May Examination Period 2020
ECN111 Microeconomics 1 Duration: 3 hours
The exam consists of four problems. Solve ALL of them.
Each problem counts for 25%. Each problem is comprised of four multiple choice
questions and one open question.
In multiple choice questions, only one of the answers is correct.
The final submission on QMplus is the version that will be marked.
This examination paper MUST NOT be shared with anyone else. Doing so will be
considered a very serious assessment offence under the Queen Mary Academic Misconduct
Policy.
This examination is an individual assessment and must be entirely your own work. All work
will be run through the plagiarism software, Turnitin. The software will also compare your
script against all other student submissions. Any evidence of plagiarism or collusion will be
taken forward as academic misconduct.
Calculators are permitted in this examination.
Please ensure that your working is clearly shown with all steps of your calculation included in
your answer document, including any formula used.
When writing formulas, please note the following:
• It is acceptable to use the standard alphabet rather than greek letters. The following are
recommended: m for , s for , w for , r for , d for , b for
• For mathematical operators: add +, subtract -, multiply *, and divide /
• Where appropriate, use an underscore to indicate a subscript, Eg r_f for rf
• Use the ^ character for power, eg x^2 for x2, x^0.5 for √x
• As an alternative to x^.5 you may type sqrt(x).
• Use brackets as necessary. To make your answer clearer use different brackets where
appropriate, eg [] {} ()
Examiner: Dr Leon Vinokur
© Queen Mary University of London, 2020
PAGE 2 ECN111 (2020)
Question 1
Multiple choice questions:
a. Suppose there are two goods, the prices of both goods are positive, and a
consumer’s income is also positive. If the consumer’s income doubles and the price
of both goods triple,
A. the consumer’s budget line gets steeper and shifts inward.
B. the slope of the consumer’s budget line does not change but the budget line
shifts outward away from the origin.
C. the consumer’s budget line gets steeper and shifts outward.
D. the slope of the consumer’s budget line does not change but the budget line
shifts inward toward the origin.
E. the consumer’s budget line gets flatter and shifts inward.
[2 marks]
b. Thomas consumes coffee (C) and doughnuts (D). His budget line was described by
the equation D = 20 −2C. At a later time, his budget line could be described by the
equation
D = 10 −C. The change between the earlier budget line and the later could be
explained by the fact that
A. the price of coffee and Thomas’s income both increased.
B. the price of coffee and Thomas’s income both decreased.
C. the price of coffee decreased and Thomas’s income increased.
D. Thomas’s utility for doughnuts decreased.
E. None of the above.
[2 marks]
ECN111 (2020) PAGE 3
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c. This weekend, Martha has time to read 40 pages of economics and 30 pages of
sociology. Alternatively, she could read 10 pages of economics and 90 pages of
sociology. Which of these equations describes all combinations of pages of
economics, E, and sociology, S, that she could read over the weekend?
A. E/2 + S = 50.
B. E + S = 100.
C. E + S = 70.
D. 2E + S = 110.
E. All of the above.
[2 marks]
d. Murphy used to consume 100 units of X and 50 units of Y when the price of X was £2
and the price of Y was £4. If the price of X rose to £3 and the price of Y rose to £8,
how much would Murphy’s income have to rise so that he could still afford his original
bundle?
A. £750
B. £250
C. £300
D. £500
E. None of the above.
[2 marks]
Open question:
e. Felicity is studying economics and political science. She can read 30 pages of
political science per hour but only 5 pages of economics per hour. This week she has
been assigned 50 pages of reading in economics and 150 pages in political science.
Because of her other commitments, she cannot devote more than 10 hours to
studying these subjects this week. She realizes she cannot complete all of her
assignments but is determined to complete at least 30 pages of her economics
reading. If pages of economics were on horizontal axis and pages of political science
PAGE 4 ECN111 (2020)
on the vertical axis the possibilities that are consistent with the constraints that
Felicity has imposed on herself would be bounded by a triangle. What are the
coordinates of this triangle? Explain your answer.
[17 marks]
Question 2
Multiple choice questions
a. Colette consumes goods x and y. Her indifference curves are described by the
formula
y = k/(x + 7). Higher values of k correspond with higher utility indifference curves.
Which of the following is correct?
A. Colette likes good y and hates good x.
B. Colette prefers bundle (12, 16) to bundle (16, 12).
C. Colette prefers bundle (8, 5) to bundle (5, 8).
D. Colette likes good x and hates good y.
E. More than one of the above statements are true.
[2 marks]
b. Tim consumes only apples and bananas. He prefers more apples to fewer, but he
gets tired of bananas. If he consumes fewer than 29 bananas per week, he thinks
that 1 banana is a perfect substitute for 1 apple. But you would have to pay him 1
apple for each banana beyond 29 that he consumes. The indifference curve that
passes through the consumption bundle with 30 apples and 39 bananas also passes
through the bundle with A apples and 21 bananas, where A equals
A. 25.
B. 28.
ECN111 (2020) PAGE 5
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C. 34.
D. 36.
E. None of the above.
[2 marks]
c. Ike’s utility function is U(x, y) = 25xy. He has 12 units of good x and 8 units of good y.
Ben’s utility function for the same two goods is U(x, y) = 4x + 4y. Ben has 9 units of x
and 13 units of y.
A. Ike prefers Ben’s bundle to his own bundle, but Ben prefers his own bundle to
Ike’s.
