Question 1

Figure 3.1.2
-When different indifference curves are placed in the Cartesian plane,

Accepted Answer

A)  the result is called an indifference map. 
B)  the curves cannot intersect. 
C)  the curves that occupy a place farther away from the origin yield more utility than curves closer to the origin. 
D)  all of the above 
A)  the result is called an indifference map. 
B)  the curves cannot intersect. 
C)  the curves that occupy a place farther away from the origin yield more utility than curves closer to the origin. 
D)  all of the above

Question 2

The budget constraint for a consumer who only buys apples (A) and bananas (B) is PAA + PBB = I where consumer income is I, the price of apples is PA, and the price of bananas is PB. To plot this budget constraint in a figure with apples on the horizontal axis, we should use a budget line represented by the slope-intercept equation:

Accepted Answer

A)  A = -I/PA + (PB/P
A) B 
B)  A = I/PA - (PB/P
A) B 
C)  B = -I/PB + (PA/P
B) A 
D)  B = I/PB - (PA/P
B) A 
A)  A = -I/PA + (PB/P
A) B 
B)  A = I/PA - (PB/P
A) B 
C)  B = -I/PB + (PA/P
B) A 
D)  B = I/PB - (PA/P
B) A

Question 3

Natasha derives utility from attending rock concerts (r) and from drinking colas (c) as follows:
U(c,r) = c.9r.1 
The marginal utility of cola (MUc) and the marginal utility of rock concerts (MUr) are given as follows:
MUc = .9c-.1r.1 MUr = .1c.9r-.9
a. If the price of cola (Pc) is $1 and the price of concert tickets (Pr) is $30 and Natasha's income is $300, how many colas and tickets should Natasha buy to maximize utility?
b. Suppose that the promoters of rock concerts require each fan to buy 4 tickets or none at all. Under this constraint and given the prices and income in (a), how many colas and tickets should Natasha buy to maximize utility?
c. Is Natasha better off under the conditions in (a) or (b)? Explain your answer.

Accepted Answer

a.To maximize utility, Natasha (1) must

Question 4

A utility function describing by how much one market basket is preferred to another is called:

Accepted Answer

A)  a cardinal utility function. 
B)  an ordinal utility function. 
C)  either an ordinal or a cardinal function. Both types of functions use this ranking. 
D)  neither an ordinal nor a cardinal function. Neither type uses this ranking. 
A)  a cardinal utility function. 
B)  an ordinal utility function. 
C)  either an ordinal or a cardinal function. Both types of functions use this ranking. 
D)  neither an ordinal nor a cardinal function. Neither type uses this ranking.

Question 5

The slope of an indifference curve reveals:

Accepted Answer

A)  that preferences are complete. 
B)  the marginal rate of substitution of one good for another good. 
C)  the ratio of market prices. 
D)  that preferences are transitive. 
E)  none of the above 
A)  that preferences are complete. 
B)  the marginal rate of substitution of one good for another good. 
C)  the ratio of market prices. 
D)  that preferences are transitive. 
E)  none of the above

Question 6

Amy is currently spending her income to maximize her satisfaction. She is renting an apartment for $900 per month as shown in the diagram below (Assume each dollar spent on housing buys 1 unit of housing. H1 represents her $900 per month apartment).   a. Suppose that Amy qualifies for a government housing assistance program that will provide her with a $600 per month apartment at no charge. If she accepts the apartment, she cannot augment her expenditure on housing (for example, she cannot add $300 of her income to the $600 per month provided by the government program, and rent the $900 per month apartment), nor can she exchange the apartment for cash or other goods. How does the government program alter Amy's budget line?
b. Suppose that Amy is given $600 in cash instead of the $600 per month apartment. How will this alter Amy's budget line?
c. Is Amy indifferent between the housing assistance program and cash program, or does she prefer one program over the other? Draw an indifference curve to illustrate your answer.

Accepted Answer

a. @#IMG-DLM& Amy's budget constraint becomes disc

Question 7

Suppose your utility function for food (F) and clothing (C) is u(F,C) = F + 4C. If you reduce your clothing consumption by 2 units, how much do you have to increase your food consumption in order to maintain the same utility level?

Accepted Answer

A)  2 units 
B)  4 units 
C)  6 units 
D)  8 units 
A)  2 units 
B)  4 units 
C)  6 units 
D)  8 units

Question 8

John consumes two goods, X and Y. The marginal utility of X and the marginal utility of Y satisfy the following equations:
MUX = Y MUY = X.
The price of X is $9, and the price of Y is $12.
a. Write an expression for John's MRS.
b. What is the optimal mix between X and Y in John's market basket?
c. John is currently consuming 15 X and 10 Y per time period.
Is he consuming an optimal mix of X and Y?

