Intermediate Microeconomics Quiz 1



Intermediate Microeconomics: Quiz #1

This quiz is worth 25 points and you will have 20 minutes in which to complete it. You may use a calculator and the back of this sheet for your responses. If something is unclear, please ask.

1. You are studying a model of a student’s grade in a college Intermediate Micro class. The grade is believed to be a function of three variables that are listed below.

a. Which of the following are exogenous and which of the following are endogenous? Explain. (4 points)

• The grade (G) earned in the class.

• The number of hours (H) studied for micro during the semester.

• The SAT math score (M) the student received in high school.

• The number of micro practice problems (PP) completed during the semester.

b. The student would like to receive the highest possible score (S) on tomorrow’s exam. There are only 12 possible hours the student can study, and there are three exams to study for: economics (E), theology (T), and chemistry (C). How would you write out the constrained optimization problem for this student? Think about what he/she is trying to maximize and what is his/her constraint. (4 points)

2. The supply curve for wool is given by Qs = P where Qs is the quantity offered for sale with the price is P. The demand curve for wool is given by Qd= 10 - P + I, where Qd is the quantity of wool demanded when the price is P and the level of income is I. Income is an exogenous variable.

a. If I=20, graph the supply and demand curves for this market. Solve for and indicate the equilibrium price and quantity in the graph. Carefully label everything. (5 points)

b. At the equilibrium price and quantity, compute and carefully interpret both:

• The price elasticity of demand. (3 points)

• The income elasticity of demand. (3 points)

3. Gina usually pays a price between $5 and $7 per gallon of ice cream. Over that range of prices, her monthly total expenditures on ice cream increases as the price decreases. What does this imply about her price elasticity of demand for ice cream? Explain. (6 points)

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download