Question 1

All homogeneous functions (of any degree) are homothetic but not all homothetic functions are homogeneous (of some degree).

Accepted Answer

A) True 
 B)False  False

Question 2

Suppose the only characteristic of beer that a consumer cares about is alcohol content.Currently, Bud Light and Miller Lite both have the same alcohol content.
a.Illustrate the consumer's indifference curves in a graph with ounces of Miller Lite on the horizontal and ounces of Bud Light on the vertical axis.
b.Suppose that the producers of Bud Light lower the price of Bud Light.How will your answer to (a) change?
c.Suppose that the producers of Bud Light lower the alcohol content of their beer by 50%.How will your answer to (a) change?
d.Since we identify tastes with indifference maps, would you say that the consumer's tastes have changed in (b) or (c)?
e.How could we change the units we use to measure Miller Lite in order to get the indifference map in (c) to again look like the one in (a)?

Accepted Answer

a. The indifference curves are straight lines with slope of -1.
b. The answer will not change --- prices affect budgets, not tastes.
c. The indifference curves will again be straight lines, but this time with slope of -2.
d. While the indifference map has changed in (c), the consumer's tastes have not. Rather, the nature of the underlying product has changed --- and the same tastes that care only about alcohol content therefore give rise to an indifference map that looks different.
e. If we changed the units of Miller Lite to "half-ounces", we would again have indifference curves that are straight lines with slope of -1.

Question 3

In the case of perfect complements, more is not necessarily better.​

Accepted Answer

A) True 
 B)False  True

Question 4

There are no quasilinear tastes that have elasticity of substitution equal to 1 everywhere.

Accepted Answer

A) True 
 B)False

Question 5

Consider the utility function   .If   , the elasticity of substitution is equal to 1.The elasticity of substitution for CES utility functions is   .

Accepted Answer

A) True 
 B)False

Question 6

Suppose our tastes can be represented by the function   .It is often observed that people become more rigid --- more set in their ways --- as they get older.What parameter is changing as we get older --- and how is it changing? (Explain.)

Accepted Answer

The parameter @#IMG-DLM& is increasing f

Question 7

There is no elasticity of substitution that is inconsistent with tastes being homothetic.

Accepted Answer

A) True 
 B)False

Question 8

Suppose the only characteristic of beer that a consumer cares about is alcohol content.Currently, Bud Light and Miller Lite have the same alcohol content.
a.Using   to denote ounces of Miller Lite and   to denote ounces of Bud Light, what's the simplest possible utility function that can describe this consumer's tastes over the two products. 
b.Suppose Bud Light lowers its alcohol content by 50%.How would you change the utility function to account for this?
c.Derive the MRS for the functions in (a) and (b) --- and interpret your answer.

Accepted Answer

a. @#IMG-DLM& b. @#IMG-DLM& or @#IMG-DLM& c. In (a), MRS = -1 --- i.e.

Question 9

Consider the utility function   .If   , the elasticity of substitution is equal to   .

Accepted Answer

A) True 
 B)False

Question 10

Consider the utility function   .Which of the following are true statements about the indifference maps represented by this function.

Accepted Answer

A) MRS=-1 along the 45 degree line if and only if   . 
B) MRS=-1 along a ray steeper than the 45 degree line if and only if   . 
C) MRS=-1 along a ray shallower than the 45 degree line if and only if   . 
D) All of the above. 
E) None of the above. 
A) MRS=-1 along the 45 degree line if and only if   . 
B) MRS=-1 along a ray steeper than the 45 degree line if and only if   . 
C) MRS=-1 along a ray shallower than the 45 degree line if and only if   . 
D) All of the above. 
E) None of the above.

Question 11

Homothetic tastes are always tastes over essential goods.

Accepted Answer

A) True 
 B)False

Question 12

Tastes for perfect substitutes are both homothetic and quasilinear.

Accepted Answer

A) True 
 B)False

Question 13

Suppose consumer cannot taste the difference between Miller Lite and Bud Light, but Miller Lite is sold in 12 ounce cans while Bud Light is sold in 8 ounce cans.In a graph with cans of Miller Lite on the horizontal and cans of Bud Light on the vertical axis, which of the following is the correct slope for this consumer's indifference curves:

Accepted Answer

A)    
B) -1 
C)    
D) There is not enough information to tell. 
A)    
B) -1 
C)    
D) There is not enough information to tell.

Question 14

If tastes are Cobb-Douglas, they can be represented by a utility function that is homogeneous of degree k where k can take on any positive value.

