Economics

Topics: Economics Pages: 5 (652 words) Published: January 21, 2016
REVIEW: MIDTERM #2
MICROECONOMIC PRINCIPLES-1102, section #11
Professor Ardy Lynn Wurtzel

SEAEINNSruEB

1.

Please use Sarah's Utility chart below to determine what combination of Clothing and Shoes would maximize her utility (find her consumer eq uilibrium)-10pts.

[1lzt: Complete the charl's (1) MU/$ column, the (2) TU (Clothing & Shoes) column and the (3) Income Spent column. This will allow you to solve for consumer equilibrium.]

Price (per unit): S1O.0O
MU (cr)/s

SARAH'STOTAL
INEOME

P-rjeE@_Ss.00

AVlttLAEl.E: $50
lncome
Spent

a

ru (cr)

MU (cr)

0

0

0

10

260

5

L

50

50

8

248

10

2

90

40

6

225

20

L22

32

4

183

24

4

150

2a

2

L23

4a

5

L76

26

0

0

0

TU (CL+S)

a

ru

(s)

MU (s)

MU (s)/s

(A) Which combination of clothing and shoes maximizes Sarah's utility? How did you arrive at this answer? ln other words, what criteria must be met in order for her utility to be maximized ?

lEjtut. T\ere are three: (1) Deals with Total
and (3) Deals with her Income Spent.]

Utility, (2) Deals with MU/$ of

each good

(B)Supposethereisa@!!g',allelseremainsunchangedand
for Sarah, clothing and shoes are substitutes.

(1) How does the quantity demanded of clothing chan ge? lEjUt: law ofdemandl (2) How does the D-curve for shoes react? lUiut: lavt of demand]

(C) Suppose instead that Sarah experiences a

r@,

and all else remains

unchanged.

(1) How does more income affect the D-curve for clothing? lincrease/decrease?l (2) How does more income affect the D-curve for shoes? lincrease/decrease?l Page 1 of 5

REVIEW MIDTERM #2
MICROECONOMIC PRINCIPLES-I102, section #11
ProfessorArdy Lynn Wurtzel

3.

The following question refers

to Chapter 18's analysis of the Iabor market, Please answer
the following by labeling the applicable graphs and explaining where/if needed. (20pts) (A) Please use the graph below to show the competitive equilibrium in the labor market (1) No Union

Exists.

30

-s(r)

25
20

-D(r)=vMP(r)

15

3 10
5

o

50

100

1s0

aUANTITY oF LABoR (hours/week)

(2) When a union exists (hint: Demand & Supply curves shift to u nion equilibrium) 30

-s(r)

25

?20
-D(L)=vMP(L)

iro
5

qUANTITY oF LABoB (hours/week)

Paee

3of6

EI'VIEWI MIOTERM'#2
M rcIlgEcqN'OMlePXl N!P!ES-I102. seeqa{r
ProfbsSirtArdY Linn'Wirrtr6l

lBl

Please use the praEh below

f 1'x,

to LABELthe monoEsonv eouilibrium

in a labor market

rriih-,,
(,1) N.o tr1inioufi

toeg*
MoMTPSONYLABOI.IyIARIGI EOUltlsllUM

-slL)

3a

(t-l

25

-MC

20

-D{!)cvi4p{!)
19

i
5

0

50
QUINffi

100
Or rAEOr

1so

(ho{rs/!i€!U

iz) wfth,min

Faeerl qi

6

REVIEW: MIDTERM #2
MICROECONOMIC PRINCIPLES-I102, section #11
ProfessorArdy Lynn Wurtzel

MONOPSONYLABOR MKT. with MIMINUM WAGE

-D(r)=vMP(r)

-s(L)
=

-t\4c(r)
-Minimumwage

50

100

150

200

2\O

QUANTIWOF TABOR (hours/week)

4.

Short Run vs, Long Run Competitive Equilibrium Outcomes..,
(A) Usingthegraphsbelow-- (a), (b),and (c)-labelwhich eraph represents (Belongs) to the f ollowing possible short-run 9gE9M!:

(1) Price = ATC (firm breaks-even)
(2) Price >ATC (firm makes a profit)
(3) Price < ATC (firm incurs a loss)

Paee 5

of6

REVIEW: MIDTERM #2
MICROECONOMIC PRINCIPLES-I102, section #11
ProfessorArdy Lynn Wurtzel

(c) shows

(b)shows outcome

(a)shows outcome
35

35

35

30

30

30

25

25

25

20

20

20

15

15

15

10

10

10

5

5

5
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