Question 1

What is a good argument for using the model of the consumer despite the fact that it requires making many simplifying assumptions?

Accepted Answer

A) It is complex to solve. 
B) The assumptions are sometimes realistic. 
C) It explains observed patterns of behavior. 
D) It is used in many scholarly fields. 
A) It is complex to solve. 
B) The assumptions are sometimes realistic. 
C) It explains observed patterns of behavior. 
D) It is used in many scholarly fields.

Question 2

Janice Doe consumes two goods,X and Y.Janice has a utility function given by the expression:
U = 4X0.5Y0.5.
So,MUX =   and MUY =   .The current prices of X and Y are 25 and 50,respectively.Janice currently has an income of 750 per time period.
a.Write an expression for Janice's budget constraint.
b.Calculate the optimal quantities of X and Y that Janice should choose,given her budget constraint.Graph your answer.
c.Suppose that the government rations purchases of good X such that Janice is limited to 10 units of X per time period.Assuming that Janice chooses to spend her entire income,how much Y will Janice consume? Construct a diagram that shows the impact of the limited availability of X.Is Janice satisfying the usual conditions of consumer equilibrium while the restriction is in effect?
d.Calculate the impact of the ration restriction on Janice's utility.

Accepted Answer

a. I = PxX + PyY 750 = 25X + 50Y b.Optim

Question 3

If a market basket is changed by adding more of at least one good,then rational consumers will:

Accepted Answer

A) rank the market basket more highly after the change. 
B) more likely prefer a different market basket. 
C) rank the market basket as being just as desirable as before. 
D) be unable to decide whether the first market basket is preferred to the second or vice versa. 
E) have indifference curves that cross. 
A) rank the market basket more highly after the change. 
B) more likely prefer a different market basket. 
C) rank the market basket as being just as desirable as before. 
D) be unable to decide whether the first market basket is preferred to the second or vice versa. 
E) have indifference curves that cross.

Question 4

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?

Accepted Answer

a. Answers will vary depending on the wa

Question 5

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 cons

Question 6

Bob views apples and oranges as perfect substitutes in his consumption,and MRS = 1 for all combinations of the two goods in his indifference map.Suppose the price of apples is $2 per pound,the price of oranges is $3 per pound,and Bob's budget is $30 per week.What is Bob's utility maximizing choice between these two goods?

Accepted Answer

A) 4 pounds of apples and 6 pounds of oranges 
B) 5 pounds of apples and 5 pounds of oranges 
C) 10 pounds of oranges and no apples 
D) 15 pounds of apples and no oranges 
E) none of the above 
A) 4 pounds of apples and 6 pounds of oranges 
B) 5 pounds of apples and 5 pounds of oranges 
C) 10 pounds of oranges and no apples 
D) 15 pounds of apples and no oranges 
E) none of the above

Question 7

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 8

A consumer prefers market basket A to market basket B,and prefers market basket B to market basket C.Therefore,A is preferred to C.The assumption that leads to this conclusion is:

Accepted Answer

A) transitivity. 
B) completeness. 
C) all goods are good. 
D) diminishing MRS. 
E) assumption of rationality. 
A) transitivity. 
B) completeness. 
C) all goods are good. 
D) diminishing MRS. 
E) assumption of rationality.

Question 9

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 10

The endpoints (horizontal and vertical intercepts)of the budget line:

Accepted Answer

A) measure its slope. 
B) measure the rate at which one good can be substituted for another. 
C) measure the rate at which a consumer is willing to trade one good for another. 
D) represent the quantity of each good that could be purchased if all of the budget were allocated to that good. 
E) indicate the highest level of satisfaction the consumer can achieve. 
A) measure its slope. 
B) measure the rate at which one good can be substituted for another. 
C) measure the rate at which a consumer is willing to trade one good for another. 
D) represent the quantity of each good that could be purchased if all of the budget were allocated to that good. 
E) indicate the highest level of satisfaction the consumer can achieve.

Question 11

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 12

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

Accepted Answer

A) the marginal utility of A equals the marginal utility of B. 
B) the marginal utility of A times the price of A equals the marginal utility of B times the price of B 
C) the ratio of total utility of A to the price of A equals the ratio of the marginal utility of B to the price of A. 
D) the ratio of the marginal utility of A to the price of A equals the ratio of the marginal utility of B to the price of B. 
A) the marginal utility of A equals the marginal utility of B. 
B) the marginal utility of A times the price of A equals the marginal utility of B times the price of B 
C) the ratio of total utility of A to the price of A equals the ratio of the marginal utility of B to the price of A. 
D) the ratio of the marginal utility of A to the price of A equals the ratio of the marginal utility of B to the price of B.

Question 13

Alvin's preferences for good X and good Y are shown in the diagram below.   Figure 3.2
-Refer to Figure 3.2.At any consumption bundle with the quantity of good X exceeding the quantity of good Y (that is,a bundle located below the 45 degree line,like point A,Alvin's marginal rate of substitution of good X for good Y is

Accepted Answer

A) diminishing. 
B) positive. 
C) constant and positive. 
D) zero. 
A) diminishing. 
B) positive. 
C) constant and positive. 
D) zero.