Accepted Answer

A) True 
 B)False

Question 15

Tastes for perfect complements are both homothetic and quasilinear.

Accepted Answer

A) True 
 B)False

Question 16

Suppose you are very picky about your outdoor BBQ experiences --- and you need exactly 1 cup of lighter fluid for each bag of charcoal you use.If you have either leftover charcoal or leftover lighter fluid, you simply discard it.
a.With cups of lighter fluid on the horizontal and bags of charcoal on the vertical axis, illustrate some of your indifference curves.
b.Suppose that your favorite charcoal has just gotten better because the producer has infused the charcoal with half a cup of lighter fluid per bag.How does your answer to (a) change?
c.How could you change the units in which lighter fluid is measured on the horizontal axis to get your graph from (b) to look the same as you original graph in (a)?

Accepted Answer

a. The indifference curves would have an

Question 17

Suppose you are very picky about your outdoor BBQ experiences --- and you need exactly 1 cup of lighter fluid for each bag of charcoal you use.If you have either leftover charcoal or leftover lighter fluid, you simply discard it.
a.Letting cups of lighter fluid be denoted as   and bags of charcoal as   , give the simplest possible utility function that captures your tastes. 
b.Suppose that your favorite charcoal has just gotten better because the producer has infused the charcoal with half a cup of lighter fluid per bag.How does your answer to (a) change?

Accepted Answer

The answer of Suppose you are very picky about your...

Question 18

When two goods are perfect substitutes, averages are better than extremes, resulting a diminishing marginal rate of substitution.

Accepted Answer

A) True 
 B)False

Question 19

There are no quasilinear tastes that have constant elasticity of substitution.

Accepted Answer

A) True 
 B)False

Question 20

Suppose our tastes are homothetic.It is often observed that people become more rigid --- more set in their ways --- as they get older.Can you translate this observation into "economics-speak" by discussing which feature of our tastes is likely the be changing as we get older?

Accepted Answer

The feature of our tastes that is indica

Exam 5: Different Types of Tastes

All homogeneous functions (of any degree) are homothetic but not all homothetic functions are homogeneous (of some degree).

In the case of perfect complements, more is not necessarily better.​

There are no quasilinear tastes that have elasticity of substitution equal to 1 everywhere.

Consider the utility function .If , the elasticity of substitution is equal to 1.The elasticity of substitution for CES utility functions is .

Suppose our tastes can be represented by the function .It is often observed that people become more rigid --- more set in their ways --- as they get older.What parameter is changing as we get older --- and how is it changing? (Explain.)

There is no elasticity of substitution that is inconsistent with tastes being homothetic.

Consider the utility function .If , the elasticity of substitution is equal to .

Consider the utility function .Which of the following are true statements about the indifference maps represented by this function.

Homothetic tastes are always tastes over essential goods.

Tastes for perfect substitutes are both homothetic and quasilinear.

If tastes are Cobb-Douglas, they can be represented by a utility function that is homogeneous of degree k where k can take on any positive value.

Tastes for perfect complements are both homothetic and quasilinear.

When two goods are perfect substitutes, averages are better than extremes, resulting a diminishing marginal rate of substitution.

There are no quasilinear tastes that have constant elasticity of substitution.

Suppose our tastes are homothetic.It is often observed that people become more rigid --- more set in their ways --- as they get older.Can you translate this observation into "economics-speak" by discussing which feature of our tastes is likely the be changing as we get older?

Introduction

A Consumers Economic Circumstances

Economic Circumstances in Labor and Financial Markets

Tastes and Indifference Curves

Doing the Best We Can

Income and Substitution Effects in Consumer Goods Markets

Wealth and Substitution Effects in Labor and Capital Markets

Demand for Goods and Supply of Labor and Capital

Consumer Surplus and Deadweight Loss

One Input and One Output: a Short-Run Producer Model

Production With Multiple Inputs

Production Decisions in the Short and Long Run

Competitive Market Equilibrium

The Invisible Hand and the First Welfare Theorem

General Equilibrium

Choice and Markets in the Presence of Risk

Elasticities, Price-Distorting Policies, and Non-Price Rationing

Distortionary Taxes and Subsidies

Prices and Distortions Across Markets

Externalities in Competitive Markets

Asymmetric Information in Competitive Markets

Monopoly

Strategic Thinking and Game Theory

Oligopoly

Product Differentiation and Innovation in Markets

Public Goods

Governments and Politics

What Is Good Challenges From Psychology and Philosophy

Filters

In the case of perfect complements, more is not necessarily better.