Question 1

Figure 3.1.3
-If indifference curves cross, then:

Accepted Answer

A)  the assumption of a diminishing marginal rate of substitution is violated. 
B)  the assumption of transitivity is violated. 
C)  the assumption of completeness is violated. 
D)  consumers minimize their satisfaction. 
E)  all of the above 
A)  the assumption of a diminishing marginal rate of substitution is violated. 
B)  the assumption of transitivity is violated. 
C)  the assumption of completeness is violated. 
D)  consumers minimize their satisfaction. 
E)  all of the above

Question 2

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 3

Suppose that a consumer's increase in nominal income from the base year is exceeded by the inflation level given by a Paasche cost of living index for their level of purchases:   Show that this information implies that the consumer is strictly worse-off as compared to the base year. (Hint: Use a revealed preference argument.)

Accepted Answer

The information given above implies that

Question 4

An ideal cost-of-living index measures:

Accepted Answer

A)  the relative cost of maintaining a particular utility level. 
B)  the relative changes in consumer satisfaction that arise from price increases. 
C)  the relative price of those goods that are considered to be necessities in consumption. 
D)  none of the above 
A)  the relative cost of maintaining a particular utility level. 
B)  the relative changes in consumer satisfaction that arise from price increases. 
C)  the relative price of those goods that are considered to be necessities in consumption. 
D)  none of the above

Question 5

Figure 3.4.1
-Refer to Figure 3.4.1 above. The consumer chooses A on budget line I1 and B on budget line I2. Which of the following statements is NOT true?

Accepted Answer

A)  A is preferred to B. 
B)  B is preferred to C. 
C)  C is preferred to D. 
D)  A is preferred to C. 
A)  A is preferred to B. 
B)  B is preferred to C. 
C)  C is preferred to D. 
D)  A is preferred to C.

Question 6

Bobby is a college student who has $500 of income to spend each semester on books and pizzas. The price of a pizza is $10 and the price of a book is $50. Diagram Bobby's budget constraint. Now, suppose Bobby's parents buy him a $300 gift certificate each semester that can only be used to buy books. Diagram Bobby's budget constraint when he has the gift certificate in addition to his $500 income. Is Bobby better-off with the gift certificates?

Accepted Answer

@#IMG-DLM& Without the gift certificate, Bobby's b

Question 7

If a consumer must spend her entire income on some combination of two commodities and chooses to spend it all on just one of the commodities then:

Accepted Answer

A)  the other commodity is an economic bad. 
B)  the other commodity must have zero marginal utility. 
C)  the other commodity generates less utility per dollar spent on the good. 
D)  the two commodities must be perfect substitutes. 
A)  the other commodity is an economic bad. 
B)  the other commodity must have zero marginal utility. 
C)  the other commodity generates less utility per dollar spent on the good. 
D)  the two commodities must be perfect substitutes.

Question 8

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 9

Suppose your utility from consuming X and Y is expressed as u(X,Y) = ln(XY) where ln() is the natural logarithm operator. Given this information, which of the following statements is NOT true?

Accepted Answer

A)  The marginal utility of X may be positive or negative (depending on the quantity of X and Y consumed). 
B)  The marginal utility of X does not depend on the quantity of Y consumed. 
C)  The marginal utility of Y does not depend on the quantity of X consumed. 
D)  All of these statements are not true. 
A)  The marginal utility of X may be positive or negative (depending on the quantity of X and Y consumed). 
B)  The marginal utility of X does not depend on the quantity of Y consumed. 
C)  The marginal utility of Y does not depend on the quantity of X consumed. 
D)  All of these statements are not true.

Question 10

Which of the following statements is true about a consumer's optimal decision when indifference curves are concave?

Accepted Answer

A)  Both goods are consumed. 
B)  No goods are consumed. 
C)  Only one of the goods is consumed. 
D)  It occurs at the point of tangency with the budget line. 
A)  Both goods are consumed. 
B)  No goods are consumed. 
C)  Only one of the goods is consumed. 
D)  It occurs at the point of tangency with the budget line.

Question 11

The Laspeyres price index tends to ________ the ideal cost-of-living index.

Accepted Answer

A)  be higher than 
B)  be lower than 
C)  be equal to 
D)  zero faster than 
A)  be higher than 
B)  be lower than 
C)  be equal to 
D)  zero faster than

Question 12

The price of coffee is always equal to one-half the price of tea. When we plot the budget line for coffee and tea, coffee is plotted on the horizontal axis. What is the slope of this budget line?

Accepted Answer

A)  -1/2 
B)  1/2 
C)  -2 
D)  2 
A)  -1/2 
B)  1/2 
C)  -2 
D)  2

Question 13

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 14

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. What is the total utility that Andy will receive if he consumes 5 units of potato chips (Qp) and no Cola drink (Qc)?

