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secondmidtermafternoonspring2019versiononewithansw...
secondmidtermafternoonspring2019versiononewithanswers.pdfEconomics 101 Name _____________________________ Spring 2019
secondmidtermafternoonspring2019ver...
secondmidtermafternoonspring2019versiononewithanswers.pdfEconomics 101 Name _____________________________ Spring 2019
Page 13
13
20. The income elasticity of steak is positive. The crossprice elasticity between steak and
hamburgers is positive. The crossprice elasticity between steak and potatoes is negative. Given
this information and holding everything else constant, which of the following scenarios will
definitely increase the demand for steak?
a.
An increase in the price of steak
b.
A decrease in the price of hamburgers
c.
A decrease in the price of potatoes
d.
A decrease in consumer incomes
21. The demand curve for brushes is described by the following equation where P is the price per
brush in cents and Q is the quantity of brushes:
Market Demand Curve: Q = 25
–
(1/5)P
The current price of a brush is 90 cents. If the price decreases to 75 cents what is the price
elasticity of demand? Use the arc elasticity or midpoint method to calculate this elasticity.
a. 17/33
b. 2/3
c. 33/17
d. 3/2
22. In the market for laundry detergent suppose that the price elasticity of demand is equal to 0.4.
If prices decrease by 15% in this market this implies that the percentage change in the quantity
demanded will be:
a. an increase of 37.5%.
b. a decrease of 37.5%.
c. an increase of 6%.
d. a decrease of 6%.
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Use the following information to answer the next THREE (3) questions.
Marianna's utility from consuming pies (P) and tea (T) is described by the following information:
Utility = 4PT
Marginal utility of pies = MUp = 4T
Marginal utility of tea = MUt = 4P
Marianna's income is initially equal to $200 and the price of a pie is $5 per pie and the price of
tea is $4 per unit.
23. Given the above information and holding everything else constant, what is the consumption
bundle (P, T) that maximizes Marianna's utility?
a. (P, T) = (10, 37.5)
b. (P, T) = (20, 25)
c. (P, T) = (12, 25)
d. (P, T) = (16, 30)
24. Suppose that the price of a pie increases to $8 per pie. Given this information and holding
everything else constant, what is Marianna's new utility if she maximizes her utility?
a. Utility = 1250
b. Utility = 125
c. Utility = 100
d. Utility = 312.5
25. The price of a pie is still $8 per pie. Which of the following expressions accurately describes
Marianna's substitution effect?
a. Martina's substitution effect is equal to [12.5
–
(5)(10
1/2
)].
b. Martina's substitution effect is equal to [20  (5)(10
1/2
)].
c. Martina's substitution effect is equal to [(5)(10
1/2
)
–
12.5].
d. Martina's substitution effect is equal to [20
–
12.5].
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