Denise is shopping for lobsters and eclairs. When she faces budget line b1, she chooses market basket A over market basket B. When she faces budget line b2, she chooses basket B over basket C. Which assumption of consumer theory helps us determine Denise's preference ordering over basket A and basket C?

A) Completeness B) More is better than less C) Transitivity D) Convexity A) Completeness B) More is better than less C) Transitivity D) Convexity

Exam 3: Consumer Behavior

Suppose that the government subsidizes housing expenditures of low-income families by providing a dollar-for-dollar subsidy to a family's housing expenditure. The Cunninghams qualify for this subsidy and spend a total of $500 per month on housing: they spend $250 of their own and receive a government subsidy of $250. Recently, a new policy has been proposed that would provide each low income family with a lump sum transfer of $250 which can be used for housing or other goods. Using a graph, demonstrate whether the Cunninghams would prefer the current program, the proposed program, or would be indifferent between the two.

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Question 1

Correct Answer:

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The current program yields the flatter budget constraint for the Cunninghams. The flatter budget constraint implies that the relative cost of housing is cheaper. This is due to the 50% government subsidy. Currently, the Cunninghams spend $250 on housing with the government matching with another $250. The utility maximizing choice is indicated in the diagram by point O. The proposed program would eliminate the government housing price subsidy. Thus, the relative price of housing would increase. This shifts the horizontal axis intercept in towards the origin. However, the proposed plan would pay a cash payment of $250 to the Cunninghams. This payment shifts the vertical axis intercept up. The Cunninghams may still choose to consume at point O as it is available with the proposed plan. However, the MRS at point O is less than the ratio of prices under the proposed plan. This implies the Cunninghams may increase utility by spending less on housing and purchasing more of all other goods. This is reflected by a movement to O' which corresponds with higher utility. Thus, the Cunninghams are better off with the proposed lump sum transfer policy.

Figure 3.2.1 -Refer to Figure 3.2.1 above. The slope of the budget line equals:

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Question 2

Correct Answer:

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Figure 3.1.5 -Refer to Figure 3.1.5. Which of the following is true concerning the consumer's marginal rate of substitution?

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Question 3

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Figure 3.2.1 -Refer to Figure 3.2.1 above. Let I = income, P_F the price of food, and P_C the price of clothing. The vertical intercept of the budget line equals 40, which is equivalent to:

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Question 4

When Joe maximizes utility, he finds that his MRS of X for Y is greater than Px/Py. It is most likely that:

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Question 5

Denise is shopping for lobsters and eclairs. When she faces budget line b₁, she chooses market basket A over market basket B. When she faces budget line b₂, she chooses basket B over basket C. Which assumption of consumer theory helps us determine Denise's preference ordering over basket A and basket C?

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Question 6

The following table presents Mary's marginal utility for each of the four goods she consumes to exhaust her income. The price of Good 1 is $1, the price of Good 2 is $2, the price of Good 3 is $3 and the price of Good 4 is $4. Indicate the consumption bundle in the table that maximizes Mary's level of utility.

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Question 7

Oscar consumes only two goods, X and Y. Assume that Oscar is not at a corner solution, but he is maximizing utility. Which of the following is NOT necessarily true?

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Question 8

When a person consumes two goods (A and B), that person's utility is maximized when the budget is allocated such that:

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Question 9

Suppose that the price of gasoline has risen by 50%. What happens to a consumer's level of well-being given he spends some of his income on gasoline? Diagram the impact of the increase in gas prices in a commodity space diagram, and show the relevant indifference curves. Now, if the individual's income rises just enough so that his original consumption bundle exactly exhausts his income, will the individual purchase more or less gasoline (this level of income implies the consumer can afford his original consumption bundle)? Is the individual better-off at the higher price level of gasoline with the higher income level or the original price of gas and income?

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Question 10

The local farmer's market sells corn for 20 cents an ear. At this price, Sam buys 6 ears each Thursday. What would happen to Sam's consumption of corn if the market offered corn at 20 cents an ear for the first 6 ears, but 10 cents an ear for each additional ear? Explain your answer.

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Question 11

Figure 3.1.3 -Refer to Figure 3.1.3 above. The way in which the indifference curves are drawn in this figure:

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Question 12

Figure 3.1.4 -Refer to Figure 3.1.4 above. The value of the marginal rate of substitution between points B and D is:

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Question 13

The ideal cost-of-living index represents:

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Question 14

The food stamp program provides low income households with coupons which can be exchanged for some specified dollar value worth of food. Many economists argue that this program is an inefficient means of increasing the well-being of low income families. Proponents of this view argue that an equivalent cash subsidy would bring about a greater increase in the well-being of the low income families receiving aid. Although many economists hold this view, not all policy analysts agree with the advocates of cash payments instead of food stamps. Advocates of the existing program argue that food stamps provide an incentive for low income families to increase the nutritional quality of their diets. a. Carefully analyze the arguments regarding increases in well-being under cash payments and food stamp programs. Use graphical analysis to present your arguments. b. Critically evaluate the pros and cons of the food stamp program. Do food stamps ensure that low income families increase their consumption of food?