Accepted Answer

a.MRS = @#IMG-DLM& = @#IMG-DLM& b.Optimal mix of X and Y:
MR

Question 9

Suppose you only consume food and clothing, and clothing is plotted on the vertical axis. Also, you purchase food at a fixed price (PF), but the price of clothing declines as you buy in larger quantities (i.e., quantity discounts). What does the budget line look like in this case?

Accepted Answer

A)  The budget line is a straight line. 
B)  The budget line is now concave to (bows out from) the origin. 
C)  The budget line is now convex to (bows in toward) the origin. 
D)  The budget line will not be a straight line, but it may be concave or convex. 
A)  The budget line is a straight line. 
B)  The budget line is now concave to (bows out from) the origin. 
C)  The budget line is now convex to (bows in toward) the origin. 
D)  The budget line will not be a straight line, but it may be concave or convex.

Question 10

The assumption that preferences are complete:

Accepted Answer

A)  means that a consumer will spend her entire income. 
B)  is unnecessary, as long as transitivity is assumed. 
C)  recognizes that there may be pairs of market baskets that cannot be compared. 
D)  means that the consumer can compare any two market baskets of goods and determine that either one is preferred to the other or that she is indifferent between them. 
A)  means that a consumer will spend her entire income. 
B)  is unnecessary, as long as transitivity is assumed. 
C)  recognizes that there may be pairs of market baskets that cannot be compared. 
D)  means that the consumer can compare any two market baskets of goods and determine that either one is preferred to the other or that she is indifferent between them.

Question 11

Larry lives with his parents and enjoys listening to jazz. Because of his living arrangements, his only expense is on jazz music. To earn money to buy new albums, Larry must work. Larry has 16 hours per day he could spend listening to jazz or working. Each hour he works he earns $6. Each album costs him $12. Diagram Larry's budget constraint for new jazz albums and time spent listening to jazz. If Larry's parents require him to spend two hours per day doing chores around the house, what happens to his budget constraint? Does the requirement to do chores make Larry worse off?

Accepted Answer

Larry's budget constraints are indicated

Question 12

The following table presents Alfred's marginal utility for each good while exhausting his income. Fill in the remaining column in the table. If the price of tuna is twice the price of peanut butter, at what consumption bundle in the table is Alfred maximizing his level of satisfaction? Which commodity bundle entails the largest level of tuna fish consumption?

Accepted Answer

@#IMG-DLM& The optimal bundle occurs where @#IMG-DLM& This i

Question 13

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 14

Sally consumes two goods, X and Y. Her utility function is given by the expression   The current market price for X is $10, while the market price for Y is $5. Sally's current income is $500.
a. Sketch a set of two indifference curves for Sally in her consumption of X and Y.
b. Write the expression for Sally's budget constraint. Graph the budget constraint and determine its slope.
c. Determine the X,Y combination which maximizes Sally's utility, given her budget constraint. Show her optimum point on a graph. (Partial units for the quantities are possible.)   d. Calculate the impact on Sally's optimum market basket of an increase in the price of X to $15. What would happen to her utility as a result of the price increase?

Accepted Answer

a.To draw indifference curves, pick 2 le

Question 15

The purpose of a chain-weighted price index is to account for:

Accepted Answer

A)  the costs of purchasing wholesale products like chains and industrial goods. 
B)  the changes in the quantities of goods and services purchased over time. 
C)  linkages in price changes among industrialized countries. 
D)  none of the above 
A)  the costs of purchasing wholesale products like chains and industrial goods. 
B)  the changes in the quantities of goods and services purchased over time. 
C)  linkages in price changes among industrialized countries. 
D)  none of the above

Question 16

Alfred derives utility from consuming iced tea and lemonade. For the bundle he currently consumes, the marginal utility he receives from iced tea is 16 utils, and the marginal utility he receives from lemonade is 8 utils. Instead of consuming this bundle, Alfred should:

Accepted Answer

A)  buy more iced tea and less lemonade. 
B)  buy more lemonade and less iced tea. 
C)  buy more iced tea and lemonade. 
D)  buy less iced tea and lemonade. 
E)  None of the above is necessarily correct. 
A)  buy more iced tea and less lemonade. 
B)  buy more lemonade and less iced tea. 
C)  buy more iced tea and lemonade. 
D)  buy less iced tea and lemonade. 
E)  None of the above is necessarily correct.

Question 17

A numerical score that represents the satisfaction that a consumer gets from a given market basket is called:

Accepted Answer

A)  utility. 
B)  a utility function. 
C)  marginal utility. 
D)  the marginal rate of substitution. 
A)  utility. 
B)  a utility function. 
C)  marginal utility. 
D)  the marginal rate of substitution.