Accepted Answer

A)  4 utils 
B)  10 utils 
C)  30 utils 
D)  40 utils 
E)  none of the above 
A)  4 utils 
B)  10 utils 
C)  30 utils 
D)  40 utils 
E)  none of the above

Question 15

A consumer decides not to buy a VCR when her income is $20,000. However, when her income rises to $30,000, she decides to buy one. In a single diagram, draw the budget lines and indifference curves to illustrate this situation (assume the VCR costs $300 in both time periods). Be sure to label your diagram completely.

Accepted Answer

@#IMG-DLM& At the lower budget constraint, the con

Question 16

Figure 3.1.1
-Refer to Figure 3.1.1 above. Relative to market basket A, which market baskets would compensate for the loss of one good with the gain in the other, so that total utility from any of these baskets would be the same?

Accepted Answer

A)  B and D 
B)  G and E 
C)  B and E 
D)  Only E 
A)  B and D 
B)  G and E 
C)  B and E 
D)  Only E

Question 17

Figure 3.2.4
-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. If the U.S. Congress passes an economic stimulus package that pays $300 to each person, how does this affect the budget line for each consumer?

Accepted Answer

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

Question 18

Figure 3.1.1
-Refer to Figure 3.1.1 above. On the assumption that the consumer prefers more to less, which of the following baskets are preferred to market basket A?

Accepted Answer

A)  B and D 
B)  B and E 
C)  Only B 
D)  Only E 
A)  B and D 
B)  B and E 
C)  Only B 
D)  Only E

Question 19

Suppose that a consumer's increase in nominal income from the base year exceeds the inflation level given by a Laspeyres cost of living index for their level of purchases :   Show that this information implies that the consumer is strictly better-off as compared to the base year. (Hint: Use a revealed preference argument.)

Accepted Answer

The information given above implies that

Question 20

Figure 3.2.2
-Refer to Figure 3.2.2 above. Which of the following could have caused the shift of the budget line?

Accepted Answer

A)  An increase in income 
B)  An increase in the price of food 
C)  A decrease in the price of clothing 
D)  An increase in the preference for both goods 
A)  An increase in income 
B)  An increase in the price of food 
C)  A decrease in the price of clothing 
D)  An increase in the preference for both goods

Figure 3.1.3 -If indifference curves cross, then:

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

An ideal cost-of-living index measures:

Figure 3.4.1 -Refer to Figure 3.4.1 above. The consumer chooses A on budget line I₁ and B on budget line I₂. Which of the following statements is NOT true?

If a consumer must spend her entire income on some combination of two commodities and chooses to spend it all on just one of the commodities then:

Suppose your utility from consuming X and Y is expressed as u(X,Y) = ln(XY) where ln() is the natural logarithm operator. Given this information, which of the following statements is NOT true?

Which of the following statements is true about a consumer's optimal decision when indifference curves are concave?

The Laspeyres price index tends to ________ the ideal cost-of-living index.

The price of coffee is always equal to one-half the price of tea. When we plot the budget line for coffee and tea, coffee is plotted on the horizontal axis. What is the slope of this budget line?

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

Figure 3.1.1 -Refer to Figure 3.1.1 above. Relative to market basket A, which market baskets would compensate for the loss of one good with the gain in the other, so that total utility from any of these baskets would be the same?

Figure 3.1.1 -Refer to Figure 3.1.1 above. On the assumption that the consumer prefers more to less, which of the following baskets are preferred to market basket A?

Figure 3.2.2 -Refer to Figure 3.2.2 above. Which of the following could have caused the shift of the budget line?

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 3.1.3 -If indifference curves cross, then:

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

An ideal cost-of-living index measures:

Figure 3.4.1 -Refer to Figure 3.4.1 above. The consumer chooses A on budget line I1 and B on budget line I2. Which of the following statements is NOT true?

If a consumer must spend her entire income on some combination of two commodities and chooses to spend it all on just one of the commodities then:

Suppose your utility from consuming X and Y is expressed as u(X,Y) = ln(XY) where ln() is the natural logarithm operator. Given this information, which of the following statements is NOT true?

Which of the following statements is true about a consumer's optimal decision when indifference curves are concave?

The Laspeyres price index tends to ________ the ideal cost-of-living index.

The price of coffee is always equal to one-half the price of tea. When we plot the budget line for coffee and tea, coffee is plotted on the horizontal axis. What is the slope of this budget line?

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

Figure 3.1.1 -Refer to Figure 3.1.1 above. Relative to market basket A, which market baskets would compensate for the loss of one good with the gain in the other, so that total utility from any of these baskets would be the same?

Figure 3.1.1 -Refer to Figure 3.1.1 above. On the assumption that the consumer prefers more to less, which of the following baskets are preferred to market basket A?

Figure 3.2.2 -Refer to Figure 3.2.2 above. Which of the following could have caused the shift of the budget line?

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 3.4.1 -Refer to Figure 3.4.1 above. The consumer chooses A on budget line I₁ and B on budget line I₂. Which of the following statements is NOT true?