Question 1

Alvin's preferences for good X and good Y are shown in the diagram below.   Figure 3.2
-Based on Figure 3.2, it can be inferred that:

Accepted Answer

A)  Alvin does not consider good X as "good." 
B)  Alvin will never purchase any of good Y. 
C)  Alvin regards good X and good Y as perfect substitutes. 
D)  Alvin regards good X and good Y as perfect complements. 
E)  none of the above 
A)  Alvin does not consider good X as "good." 
B)  Alvin will never purchase any of good Y. 
C)  Alvin regards good X and good Y as perfect substitutes. 
D)  Alvin regards good X and good Y as perfect complements. 
E)  none of the above

Question 2

Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the horizontal axis,

Accepted Answer

A)  the budget line will become steeper. 
B)  the budget line will become flatter. 
C)  the slope of the budget line will not change. 
D)  the slope of the budget line will change, but in an indeterminate way. 
A)  the budget line will become steeper. 
B)  the budget line will become flatter. 
C)  the slope of the budget line will not change. 
D)  the slope of the budget line will change, but in an indeterminate way.

Question 3

If MUa/Pa is greater than MUb/Pb, and the consumer is consuming both goods, the consumer is not maximizing utility. True or false. Explain.

Accepted Answer

A) True 
 B)False

Question 4

Scenario 3.1:
Andy derives utility from two goods, potato chips (Qp) and Cola (Qc). Andy receives zero utility unless he consumes some of at least one good. The marginal utility that he receives from the two goods is given as follows:
  
-Refer to Scenario 3.1. If the price of potato chips is $0.50 and the price of Cola is $4.00, and Andy has an income of $14.50, how many units of potato chips will he consume?

Accepted Answer

A)  5 
B)  6 
C)  7 
D)  8 
E)  none of the above 
A)  5 
B)  6 
C)  7 
D)  8 
E)  none of the above

Question 5

Pencils sell for 10 cents and pens sell for 50 cents. Suppose Jack, whose preferences satisfy all of the basic assumptions, buys 5 pens and one pencil each semester. With this consumption bundle, his MRS of pencils for pens is 3. Which of the following is true?

Accepted Answer

A)  Jack could increase his utility by buying more pens and fewer pencils. 
B)  Jack could increase his utility by buying more pencils and fewer pens. 
C)  Jack could increase his utility by buying more pencils and more pens. 
D)  Jack could increase his utility by buying fewer pencils and fewer pens. 
E)  Jack is at a corner solution and is maximizing his utility. 
A)  Jack could increase his utility by buying more pens and fewer pencils. 
B)  Jack could increase his utility by buying more pencils and fewer pens. 
C)  Jack could increase his utility by buying more pencils and more pens. 
D)  Jack could increase his utility by buying fewer pencils and fewer pens. 
E)  Jack is at a corner solution and is maximizing his utility.

Question 6

Which price index tends to understate the impact of price changes on consumers?

Accepted Answer

A)  Chain-weighted index 
B)  Laspeyres index 
C)  Paasche index 
D)  Ideal cost-of-living index 
A)  Chain-weighted index 
B)  Laspeyres index 
C)  Paasche index 
D)  Ideal cost-of-living index

Question 7

Jane lives in a dormitory that offers soft drinks and chips for sale in vending machines. Her utility function is U = 3SC (where S is the number of soft drinks per week and C the number of bags of chips per week), so her marginal utility of S is 3C and her marginal utility of C is 3S. Soft drinks are priced at $0.50 each, chips $0.25 per bag.
a. Write an expression for Jane's marginal rate of substitution between soft drinks and chips.
b. Use the expression generated in part (a) to determine Jane's optimal mix of soft drinks and chips.
c. If Jane has $5.00 per week to spend on chips and soft drinks, how many of each should she purchase per week?

Accepted Answer

a.
MRS = @#IMG-DLM& MRS = @#IMG-DLM& = @#IMG-DLM& b.
The optimal marke

Question 8

You using a Laspeyres (fixed-weight )price index to compare price changes over time, and the index is based on consumption bundles from 2005 when energy costs were lower and housing costs were higher. Your results are likely to:

Accepted Answer

A)  Overstate changes in the cost of living because the weight assigned to energy is too small. 
B)  Overstate changes in the cost of living because the weight assigned to energy is too large. 
C)  Understate changes in the cost of living because the weight assigned to housing is too small. 
D)  Understate changes in the cost of living because the weigh assigned to housing is too large. 
A)  Overstate changes in the cost of living because the weight assigned to energy is too small. 
B)  Overstate changes in the cost of living because the weight assigned to energy is too large. 
C)  Understate changes in the cost of living because the weight assigned to housing is too small. 
D)  Understate changes in the cost of living because the weigh assigned to housing is too large.

Question 9

Consider the following three market baskets:Table 3.1
  
-Refer to Table 3.1. Which of the following cannot be true?

Accepted Answer

A)  The consumer could be indifferent between A and B. 
B)  A and C could be on the same indifference curves. 
C)  The consumer could be indifferent between B and C. 
D)  A and C could be on different indifference curves. 
A)  The consumer could be indifferent between A and B. 
B)  A and C could be on the same indifference curves. 
C)  The consumer could be indifferent between B and C. 
D)  A and C could be on different indifference curves.

Question 10

Which of the following is true about the indifference curve where one commodity (such as pollution) is "bad"?

Accepted Answer

A)  It has a negative slope. 
B)  It has a positive slope. 
C)  It is horizontal. 
D)  It is vertical. 
A)  It has a negative slope. 
B)  It has a positive slope. 
C)  It is horizontal. 
D)  It is vertical.

Question 11

The key reason that the Laspeyres price index tends to overstate the impact of price changes on consumers is that it:

Accepted Answer

A)  only accounts for price increases and ignore price decreases. 
B)  measures prices two periods after the actual price changes occurred. 
C)  ignores the possibility that consumers alter their consumption as prices change. 
D)  All of the above are correct. 
E)  none of the above 
A)  only accounts for price increases and ignore price decreases. 
B)  measures prices two periods after the actual price changes occurred. 
C)  ignores the possibility that consumers alter their consumption as prices change. 
D)  All of the above are correct. 
E)  none of the above

Question 12

The fact that Alice spends no money on travel:

Accepted Answer

A)  implies that she does not derive any satisfaction from travel. 
B)  implies that she is at a corner solution. 
C)  implies that her MRS does not equal the price ratio. 
D)  any of the above are possible. 
A)  implies that she does not derive any satisfaction from travel. 
B)  implies that she is at a corner solution. 
C)  implies that her MRS does not equal the price ratio. 
D)  any of the above are possible.

Question 13

Consider the indifference map in the figure below:   Which of the four basic assumptions about consumer preferences are violated by this indifference map?

Accepted Answer

A)  More is better than less 
B)  Transitivity 
C)  Diminishing MRS 
D)  A and B are correct. 
E)  A and C are correct. 
A)  More is better than less 
B)  Transitivity 
C)  Diminishing MRS 
D)  A and B are correct. 
E)  A and C are correct.

Question 14

To simplify our consumption models, suppose U.S. consumers only purchase food and all other goods where food is plotted along the horizontal axis of the indifference map. Also, suppose that all states initially impose state sales taxes on all goods (including food), but then the states exempt food from the state sales tax. How does this tax policy change alter the consumer's budget line?

Accepted Answer

A)  Makes the budget line steeper 
B)  Makes the budget line flatter 
C)  Parallel rightward shift 
D)  Parallel leftward shift 
E)  none of the above 
A)  Makes the budget line steeper 
B)  Makes the budget line flatter 
C)  Parallel rightward shift 
D)  Parallel leftward shift 
E)  none of the above

Question 15

Figure 3.3
-Refer to the indifference curve in Figure 3.3. Which of the following statements is correct?

Accepted Answer

A)  This individual receives no satisfaction from Good A. 
B)  This individual receives no satisfaction from Good B. 
C)  This individual will only consume A and B in fixed proportions. 
D)  none of the above 
A)  This individual receives no satisfaction from Good A. 
B)  This individual receives no satisfaction from Good B. 
C)  This individual will only consume A and B in fixed proportions. 
D)  none of the above

Question 16

Sheila can watch as many television programs as she wants for free, but she must pay $2 for each video she rents. Draw Sheila's budget line for t.v. shows (T) and videos (V), and identify the set of affordable bundles (be sure to label the axes). At a particular point on Sheila's budget line, her MRS is 1T/2V. Illustrate this situation on your diagram. Has Sheila maximized her satisfaction at this point? If not, identify a change in consumption that will make her better off. Describe her preferences when satisfaction is maximized.

Accepted Answer

Sheila would be better off if

Question 17

Pedro buys market basket A that includes 10 books at a price of $20 per book and 10 DVDs at a price of $10 per DVD. Market basket B contains 12 books and 12 DVDs. Based on this information, which of the following statements is NOT true?

Accepted Answer

A)  Revealed preference analysis implies that Pedro only prefers basket B to basket A if basket A is more expensive. 
B)  Pedro prefers market basket B to basket A. 
C)  Market basket B will cost more than basket A. 
D)  If the prices change and Pedro chooses market basket C, which now costs the same as basket B, then basket C is prefer to basket A. 
A)  Revealed preference analysis implies that Pedro only prefers basket B to basket A if basket A is more expensive. 
B)  Pedro prefers market basket B to basket A. 
C)  Market basket B will cost more than basket A. 
D)  If the prices change and Pedro chooses market basket C, which now costs the same as basket B, then basket C is prefer to basket A.

Question 18

Zoe is an executive at Dell Computer Company who is in charge of designing the next version of laptop computers. She will consider such features as screen size, weight, processor speed, and CD and DVD drives. Given the fact that it is costly to include more features in new products, why might Zoe be interested in data on how much consumers paid for a range of laptops with different attributes?