B. Ben prefers Ike’s bundle to his own, but Ike prefers his own bundle to Ben’s.
C. Each prefers the other’s bundle to his own.
D. Neither prefers the other’s bundle to his own.
E. Since they have different preferences, there is not enough information to
determine who envies whom.
[2 marks]
d. Doreen has preferences represented by the utility function U(x, y) = 10x + 5y. She
consumes 10 units of good x and 9 units of good y. If her consumption of good x is
lowered to 1, how many units of y must she have in order to be exactly as well off as
before?
A. 20
B. 30
C. 27
D. 18
E. None of the above.
[2 marks]
Open question:
e. For each of the following utility functions, write down the equation of their typical
PAGE 6 ECN111 (2020)
indifference curves and explain what type of preferences they represent. Explain your
answer.
i. U(x, y) = min2x + y,2y + x.
ii. U(x, y) = max2x + y,2y + x.
iii. U(x, y) = x + minx, y.
[17 marks]
Question 3
Multiple choice questions:
a. Mike consumes two commodities, x and y, and his utility function is minx + 2y, y +
2x. He chooses to buy 8 units of good x and 16 units of good y. The price of good y
is £0.50. What is his income?
A. £32
B. £40
C. £24
D. £16
E. Mike’s income cannot be found unless the price of x is given too.
[2 marks]
b. Walt consumes strawberries and cream but only in the fixed ratio of three boxes of
strawberries to two cartons of cream. At any other ratio, the excess goods are totally
useless to him. The cost of a box of strawberries is £10 and the cost of a carton of
cream is £10. Walt’s income is £200. Which is correct?
ECN111 (2020) PAGE 7
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A. Walt demands 10 cartons of cream.
B. Walt demands 10 boxes of strawberries.
C. Walt considers strawberries and cartons of cream to be perfect substitutes.
D. Walt demands 12 boxes of strawberries.
E. None of the above.
[2 marks]
c. Georgina consumes only grapefruits and pineapples. Her utility function is (, ) =
28, where x is the number of grapefruits consumed and y is the number of
pineapples consumed. Georgina’s income is £105, and the prices of grapefruits and
pineapples are £1 and £3, respectively. How many grapefruits will she consume?
A. 10.5
B. 7
C. 63
D. 21
E. None of the above.
[2 marks]
d. Harry has £10 to spend on cans of Coke and Pepsi, which he regards as perfect
substitutes, one for one. Pepsi costs £0.60 a can and Coke costs £0.50 a can. Harry
has 20 coupons, each of which can be used to buy 1 can of Coke for £0.40. How
many cans of Coke will Harry buy?
A. No cans of Coke
B. 16 2/3 cans of Coke
C. 20 cans of Coke
D. 3 1/3 cans of Coke
E. None of the above.
[2 marks]
PAGE 8 ECN111 (2020)
Open question:
e. With some services, e.g., checking accounts, phone service, or pay TV, a consumer is
offered a choice of two or more payment plans. One can either pay a high entry fee
and get a low price per unit of service or pay a low entry fee and a high price per unit
of service. Suppose you have an income of £100. There are two plans. Plan A has an
entry fee of £20 with a price of £2 per unit. Plan B has an entry fee of £40 with a price
of £1 per unit for using the service. Let x be expenditure on other goods and y be
consumption of the service.
i. Write down the budget equation that you would have after you paid the entry
fee for each of the two plans.
ii. If your utility function is U(x,y)= min{x,y}, how much y would you choose in
each case? Explain.
iii. Which plan would you prefer? Explain.
[17 marks]
Question 4
a. firm uses only two inputs to produce its output. These inputs are perfect substitutes.
This firm
A. must have increasing returns to scale.
B. must have constant returns to scale.
C. could have increasing returns to scale, constant returns to scale, or
decreasing returns to scale.
D. must have decreasing returns to scale.
E. must have decreasing returns to scale in the short run and constant returns to
scale in the long run.
ECN111 (2020) PAGE 9
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[2 marks]
b. Which of the following production functions exhibit constant returns to scale? In each
case y is output and K and L are inputs. (1) y = K1/2 L1/3; (2) y = 3K1/2 L1/2; (3) y = K1/2 +
L1/2; (4) y = 2K + 3L.
A. 1, 2, and 4
B. 2, 3, and 4
C. 1, 3, and 4
D. 2 and 3
E. 2 and 4
[2 marks]
c. A firm has the production function f(x, y) = x + minx, y. The isoquants for the firm
A. are L-shaped with the corners of the L’s on the line y = x.
B. are L-shaped with the corners of the L’s on the line y = x + 1.
C. consist of two line segments, one vertical and the other with a slope of 1.
D. consist of two line segments, one horizontal and the other with a slope of 1.
E. are upside down L-shaped.
[2 marks]
d. If output is produced with two factors of production and with increasing returns to
scale,
A. there cannot be diminishing marginal rate of substitution.
B. all inputs must have increasing marginal products.
C. on a graph of production isoquants, moving along a ray from the origin, output
more than doubles as the distance from the origin doubles.
D. the marginal product of at least one input must be increasing.
E. all inputs must have decreasing marginal products.
PAGE 10 ECN111 (2020)
[2 marks]
Open question:
e. Explain in details (without a graph) what typical production isquants looks like for
each of the following production functions. Explain you answer. Your answer may
take numerical and verbal character.
i. f(x, y) = min2x, x + y.
ii. f(x, y) = xy.
iii. f(x, y) = x + y1/2.
[17 marks]
End of Paper