Microeconomics Theory
Economics 310-Some Old Exam Questions
Spring 2014 Dr. Halcoussis
Respond to each statement by writing “True” or “False.” If the answer is false, give a one-sentence explanation.
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Order Paper Now1. Buying decisions are based on nominal prices.
2. If you have to give up some amount of a good to produce more of another, you are operating at an efficient point on the production possibilities curve.
3. A price floor is drawn below the equilibrium price to show that a law has been passed to keep prices low.
4. If the price elasticity of demand for CSUN sweatshirts is 1.5, then an increase in the price of CSUN sweatshirts will lead to an increase in revenue from the sweatshirts.
5. A positive cross-price elasticity indicates the 2 goods are substitutes.
6. In a consumer’s equilibrium, MRSxy always equals Px divided by Py.
7. If income and all prices go up by 10%, the budget line will not change.
8. A Giffen good is an inferior good.
9. Using 2 carefully labeled graphs explain, in detail, the difference between constant opportunity costs and increasing opportunity costs. As part of your answer, explain why increasing opportunity costs occur.
10. A change in the birthrate of cattle causes the cattle population to shrink. Use carefully labeled graphs to show how the following markets are affected.
a. Leather.
b. Leather-cutting machinery.
c. Shoes.
d. Imitation Leather.
11. A consumer’s marginal rate of substitution of Good X for Good Y is currently equal to 4. The consumer is currently consuming 20 units of X and 12 units of Y. Would the consumer prefer another market basket consisting of 21 units of X and 10 units of Y? Draw a diagram to support your answer.
12. a. Good X is a normal good. Use indifference curves and budget lines to show the substitution and income effects of a price decrease for Good X. Put “expenditures on other goods” on the Y-axis, and clearly label all lines and curves. Make sure your diagram clearly shows the income effect and the substitution effect. Do the same thing for a typical inferior good and a Giffen good.
b. Give a short one or two sentence explanation of what the substitution effect means. Do the same for the income effect.
