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Midterm Exam – Fall 2023
ECON 311: Intermediate Microeconomics
Professor: Cole
Form B
Directions: There are seven (7) questions on this exam worth a total of 100 points. The points allocated to each question are listed at the end of the problem. You are allowed to use a “clean” calculator. Read each question carefully and put your answers in the allotted space (I will only grade what is in the space provided). Use math, graphs or words to explain your answers. You must show your work. Mathematical answers not supported by an explanation or work will receive no credit.
The following takes place between 9:10 AM and 11:00 AM...
- Matt is deciding between buying stuff (c) with price p = 1 and leisure (L) with wage w. His utility function is U (L, c) = min{ 3 c, 2 L}. (11 points) (a) Find the demand functions for leisure (L∗) and stuff (c∗), then find the labor supply function l∗. Does Matt work more when the wage rate rises?
L∗^ = c∗^ = l∗^ =
(b) Your grandma says if the wage rate goes up, Matt will supply more labor. Explain to her, in general, why that is not necessarily true and why this distinction is important in studies of developing countries.
(e) Jeff’s preferences are represented by ν(x, y) = 14 ln(x) + 34 ln(y). Answer parts (b)-(d) for Jeff. Comment.
- Abe and Mary both purchase corn chips and chocolate milk at their friendly neighborhood convenience store. The two friends have different tastes for corn chips and chocolate milk and they end up purchasing very different quantities of the two commodities. Nevertheless, they have the same marginal rate of substitution of chocolate milk for corn chips. Explain how this is possible. (12 points)
- Explain the two things required for a person’s preferences to be “rational”? (12 points)
- Natasha enjoys Flying (F ) and taking Judo (J). For every flight she buys, she gets three times as much enjoyment as a Judo class. (15 points)
(a) Write down a utility function that represents Natasha’s preferences,
U (F, J) =
(b) Given that pF = 90, pJ = 20 and Natasha has an income of $990, solve for Natasha’s utility maximizing bundle.
F ∗^ =
J∗^ =
(c) Suppose there is now a $11 per unit tax imposed Judo classes. Find the Natasha’s new optimal bundle and the tax revenue.
F ∗^ =
J∗^ =
T R =
- Mrs. Leontief always drinks each cup of coffee (C) with one-half spoonfuls of sugar (S). She would never consider consuming these two goods in any other proportion. Suppose that her income is $5, the price per cup of coffee is $0.45 and the price per spoonful of sugar is $0.10. (14 points)
(a) Write down a utility function that represents her preferences for the two goods. Draw several of her indifference curves.
(b) Find her optimal consumption bundle.
Congratulations, you’re done!
