Eco 61 Practice Midterm

There are twenty multiple-choice questions, one short answer question, and one short essay. The multiple choice questions are worth 80 points, and the short answer and essay questions are each worth 10 points. This practice midterm allows you to practice the multiple choice questions. You will have 75 minutes to complete the actual midterm.
1. The following is a property of a Pareto optimal outcome:
a. The outcome may be very unfair or unequal.
b. There is no other outcome that would make a majority of people better off.
c. It makes everyone as well off as possible.
d. It treats each person's tastes symmetrically.
2. Alexis has been offered a payment that will pay her 800 for the rest of eternity, starting in one year. If her discount rate is 0.1, then the present value of the payment is:
a. 7200
b. 8800
c. 8000
d. 800
3. The Nash equilibrium of a non-cooperative game, unlike the Nash bargaining solution,
a. is arrived at when every player maximizes her utility, given the other players' actions.
b. is never Pareto optimal.
c. assumes that players can commit to a strategy.
d. assumes that individuals wish to maximize their utility.
4. Which of the following is a feature of a majority voting outcome?
a. A majority voting outcome is always Pareto optimal.
b. A majority voting outcome is never Pareto optimal.
c. A majority voting outcome will always make everyone at least as well off as following a social welfare function.
d. Following the recommendations of a social welfare function may make everyone better off than a majority voting outcome.
5. Anish buys 4 cdrs and 6 cars. If his marginal utility for cdrs is 30, his marginal utility for cars is 18, and cdrs cost 5, then the price of cars must be:
a. 45
b. 18
c. 3
d. 6
6. Tippacanoe and Tyler are bargaining over an agreement that has four possible outcomes. They are given by the following table:

Outcome
ABCD
Tippacanoe's Utility2010010084
Tyler's Utility15070110102


If Tippacanoe has a default allocation of 20, and Tyler has a default allocation of 70, which outcome is the Nash bargaining solution?
a. Outcome A.
b. Outcome B.
c. Outcome C.
d. Outcome D.
7. Beatrice spends all of her money on houses and schools. In period 1, houses cost 11 and schools cost 4. Beatrice buys 26 houses and 17 schools. Then, in period 2, the price of houses changes to 12, while the price of schools changes to 17. Beatrice's income also changes. Beatrice now buys 18 houses and 24 schools. Based on this, we can conclude:
a. Beatrice was better off in period 1.
b. Beatrice was better off in period 2.
c. Beatrice's preferences are inconsistent.
d. None of the above, necessarily.
8. A consumer has a budget of $20, which can only be spent on potions and perfumes. Each potion costs $4, and each perfume costs $2. If we put potions on the X axis and perfumes on the Y axis, what will be the Y-intercept of her budget line?
a. 2
b. 20
c. 10
d. 5
9. The following table shows the payoffs of a two-player game, where player 1's payoff is listed first in each cell and player 2's payoff is listed second:

Player 2's strategy
AB
Player 1's
strategy		B17,2011,14
A14,1120,17


Which of the following is true?
a. It is a Nash equilibrium when player 1 plays B and player 2 plays A.
b. It is a Nash equilibrium when player 1 plays A and player 2 plays B.
c. Both of the above are Nash equilibria.
d. None of the above is a Nash equilibrium.
10. Which of the following is a property of a Giffen good?
a. The consumer is unlikely to spend much money on the good.
b. The income effect is positive.
c. The income effect is smaller in magnitude than the substitution effect.
d. The good is an inferior good.
11. Which of the following is not seen by Arrow as a property that a social welfare function should have?
a. The social welfare function should not simply mirror the preferences of one individual.
b. When considering whether outcome A should be recommended over outcome B, the social welfare function should not consider any outcomes besides A and B.
c. The social welfare function should recommend any outcome favored by a majority.
d. Any preferences should be acceptable to the social welfare function.
12. Anuncion spends all of her income on pineapples and bananas. When pineapples cost 7 and bananas cost 8, Anuncion buys 14 pineapples and 15 bananas. Then, the price of a banana drops to 5, and Anuncion buys 4 pineapples and 38 bananas. If Anuncion's income effect resulting from the price change is 17, then her substitution effect is:
a. -7
b. 6
c. -6
d. -27
13. All of the following are required for Debreu's theorem to guarantee the existence of a well-behaved utility function, except:
a. People can state how much better one outcome is than another outcome.
b. If an individual is indifferent between outcomes A and B, and she is indifferent between B and C, then she must be indifferent between B and C.
c. If outcome A is better strictly better than outcome B, then any outcome sufficiently close to B is strictly worse than outcome A.
d. Individuals do not have lexographic preferences.
14. An upward-sloping indifference curve violates which of the following assumptions:
a. Non-satiation and a diminishing marginal rate of substitution.
b. Non-satiation.
c. A diminishing marginal rate of substitution.
d. No assumptions are violated by this.
15. What will happen to to the budget line if the good on the X axis becomes more expensive?
a. The budget line will shift to the right without changing slope.
b. The budget line will not change.
c. The budget line will shift out in parallel.
d. The budget line will shift in and become steeper.
16. If a Engle curve is downward-sloping, then:
a. the two goods are substitutes.
b. the good is a normal good.
c. nothing can necessarily be concluded.
d. the good is an inferior good.
17. Rawls' difference principle, like classical utilitarianism,
a. might allow someone to starve to death.
b. is based on a social contract in which people do not know which member of society they will end up being.
c. might recommend a Pareto inferior outcome if it were arrived at by a fair process.
d. would not avoid an outcome just because it is Pareto optimal.
18. A consumer has to choose between various quantities of Doubles and Buss Ups. She has been asked about her preferences over three different bundles of goods:

BundleDoublesBuss Ups
A1223
B1317
C722


The consumer has stated that she prefers bundle B to bundle C, and bundle C to bundle A.

Which of the five assumptions about consumer preferences do her stated preferences violate?

Hint: It may help to try drawing some indifference curves running through these points and seeing what they look like.
a. Non-satiation.
b. Non-satiation or transitivity.
c. Diminishing MRS.
d. None of the above.
19. If a price-consumption curve is downward-sloping, then:
a. the good on the X axis is an inferior good.
b. the law of demand holds.
c. the two goods are subtitutes.
d. our five assumptions about preferences are not satisfied.
20. A benevolent bureaucrat much choose between four outcomes affecting Hugo and Evo, as are given by the following table:

Outcome
ABCD
Hugo's Utility31070550166
Evo's Utility14026020212


How many of the outcomes are Pareto optimal?
a. One of them.
b. Two of them.
c. Three of them.
d. All four of them.


21. (10 points) Tate buys only tigers and lions. Tate's demand function for tigers is QD = 0.0003I2 - 0.5p, where I is Tate's income and p is the price of tigers, no matter what the price of lions is.

Draw Tate's income-consumption path when the price of lions is fixed at 6, the price of tigers is fixed as 9, and Tate's income varies from 162 to 192 in increments of 10, labelling the X and Y intercepts and the allocation chosen at each level of income. At what levels of income are lions a normal good? At what levels of income are they an inferior good?

22. (10 points) "All good men are happy when they choose to be their own authors. Those who choose to have others edit their pathways, must live on the edge of another man's sword." -- Julie Arabi

Discuss the ways in which the distributional theories of Jeremy Bentham (i.e., classical utilitarianism), John Rawls, Amartya Sen, and Ronald Dworkin would support as well as conflict with this statement. I'm not terribly interested in what you think of the statement (you can feel free to tell me, but I will neither add nor subtract points for it); rather, I would like a logical argument about how the ideas of each of the above would or would not support that statement. Note that you will get six out of ten points for simply stating what the relevant views of each philosopher are, and the other four out of ten for giving logically plausible arguments as to how such a view might give support an opinion about the above statement. Answer fully, but do not pad your answers; three to five meaningful sentences on each view should probably be sufficient.

Note that this essay will not be graded by the computer.....