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Question 15

Consider the following three market baskets:Table 3.1 -Jane is trying to decide which courses to take next semester. She has narrowed down her choice to two courses, Econ 1 and Econ 2. Now she is having trouble and cannot decide which of the two courses to take. It's not that she is indifferent between the two courses, she just cannot decide. An economist would say that this is an example of preferences that:

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Question 16

The principle of revealed preference would say that if Xavier chooses market basket A over market basket B then:

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Question 17

You view tea and scones as perfect complements, and the corners of the indifference curves lie on the 45-degree line. Tea is plotted along the horizontal axis of the indifference map. Also, at your current point of consumption, you have not fully exhausted the available budget, and you consume more tea than scones. Based on this information, which of the following statements is NOT true?

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Question 18

A study of satisfaction with life across income classes in the United States showed that:

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Question 19

Before the adoption of a chain-weighted price index in the United States, the payments based on changes in the Consumer Price Index (CPI) tended to be:

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Question 20

Showing 1 - 20 of 134

Figure 3.2.1 -Refer to Figure 3.2.1 above. The slope of the budget line equals:

Figure 3.1.5 -Refer to Figure 3.1.5. Which of the following is true concerning the consumer's marginal rate of substitution?

Figure 3.2.1 -Refer to Figure 3.2.1 above. Let I = income, P_F the price of food, and P_C the price of clothing. The vertical intercept of the budget line equals 40, which is equivalent to:

When Joe maximizes utility, he finds that his MRS of X for Y is greater than Px/Py. It is most likely that:

Oscar consumes only two goods, X and Y. Assume that Oscar is not at a corner solution, but he is maximizing utility. Which of the following is NOT necessarily true?

When a person consumes two goods (A and B), that person's utility is maximized when the budget is allocated such that:

The local farmer's market sells corn for 20 cents an ear. At this price, Sam buys 6 ears each Thursday. What would happen to Sam's consumption of corn if the market offered corn at 20 cents an ear for the first 6 ears, but 10 cents an ear for each additional ear? Explain your answer.

Figure 3.1.3 -Refer to Figure 3.1.3 above. The way in which the indifference curves are drawn in this figure:

Figure 3.1.4 -Refer to Figure 3.1.4 above. The value of the marginal rate of substitution between points B and D is:

The ideal cost-of-living index represents:

The principle of revealed preference would say that if Xavier chooses market basket A over market basket B then:

A study of satisfaction with life across income classes in the United States showed that:

Before the adoption of a chain-weighted price index in the United States, the payments based on changes in the Consumer Price Index (CPI) tended to be:

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

Behavioral Economics

Filters

Exam 3: Consumer Behavior

Figure 3.2.1 -Refer to Figure 3.2.1 above. The slope of the budget line equals:

Figure 3.1.5 -Refer to Figure 3.1.5. Which of the following is true concerning the consumer's marginal rate of substitution?

Figure 3.2.1 -Refer to Figure 3.2.1 above. Let I = income, PF the price of food, and PC the price of clothing. The vertical intercept of the budget line equals 40, which is equivalent to:

When Joe maximizes utility, he finds that his MRS of X for Y is greater than Px/Py. It is most likely that:

Oscar consumes only two goods, X and Y. Assume that Oscar is not at a corner solution, but he is maximizing utility. Which of the following is NOT necessarily true?

When a person consumes two goods (A and B), that person's utility is maximized when the budget is allocated such that:

The local farmer's market sells corn for 20 cents an ear. At this price, Sam buys 6 ears each Thursday. What would happen to Sam's consumption of corn if the market offered corn at 20 cents an ear for the first 6 ears, but 10 cents an ear for each additional ear? Explain your answer.

Figure 3.1.3 -Refer to Figure 3.1.3 above. The way in which the indifference curves are drawn in this figure:

Figure 3.1.4 -Refer to Figure 3.1.4 above. The value of the marginal rate of substitution between points B and D is:

The ideal cost-of-living index represents:

The principle of revealed preference would say that if Xavier chooses market basket A over market basket B then:

A study of satisfaction with life across income classes in the United States showed that:

Before the adoption of a chain-weighted price index in the United States, the payments based on changes in the Consumer Price Index (CPI) tended to be:

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

Behavioral Economics

Filters

Figure 3.2.1 -Refer to Figure 3.2.1 above. Let I = income, P_F the price of food, and P_C the price of clothing. The vertical intercept of the budget line equals 40, which is equivalent to: