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# Microeconomics l Exam: university level

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Microeconomics 1, university online exam done over moodle. The topics covered on the exam are: budget constraint, preferences, utility, consumer choice, demand, hicksian decomposition of income and substitution effects, expenditure minimization, duality, welfare evaluation of economic changes, revealed preferences, slutsky decomposition of income and substitution effect, consumer buying and selling, labor supply, decision-making over time, decision-making under uncertainty.
I need to get around 75% from the exam, and the exam consists of: 10 multiple-choice questions (30 points) - theory, 4 short exercises (40 points), 1 long problem (20 points), 1 graphical problem (10 points) - mostly theoretical
The attached file below is the sample exam. If anyone is willing to help, hit me up.

##### Additional Instructions:

Microeconomics I - FINAL 2021
1 Multiple choice
1. (3 points) A consumer has well-behaved preferences and buys some units of the good x and the
good y. Suppose that the price of x decreases by 50%. Which of the following statements is FALSE?
(a) In a new optimum, the utility-maximizing consumer derives a higher level of utility than before
the price change.
(b) To be as well o� as before the price change, the consumer's spending might decrease by more
than 50%.
(c) If also income halves, the utility-maximizing consumer will never derive an initial level of
utility as before the price and income change.
(d) To be as well o� as before the price change, the consumer might pay less.
2. (3 points) If a consumer has non-rational preferences, then his choice:
(a) might satisfy both WARP and SARP.
(b) might satisfy SARP, but never WARP.
(c) might satisfy WARP, but never SARP.
(d) We cannot say whether WARP or SARP is satis�ed if we do not have data on choices.
3. (3 points) A consumer has well-behaved preferences. If the real wage increases, then the consumer
will necessarily:
(a) decrease or leave constant his labor supply.
(b) increase his consumption.
(c) increase or leave constant his labor supply.
(d) increase or leave constant his labor supply if leisure is a normal good but otherwise might
reduce his labor supply.
4. (3 points) Lara consumes positive quantities of both nutella and coke. The price of nutella is 10
cents per unit and the price of coke is 5 cents per unit. With her current consumption bundle, her
marginal utility of nutella is 5 and her marginal utility of coke is 10.
(a) Lara is in the optimum reaching the highest utility possible.
(b) Without changing her total expenditures, she could increase her utility by consuming more
coke and less nutella.
(c) Without changing her total expenditures on nutella and coke, she could not increase her utility.
(d) Without changing her total expenditures, she could increase her utility by consuming more
nutella and less coke.
5. (3 points) Suppose that Frank buys bananas (x) and oranges (y). His budget line was described
by the equation y = 20 − x. At a later time, his budget line could be described by the equation
y = 30−2x. What is a possible explanation for the change between the earlier and the later budget
line?
(a) The price of bananas and Frank's income both decreased.
(b) The price of bananas and Frank's income both increased.
(c) The price of bananas increased and Frank's income decreased.
(d) The price of bananas decreased and Frank's income increased.
6. (3 points) Alisha lives in Nepal and consumes only rice and lentils. Her demand for rice is (m −
pl)/(2pr), where pl and pr are the prices of lentils and rice per pack, respectively, and m is income.
Which of the following statements is true?
(a) Rice is a normal good and a gross substitute of lentils for Alisha.
(b) Rice is an inferior good and a gross substitute of lentils for Alisha.
Page 1
(c) Rice is a Gi�en and inferior good.
(d) Rice is a normal good and a gross complement of lentils for Alisha.
7. (3 points) Richard consumes only oranges and apples, and apples are an inferior good for him.
The price of oranges increases, but there is an increase in his income that keeps him on the same
indi�erence curve as before. (Richard has well-behaved preferences.)
(a) After the change, Richard will buy more apples and fewer oranges.
(b) After the change, Richard will buy fewer apples and more oranges.
(c) After the change, Richard will buy more of both goods.
(d) After the change, Richard will buy fewer of both goods.
(e) We would need to know his utility function to determine whether any of the above statements
are true.
8. (3 points) If a consumer consumes two goods which have positive marginal utilities and her prefer-
ences are convex, then:
(a) indi�erence curves cannot be L-shaped.
(b) indi�erence curves cannot be straight lines.
(c) if two bundles lie on the same indi�erence curve, then an average of the two bundles is worse
than either one.
(d) the marginal rate of substitution must be always diminishing along any indi�erence curve.
(e) None of the above is correct.
9. (3 points) Ingeborg consumes goods x and y. Her indi�erence curves can be expressed by the
formula y = a/(x+ 7). Higher values of a correspond to higher indi�erence curves.
(a) Ingeborg likes good y and hates good x.
(b) Ingeborg prefers bundle (3, 4) to bundle (4, 3).
(c) Ingeborg prefers bundle (8, 5) to bundle (5, 8).
(d) Ingeborg likes good x and hates good y.
(e) More than one of the above statements are true.
10. (3 points) Suppose that a researcher computes consumer surplus using an area below the Walrasian
demand because it is the only demand that is observable. The researcher analyzes the demand for
the good x, and from the data, she observes that richer people buy less of the good x than poorer
people. Then:
(a) If price decreases, the calculated gain in consumer surplus will be lower than the real gain of
consumers.
(b) If price decreases, the calculated gain in consumer surplus will be greater than the real gain
of consumers.
(c) If price decreases, the calculated loss in consumer surplus will be greater than the real loss of
consumers.
(d) If price decreases, the calculated loss in consumer surplus will be lower than the real loss of
consumers.
Page 2
2 Short exercises
1. (10 points) Lucy's utility function for tea (x) and pastries (y) is u(x, y) = min(x, 2y). (Assume x
on the horizontal axis and y on the vertical axis.)
(a) (2 points) What is the slope of the line going through the kink points of the indi�erence curves?
Round your answer to the nearest decimal.
(b) (1 point) If she decides to eat 4 pastries, how many cups of tea does she want to drink?
(c) (3 points) If the price of a cup of tea is $2.50, price of a piece of pastry $3, and in total, Lucy
has $24 to spend in the pastry shop, how many pastries does she want to eat? How many cups
of tea does she want to drink?
(d) (3 points) How many cups of tea and how many pastries will Lucy choose to consume if she
wants to reach utility level 10?
(e) (1 point) What are the minimized expenditures to reach utility level 10?
2. (10 points) Suppose that Jack consumes only two goods, rice and magic beans, and he also produces
both goods on a farm. He is able to produce 50 kg of rice and 20 kg of magic beans per week. He
can also trade goods at the market. The price of rice is 30 CZK per kg and the price of magic beans
is 60 CZK per kg.
When answering the following questions, do not forget to enter negative sign if neces-
sary.
(a) (1 point) If we know that Jack consumes 30 kg of magic beans, what is his net demand for
magic beans?
(b) (2 points) What is his net demand for rice?
(c) (1 point) If the price of magic beans decreases to 50, will Jack remain a net buyer? (please
answer yes or no)
(d) (2 points) Is the consumption bundle that Jack consumes optimal given that his utility function
is u(B,R) = BR+ 30B (where B denotes magic beans and R denotes rice) and given original
prices? (please answer yes or no)
(e) (2 points) What will be the optimal consumption of rice given the utility function u(B,R) =
BR + 30B and given that the price of magic beans decreases to 50? (round the result down
to the nearest integer)
(f) (2 points) What will be the change in Jack's utility after the price of magic beans decreases
to 50? (work with integer values for consumption of both goods)
3. (10 points) Charlie divides his 30 hours a week between labour L and relaxation R. He has a weekly
non-labour income $96 and receives an hourly wage $8. From his income, he buys consumption C
at a price $4 per unit. His preferences are given by his utility function u(C,R) = CR2.
(a) (3 points) How many hours does he prefer to work weekly?
(b) (2 points) If he decides not to work, what is the value of the marginal rate of substitution in
absolute value?
(c) (3 points) If he loses his non-labour income, how many relaxation hours can he a�ord to attain
the same consumption level as in part (a)?
(d) (2 points) Assume you pay 20% labour-income tax from your gross wage (remember that your
net wage is $8). How many dollars do you pay each week as a labour-income tax if you are
working as in part (a)?
4. (10 points) Monica has income $90 in period 1 and will have income $120 in period 2. Her utility
function is u(c1, c2) = c1 · c2, where c1 is her consumption in period 1, and c2 is her consumption
in period 2.
(a) (1 point) If she saves all her income from period 1 (i.e. c1 = 0), then she can spend $228 in
total in period 2. How much is the interest rate?
(b) (3 points) How much she consumes in each period to maximize her utility?
Page 3
(c) (2 points) Consider the result from part (b). In period 1, is she a borrower or a lender? How
much she has to return in period 2 / how much she gets back in period 2?
(d) (1 point) If there exists in�ation, Monica's consumption in period 1 INCREASES/STAYS
THE SAME/ DECREASES in comparison to part (b).
(e) (3 points) How much is the in�ation rate if Monica's consumption in period 2 in the new
optimum is $100?
3 Long exercise
(20 points) Mr. King consumes bacon and organic carrots. His income is equal to 580 EUR. The price
per kilo of carrots is 2 EUR and the price per kilo of bacon is 6 EUR. Mr. King has the following utility
function: u(B,C) = BC + 4B. Determine:
1. (2 points) Mr. King's optimal consumption of carrots.
2. (2 points) Mr. King's optimal consumption of bacon.
3. (2 points) What will be the optimal consumption of carrots if the price of bacon is reduced to 4
EUR per kilo?
4. (2 points) What will be the optimal consumption of bacon if the price of bacon is reduced to 4 EUR
per kilo?
5. (2 points) What will be the change in Mr. King's utility after the price of bacon is reduced to 4
EUR per kilo?
6. (3 points) If you decompose the change in optimal consumption of bacon after its price is reduced
to 4 EUR per kilo into pure substitution e�ect and income e�ect using Slutsky decomposition, what
will be the substitution e�ect? (if consumption is a decimal number, the number should be rounded
down to one decimal place)
7. (3 points) If you decompose the change in optimal consumption of bacon after its price is reduced
to 4 EUR per kilo into pure substitution e�ect and income e�ect using Slutsky decomposition, what
will be the income e�ect? (if consumption is a decimal number, the number should be rounded
down to one decimal place)
8. (2 points) What is the value of Paasche price index? (round the result to the nearest tenth)
9. (2 points) What is the value of Laspeyre's price index? (round the result to the nearest tenth)
4 Graphical exercise
(10 points) Henry consumes two goods x1 and x2 with prices p1 and p2, respectively. Suppose that the
good x1 is an ordinary good and a gross complement of x2, while the good x2 is an ordinary good and a
gross substitute of x1. Consumer has an income m and maximizes his utility.
1. Consider three di�erent situations in which only prices of the good x1 di�er, p
0
1 < p
1
1 < p
2
1, while
other parameters of the model are constant (the price of x2 is p
0
2 in all three situations). Draw
Henry's budget constraints for all three situations in a graph with x1 on the horizontal axis and
x2 on the vertical axis. Depict Henry's optima in all situations and label them as A
0, A1, A2 for
respective prices of the good 1 p01, p
1
1, p
2
1.
2. Using the derived optimal quantities of the good x1 under di�erent price levels, draw a demand
curve for the good x1 in a graph with p1 on the vertical axis and x1 on the horizontal axis. On the
demand curve, label points corresponding to optima derived in (1.) as A0, A1, A2.
3. Now suppose that the price of x1 is kept constant at the level p
0
1 while the price of x2 changes, and
p02 < p
1
2 < p
2
2. Draw Henry's budget constraints in a new graph with x1 on the horizontal axis and
x2 on the vertical axis. Depict Henry's optima in each situation and label them as B
0, B1, B2 for
respective prices of the good 2 p02, p
1
2, p
2
2. Note that A
0 and B0 are identical.
Page 4
4. In the original graph from the part (2.) showing the demand x1(p1, p02,m), draw demands x1(p1, p
1
2,m)
(i.e. demand for the good x1 as a function of p1 when price of the good x2 is p
1
2 and consumer
has income m and x1(p1, p22,m). Suppose that demands are parallel. On the demand curves, label
points corresponding to optima derived in (3.) as B0, B1, B2.
Page 5

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