EconS305: Intermediate Microeconomics Without Calculus SES WSU
\nMidterm (100 points)
\nShow all your work to get full credit.
\nPlease note that no late submission will be accepted, and plagiarism will
\nbe controlled.
\n1. (3 Points) What is the MRS between two complementary goods? Show on the graph.
\nExplain and provide the MRS formula.
\n2. (1 Point) T\/F: Convexity of the indifference curve is due to non-satiation.
\n3. (1 Point) T\/F: If a decrease in income causes an individual\u2019s demand curve for a
\ngood to shift to the left, then the good is inferior.
\n4. (20 Points) Consider the following utility Jose gets from consuming two goods, x,
\nand z:
\nU\u00af = x
\n0.6
\nz
\n0.4
\nThe price for good x is Px = 6, the price for good z is Pz = 8, and Jose\u2019s income (Y)
\nis 128.
\n\u2022 Find MRSxz and explain.
\n\u2022 Write down and graph budget constraints.
\n\u2022 Write down the optimality condition.
\n\u2022 Using the optimality condition and budget line, derive the optimal quantity of
\nx and z.
\n\u2022 Find Jose\u2019s utility level.
\n5. (5 Points) If Nicole\u2019s annual income decreases from $100,000 to $75,000 and her
\ndemand for haddock increases from 50 to 75, calculate the income elasticity of demand
\nfor haddock. What type of good is haddock for Nicole?
\n6. (40 Points) Audrey is a college student at Smallville State University. Suppose
\nthat she only consumes food (f) and housing (h) with the following utility function:
\nU = f
\n0.6h
\n0.4
\n.
\n\u2022 Find the demand functions for food and housing. Do they satisfy the law of
\ndemand?
\n\u2022 Suppose that Audrey\u2019s salary, Y = 100; price of food, pf = 5, and price of
\nhousing, ph = 10. Find the amount of food and housing demanded. Then, solve
\nfor Audrey\u2019s utility level given the amount of food and housing demanded.
\n\u2022 Audrey will be moving to the Metropolis upon graduation. Suppose that the
\nprice of food is the same, pf = 5, but the price of housing is more expensive
\nph = 20. Without any changes in income, find the amount of food and housing
\ndemanded in this new city.
\nMagdana Kondaridze, PhD Candidate 1
\nEconS305: Intermediate Microeconomics Without Calculus SES WSU
\n\u2022 Her new employer at the Metropolis thinks that the appropriate compensation
\nfor Audrey should be to give her enough income such that she could buy the
\nsame bundle as before in Smallville. Using new prices and old demand, the
\nemployer pays her $140. This can be obtained from the following:
\npf,new \u00d7 fold + ph,new \u00d7 hold = Y
\n5(12) + 20(4) = 140
\nThe issue is that paying $140 is not efficient for the firm. In other words, Audrey\u2019s
\nemployer can pay her less. Find the amount of income that makes Audrey
\nindifferent between Smallville and Metropolis.
\n\u2022 Find the Compensating Variation. Interpret your finding
\n7. (15 Points) Consider the following demand function and supply function in a good
\nmarket:
\nqd = 30 \u2212 4p
\nqs = 2p \u2212 6
\n\u2022 Find the equilibrium price and equilibrium quantity.
\n\u2022 Invert the demand function and the supply function. Calculate the consumer
\nsurplus and producer surplus. Then, find the total welfare.
\n\u2022 Suppose that price ceiling has been imposed to p
\nceiling = 4. Would this scenario
\nresult in excess demand or excess supply? Find the excess value.
\n\u2022 Graph and find the consumer surplus, producer surplus, and total welfare.
\nClearly label the graph. (Hint: Use the vertical intercepts from the inverted
\ndemand and supply functions to graph).
\n\u2022 Find the Dead Weight Loss (DWL).
\n8. (15 Points) Consider the following demand and supply functions:
\nqd = 15 \u2212 2p
\nqs = p \u2212 3
\n\u2022 Find the market equilibrium price and quantity.
\n\u2022 $2 tax has been imposed on every unit of good that consumers buy. Find the
\nthe price that is received by the supplier and the price a consumer pays.
\n\u2022 A $2 tax has been imposed on every unit of good that consumers buy. Find the
\nthe price that is received by the supplier and the price a consumer pays.
\n\u2022 What is the total revenue obtained by the government from imposing the $2
\ntax?
\n\u2022 Show the consumer surplus, producer surplus, buyer\u2019s burden, seller\u2019s burden,
\nand Dead Weight Loss on a graph. Clearly label the graph.
\n\u2022 Find how much the buyer bears on the tax and how much the seller pays. Who
\npays more?
\nMagdana Kondaridze, PhD Candidate 2<\/p>\n","protected":false},"excerpt":{"rendered":"
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