Econ 1
Spring 1997
First Midterm Exam


Instructions:
1.	Answer all sections of this test. This is a 60 minute exam
(including 10 minutes for review).  
Common exam: 38 minutes   Instructor specific: 12 minutes.
2.	Graphs are helpful. Carefully label all graphs that you use.
3.	Write all answers in the blue books provided. Show all work.
4.	Write your name and your instructors name in every blue book that
you use.
5.	This exam is given under the rules of Penn's Honor System.
6.	All blue books, blank or filled, must be handed in at the end of
this exam. No blue books may be taken from this room.


Part 1
Answer the first question and 5 out of the remaining 6.   Explain whether
the statement is true, false or partially true.  The grade will be based
on the quality of your explanation.

1. (4 Points)  In his article, "Roofs or Ceilings," Milton Friedman argues
that the
more ceilings we have, the more roofs we will have.

2.  (4 Points)  When all consumers are in equilibrium, given the set of
market prices,
then each consumer will have identical marginal utilities per unit for all
the 
goods.

3.  (4 Points)  If goods A and B are substitutes, a fall in the price of B
will cause the
demand curve for A to shift to the right.

4)  (4 Points)  If a price floor is set below the equilibrium price, the
intervention
will have no effect on the market.

5.  (4 Points)  If the marginal product (of the variable input) is
decreasing, the average product will be above it.  

6.  (4 Points)  In the elastic range of a demand curve, if price rises,
total revenue
will fall.

7.  (4 Points)  An inferior good has a positively sloped demand curve.

Part 2  (14 Points)

1. Suppose a utility maximizing individual demands only Theater Tickets
(denoted T) and Football Game Tickets (denoted F). Suppose that the
individual's preferences and budgetary restrictions are summarized by the
following information:

His Marginal utilities: MU of T = 7F and MU of F=10T
His Income is  $170; The market price of T is $7; The market price of F is $1

(i)Write down the marginal rate of substitution (along the indifference
curve) in terms of the marginal utility functions given above.  
(ii) What is the equilibrium demand for T and F by this consumer?
(iii) Suppose the price of Football Game Tickets rises to $2 per game. How
will the equilibrium demands for T and F change for this consumer?
(iv) Compute the elasticity of demand for Football game tickets for this
consumer in the range of this price change.