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MODR 1710 Study Guide - Final Guide: Perfect Competition, Fixed Cost, Economic EquilibriumExam


Department
Modes Of Reasoning
Course Code
MODR 1710
Professor
Carmela Circelli
Study Guide
Final

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PRINCIPLES OF MICROECONOMICS
Midterm Test #3,
Sample #2 Answers
Time Allowed
: 1 Hour
This total marks in this test are 50. The test is divided into two parts:
Part I - problem format - is worth 40 marks (40 of the total mark of 50)
Part II - multiple choice- is worth 10 marks (10 of the total mark of 50)
(5 multiple choice questions worth 2 marks each)
SHOW YOUR WORK WHERE APPLICABLE
.
YOU MUST USE A PEN; PENCIL IS NOT ELIGIBLE FOR REMARKING
Print your name and student number clearly on the front of the exam and on any loose
pages.
Name:
(Family Name) (Given Name)
_______________________________________
Student #:
______________________
There are 7 pages
to the exam.

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

Principles of Microeconomics. Midterm Test #3, Sample #2 Answers
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Part I
Place your answers (and work where necessary) in the space provided.
Clearly label all axes, curves, and points.
1. Derivation of Demand (10 marks)
In the space below, draw a diagram to demonstrate the derivation of two points of a
relatively inelastic demand curve (not perfectly inelastic) for a good X from
indifference curve and budget line analysis given a decrease
a) Draw a diagram of a budget line reflecting the initial prices of X (Pxo) and Y (Py) and
the individual's income. Label your axes and intercepts (3 marks)
in the price of X. The
subsections below help you through this exercise. Clearly label your diagram.
b) Show the quantity of X (Xo) at initial consumer equilibrium. (2 marks)
c) Draw a budget line representing a decrease in the price of X to Px1. (1 marks)
d) Indicate the quantity of X1 at consumer equilibrium for the new budget line. (1 mark)
e) Draw an inelastic demand diagram reflecting the information from your indifference
curve and budget line diagram. (3 marks)
Qy (All other goods)
Qx
Inc/P
Xo
Inc/P
X1
Inc/Py
P
Q
P
Xo
P
X1
Xo X
1
Xo X
1
D
a) 1 mark: correct axes for Qx/Qy diagram: Qy (all other goods) and Qx
1 mark: intercepts of original budget line: Inc/Py and Inc/Pxo (or something similar)
1 mark: linear budget line
b) 1 mark: Convex indifference curve (no positive slope)
1 mark: Xo at tangency of indifference curve and budget line
c) 1 mark: outward rotation of budget line around fixed y-intercept
d) 1 mark: X1 (or whatever designation) from tangency of new budget line and an
indifference curve that does not intersect other indifference curve
e) 1 mark: Xo from indifference curve diagram and Pxo for a point on demand
1 mark: X1 from indifference curve diagram and PX1 < PXo for second demand point
1 mark: X1 % increase relative to Xo less than PX1 % decrease relative to PXo
(basically an attempt at a noticeably steep D)
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