Question 18

Figure 3.4.2
-Refer to Figure 3.4.2 above. From an initial position at point A, the positions the consumer chooses as her budget line changes let us conclude that:

Accepted Answer

A)  A is preferred to E and G. 
B)  B is preferred to A. 
C)  A is preferred to all market baskets in the top shaded area and all market baskets in the bottom shaded area are preferred to A. 
D)  A is preferred to all market baskets in the bottom shaded area and all market baskets in the top shaded area are preferred to A. 
A)  A is preferred to E and G. 
B)  B is preferred to A. 
C)  A is preferred to all market baskets in the top shaded area and all market baskets in the bottom shaded area are preferred to A. 
D)  A is preferred to all market baskets in the bottom shaded area and all market baskets in the top shaded area are preferred to A.

Question 19

Bill uses his entire budget to purchase Pepsi and hamburgers, and he currently purchases no Pepsi and 6 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 2, and his marginal utility from hamburgers is 6. Is Bill's current consumption decision optimal?

Accepted Answer

A)  No, he should increase Pepsi consumption and reduce hamburger consumption. 
B)  No, he should purchase more of both goods. 
C)  Yes, the corner solution is best because his MRS is less than the price ratio. 
D)  We do not have enough information to answer this question. 
A)  No, he should increase Pepsi consumption and reduce hamburger consumption. 
B)  No, he should purchase more of both goods. 
C)  Yes, the corner solution is best because his MRS is less than the price ratio. 
D)  We do not have enough information to answer this question.

Question 20

An individual consumes only two goods, X and Y. Which of the following expressions represents the utility maximizing market basket?

Accepted Answer

A)  MRSxy is at a maximum. 
B)  PX/PY = money income. 
C)  MRSxy = money income. 
D)  MRSxy = PX/PY. 
E)  all of the above 
A)  MRSxy is at a maximum. 
B)  PX/PY = money income. 
C)  MRSxy = money income. 
D)  MRSxy = PX/PY. 
E)  all of the above

Figure 3.1.2 -When different indifference curves are placed in the Cartesian plane,

A utility function describing by how much one market basket is preferred to another is called:

The slope of an indifference curve reveals:

Suppose your utility function for food (F) and clothing (C) is u(F,C) = F + 4C. If you reduce your clothing consumption by 2 units, how much do you have to increase your food consumption in order to maintain the same utility level?

Suppose you only consume food and clothing, and clothing is plotted on the vertical axis. Also, you purchase food at a fixed price (P_F), but the price of clothing declines as you buy in larger quantities (i.e., quantity discounts). What does the budget line look like in this case?

The assumption that preferences are complete:

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?

The purpose of a chain-weighted price index is to account for:

Alfred derives utility from consuming iced tea and lemonade. For the bundle he currently consumes, the marginal utility he receives from iced tea is 16 utils, and the marginal utility he receives from lemonade is 8 utils. Instead of consuming this bundle, Alfred should:

A numerical score that represents the satisfaction that a consumer gets from a given market basket is called:

Figure 3.4.2 -Refer to Figure 3.4.2 above. From an initial position at point A, the positions the consumer chooses as her budget line changes let us conclude that:

An individual consumes only two goods, X and Y. Which of the following expressions represents the utility maximizing market basket?

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 3.1.2 -When different indifference curves are placed in the Cartesian plane,

A utility function describing by how much one market basket is preferred to another is called:

The slope of an indifference curve reveals:

Suppose your utility function for food (F) and clothing (C) is u(F,C) = F + 4C. If you reduce your clothing consumption by 2 units, how much do you have to increase your food consumption in order to maintain the same utility level?

Suppose you only consume food and clothing, and clothing is plotted on the vertical axis. Also, you purchase food at a fixed price (PF), but the price of clothing declines as you buy in larger quantities (i.e., quantity discounts). What does the budget line look like in this case?

The assumption that preferences are complete:

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?

The purpose of a chain-weighted price index is to account for:

Alfred derives utility from consuming iced tea and lemonade. For the bundle he currently consumes, the marginal utility he receives from iced tea is 16 utils, and the marginal utility he receives from lemonade is 8 utils. Instead of consuming this bundle, Alfred should:

A numerical score that represents the satisfaction that a consumer gets from a given market basket is called:

Figure 3.4.2 -Refer to Figure 3.4.2 above. From an initial position at point A, the positions the consumer chooses as her budget line changes let us conclude that:

An individual consumes only two goods, X and Y. Which of the following expressions represents the utility maximizing market basket?

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

Suppose you only consume food and clothing, and clothing is plotted on the vertical axis. Also, you purchase food at a fixed price (P_F), but the price of clothing declines as you buy in larger quantities (i.e., quantity discounts). What does the budget line look like in this case?