Question 1-1
One reason the EU governments might subsidize research of an alternative to crude-oil based
gasoline?
A. More substitutes will reduce the price of crude-oil based gasoline for the EU.
B. More substitutes will increase the EU’s demand elasticity of crude-oil based gasoline.
C....
One reason the EU governments might subsidize research of an alternative to crude-oil based
gasoline?
A. More substitutes will reduce the price of crude-oil based gasoline for the EU.
B. More substitutes will increase the EU’s demand elasticity of crude-oil based gasoline.
C. More substitutes will reduce the impact of supply shocks on the price of crude-oil based
gasoline in the EU.
D. Any or all of the above.
Answer: D. Developing substitutes are likely to both flatten the demand curve (B) and shift
demand down (A), and, as a consequence of B, also reduce any supply shocks or shifts in the
supply curve (C).
Question 1-2
If the supply curve for orange juice is estimated to be Q = 40 + 2p, then, at a price of p=2, the price
elasticity of supply is
A. 0,01
B. 0,09
C. 1
D. 11
�� �
Answer: B. � = = ∙ = , .
�� � 4 + ∙
Question 1-3
A perfect price discriminator
A. charges each buyer their reservation price.
B. charges different prices to each customer based upon different costs of delivery.
C. generates a deadweight loss to society.
D. charges lower prices to customers who buy greater quantities.
Answer: A. That is the definition of perfect price discrimination.
Prepared by Christian Erik Kampmann Printed 2015-02-15
, Microeconomics Re-exam 2015-01-26 Page 2 of 12
Question 1-4
All else held constant, as the variance of a payoff increases, the
A. expected value of the payoff increases.
B. risk of the payoff increases.
C. risk of the payoff decreases.
D. expected value of the payoff decreases.
Answer: B. Risk measures the variability in payoff. Higher variability means higher risk.
Question 1-5
The figure shows Bobby's indifference map for soda and juice. � indicates his original budget line
and � his original indifference curve. � indicates his budget line and � the indifference curve he
can now reach, resulting from a decrease in the price of soda. What change in quantity best
represents his substitution effect?
A. 10
B. 18
C. 28
D. 54
Answer: B. The substitution effect arises from a change in the relative prices of soda and juice (a
shift in the slope of the budget line), causing a move along the original indifference line I1 from
point e1 to the middle point in the figure (from 36 to 54 on the horizontal axis). The income effect
then arises from the fact the subsequent outward shift of the budget line reflecting that the drop in
the soda price allows him to buy more soda and juice (to point e2).
Prepared by Christian Erik Kampmann Printed 2015-02-15
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