Accepted Answer

A)  in order to estimate willingness to pay for each feature. 
B)  in order to set an optimal price for the laptops. 
C)  in order to determine the best features to include. 
D)  in order to estimate willingness to trade off one feature for another. 
E)  all of the above 
A)  in order to estimate willingness to pay for each feature. 
B)  in order to set an optimal price for the laptops. 
C)  in order to determine the best features to include. 
D)  in order to estimate willingness to trade off one feature for another. 
E)  all of the above

Question 19

Mikey is very picky and insists that his mom make his breakfast with equal parts of cereal and apple juice - any other combination and it ends up on the floor. Cereal costs 4 cents per tablespoon and apple juice costs 6 cents per tablespoon. If Mikey's mom budgets $8 per month for Mikey's breakfast, how much cereal and juice does she buy?

Accepted Answer

A)  40 tablespoons each of cereal and juice 
B)  80 tablespoons each of cereal and juice 
C)  40 tablespoons of cereal and 75 tablespoons of juice 
D)  100 tablespoons of cereal and 67 tablespoons of juice 
A)  40 tablespoons each of cereal and juice 
B)  80 tablespoons each of cereal and juice 
C)  40 tablespoons of cereal and 75 tablespoons of juice 
D)  100 tablespoons of cereal and 67 tablespoons of juice

Question 20

Alvin's preferences for good X and good Y are shown in the diagram below.   Figure 3.1
-Refer to Figure 3.1. Which assumption concerning preferences do Alvin's indifference curves violate?

Accepted Answer

A)  Diminishing marginal rates of substitution 
B)  Transitivity of preferences 
C)  More is preferred to less 
D)  Completeness 
A)  Diminishing marginal rates of substitution 
B)  Transitivity of preferences 
C)  More is preferred to less 
D)  Completeness

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.2 -Based on Figure 3.2, it can be inferred that:

Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the horizontal axis,

If MUa/Pa is greater than MUb/Pb, and the consumer is consuming both goods, the consumer is not maximizing utility. True or false. Explain.

Pencils sell for 10 cents and pens sell for 50 cents. Suppose Jack, whose preferences satisfy all of the basic assumptions, buys 5 pens and one pencil each semester. With this consumption bundle, his MRS of pencils for pens is 3. Which of the following is true?

Which price index tends to understate the impact of price changes on consumers?

You using a Laspeyres (fixed-weight )price index to compare price changes over time, and the index is based on consumption bundles from 2005 when energy costs were lower and housing costs were higher. Your results are likely to:

Consider the following three market baskets:Table 3.1 -Refer to Table 3.1. Which of the following cannot be true?

Which of the following is true about the indifference curve where one commodity (such as pollution) is "bad"?

The key reason that the Laspeyres price index tends to overstate the impact of price changes on consumers is that it:

The fact that Alice spends no money on travel:

Consider the indifference map in the figure below: Which of the four basic assumptions about consumer preferences are violated by this indifference map?

Figure 3.3 -Refer to the indifference curve in Figure 3.3. Which of the following statements is correct?

Pedro buys market basket A that includes 10 books at a price of $20 per book and 10 DVDs at a price of $10 per DVD. Market basket B contains 12 books and 12 DVDs. Based on this information, which of the following statements is NOT true?

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.1 -Refer to Figure 3.1. Which assumption concerning preferences do Alvin's indifference curves violate?

Preliminaries

The Basics of Supply and Demand

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters

Exam 3: Consumer Behavior

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.2 -Based on Figure 3.2, it can be inferred that:

Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the horizontal axis,

If MUa/Pa is greater than MUb/Pb, and the consumer is consuming both goods, the consumer is not maximizing utility. True or false. Explain.

Pencils sell for 10 cents and pens sell for 50 cents. Suppose Jack, whose preferences satisfy all of the basic assumptions, buys 5 pens and one pencil each semester. With this consumption bundle, his MRS of pencils for pens is 3. Which of the following is true?

Which price index tends to understate the impact of price changes on consumers?

You using a Laspeyres (fixed-weight )price index to compare price changes over time, and the index is based on consumption bundles from 2005 when energy costs were lower and housing costs were higher. Your results are likely to:

Consider the following three market baskets:Table 3.1 -Refer to Table 3.1. Which of the following cannot be true?

Which of the following is true about the indifference curve where one commodity (such as pollution) is "bad"?

The key reason that the Laspeyres price index tends to overstate the impact of price changes on consumers is that it:

The fact that Alice spends no money on travel:

Consider the indifference map in the figure below: Which of the four basic assumptions about consumer preferences are violated by this indifference map?

Figure 3.3 -Refer to the indifference curve in Figure 3.3. Which of the following statements is correct?

Pedro buys market basket A that includes 10 books at a price of $20 per book and 10 DVDs at a price of $10 per DVD. Market basket B contains 12 books and 12 DVDs. Based on this information, which of the following statements is NOT true?

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.1 -Refer to Figure 3.1. Which assumption concerning preferences do Alvin's indifference curves violate?

Preliminaries

The Basics of Supply and Demand

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters