. Higher prices mean greater profits for a producer. Eventually costs rise as production increases. Consumers find goods more valuable at higher prices.

a. I only b. II only c. both I and II d. I, II, and III

17. The price of coal fell and the quantity sold also fell. Which of the following events is consistent with this observation (all other things equal)? a. The price of oil, a substitute for coal, fell. b. Coal miners received large wage increase. c. Coal producers installed more efficient mining equipment. d. Demand for coal is inelastic.

18. If the price of lunch at the school cafeteria increases and revenues from cafeteria lunches remain constant, we can conclude that the elasticity of demand for a school lunch is:
a. Elastic. b. Perfectly elastic. c. Perfectly inelastic d. Unitary elastic

19. What effects would a decrease in the price of computer memory chips have on the equilibrium price and quantity of personal computers, all other things equal? Price a. Increases b. Increases c. Decreases d. Decreases Quantity__ Decreases Increases Decreases Increases

20. What will happen if a legal price floor (or, minimum price) is placed on a good below its free market equilibrium price?

a. Surpluses will develop. b. Shortages will develop. c. Quantity supplied will equal quantity demanded d. Black markets will develop

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