Economics 212 Section A
Midterm Exam
October 24, 2000
Question One (20 marks)
Jennifer's preferences for hot sandwiches and cold sandwiches can be represented by
U(h,c) = c4h. Prices of hot sandwiches and cold sandwiches are represented by ph and pc. Jennifer's weekly lunch income is m.
A) (5 marks) Find Jennifer's weekly demand for hot sandwiches.
Answer:
MRS=- MUc/MUh=-4h/c. (2 marks)
Optimality condition: MRS=- pc/ph. --> -4h/c=pc/ph. (1 mark)
Substituting this expression into the budget constraint pcc+phh=m, you will find:
c=4/5*m/pc, h=1/5*m/ph. (2 marks)
B) (5 marks) Jennifer works in an office building with 399 other people who each have the same preferences and lunch income as Jennifer. What is the market demand function for this group of 400 individuals?
Answer:
Aggregate demand=400* 1/5*m/ph.
C) (5 marks) When each person's m = $30, and when ph = $4, what will the total number of hot sandwiches demanded be?
Answer:
60.
D) (5 marks) Find the price elasticity of demand for hot sandwiches when ph = $4 and each person's m = $30.
Answer:
Elasticity=- h/ ph* ph/h (note: do not ...