Question 14

Bill currently uses his entire budget to purchase 5 cans of Pepsi and 3 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 4,and his marginal utility from hamburgers is 6.Bill could increase his utility by:

Accepted Answer

A) increasing Pepsi consumption and reducing hamburger consumption. 
B) increasing hamburger consumption and reducing Pepsi consumption. 
C) maintaining his current consumption choices. 
D) We do not have enough information to answer this question. 
A) increasing Pepsi consumption and reducing hamburger consumption. 
B) increasing hamburger consumption and reducing Pepsi consumption. 
C) maintaining his current consumption choices. 
D) We do not have enough information to answer this question.

Question 15

Assume that food is measured on the horizontal axis and clothing on the vertical axis.If the price of food falls relative to that of clothing,the budget line will:

Accepted Answer

A) become flatter. 
B) become steeper. 
C) shift outward. 
D) become steeper or flatter depending on the relationship between prices and income. 
A) become flatter. 
B) become steeper. 
C) shift outward. 
D) become steeper or flatter depending on the relationship between prices and income.

Question 16

Consider Gary's utility function: U(X,Y)= 5XY,where X and Y are two goods.If the individual consumed 10 units of X and received 250 units of utility,how many units of Y must the individual consume? Would a market basket of X = 15 and Y = 3 be preferred to the above combination? Explain.

Accepted Answer

Given that U(X,Y)= 5XY = 5(10)Y,then 250

Question 17

Use the following two statements to answer this question: I.If utility is ordinal,a market basket that provides 30 utils provides twice the satisfaction of a market basket that provides 15 utils.
II.When economists first studied utility it was believed that utility was cardinal,but it was later discovered that ordinal preferences are sufficient to explain how most individual decisions are made.

Accepted Answer

A) Both I and II are true. 
B) I is true,and II is false. 
C) I is false,and II is true. 
D) Both I and II are false. 
A) Both I and II are true. 
B) I is true,and II is false. 
C) I is false,and II is true. 
D) Both I and II are false.

Question 18

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?

Accepted Answer

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

Question 19

Sally consumes two goods,X and Y.Her utility function is given by the expression
U = 3 · XY2.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.)
(Note: MUY = 6XY and MUX = 3Y2.)
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 20

Figure 3.3
-Refer to the indifference curve in Figure 3.3.Which of the following is true about the MRS?

Accepted Answer

A) It is negative. 
B) It is positive. 
C) It is equal to zero. 
D) It is undefined. 
A) It is negative. 
B) It is positive. 
C) It is equal to zero. 
D) It is undefined.

What is a good argument for using the model of the consumer despite the fact that it requires making many simplifying assumptions?

If a market basket is changed by adding more of at least one good,then rational consumers will:

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

A consumer prefers market basket A to market basket B,and prefers market basket B to market basket C.Therefore,A is preferred to C.The assumption that leads to this conclusion is:

The endpoints (horizontal and vertical intercepts)of the budget line:

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

Bill currently uses his entire budget to purchase 5 cans of Pepsi and 3 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 4,and his marginal utility from hamburgers is 6.Bill could increase his utility by:

Assume that food is measured on the horizontal axis and clothing on the vertical axis.If the price of food falls relative to that of clothing,the budget line will:

Consider Gary's utility function: U(X,Y)= 5XY,where X and Y are two goods.If the individual consumed 10 units of X and received 250 units of utility,how many units of Y must the individual consume? Would a market basket of X = 15 and Y = 3 be preferred to the above combination? Explain.

Figure 3.3 -Refer to the indifference curve in Figure 3.3.Which of the following is true about the MRS?

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 1-83

Markets With Asymmetric Information

Externalities and Public Goods

Filters

Exam 3: Consumer Behavior

What is a good argument for using the model of the consumer despite the fact that it requires making many simplifying assumptions?

If a market basket is changed by adding more of at least one good,then rational consumers will:

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

A consumer prefers market basket A to market basket B,and prefers market basket B to market basket C.Therefore,A is preferred to C.The assumption that leads to this conclusion is:

The endpoints (horizontal and vertical intercepts)of the budget line:

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

Bill currently uses his entire budget to purchase 5 cans of Pepsi and 3 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 4,and his marginal utility from hamburgers is 6.Bill could increase his utility by:

Assume that food is measured on the horizontal axis and clothing on the vertical axis.If the price of food falls relative to that of clothing,the budget line will:

Consider Gary's utility function: U(X,Y)= 5XY,where X and Y are two goods.If the individual consumed 10 units of X and received 250 units of utility,how many units of Y must the individual consume? Would a market basket of X = 15 and Y = 3 be preferred to the above combination? Explain.

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?

Figure 3.3 -Refer to the indifference curve in Figure 3.3.Which of the following is true about the MRS?

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 1-83

Markets With Asymmetric Information

Externalities and Public Goods

Filters