Question 1

The property that implies that indifference curves are convex to the origin is:

Accepted Answer

A)  more is better. 
B)  completeness. 
C)  transitivity. 
D)  diminishing marginal rate of substitution. 
A)  more is better. 
B)  completeness. 
C)  transitivity. 
D)  diminishing marginal rate of substitution.

Question 2

In order to encourage energy conservation,many public utility companies charge consumers a higher rate on units of electricity consumed in excess of some threshold amount.In contrast,a common marketing ploy by other firms is to offer "quantity discounts" to consumers who purchase large quantities of a good.To illustrate how these pricing schemes alter the typical consumer's opportunity set,suppose income = $100,Px = $2 if the consumer buys less than 40 units of X,Px = $3 if the consumer buys more than 40 units of X,and Py = $5.Draw the budget constraint.How would the budget constraint change if the price decreased to $1 after 40 units of X were consumed?

Accepted Answer

This figure represents the bud

Question 3

Suppose a consumer derives satisfaction from consuming two types of hamburgers,X and Y.
a.Graph the budget line of the consumer under the assumption that he is offered a "buy two,get one free" deal for burger X (limit one free burger).
b.Graph the budget constraint under the assumption that the producer of burger Y also offers a "buy two,get one free" deal (limit one free burger).
c.Explain in words why each of the preceding budget constraints looks as it does.

Accepted Answer

a.In Figure 4-6a,ABCD is the budget line

Question 4

At the point of consumer equilibrium,the slope of the budget line is equal to the:

Accepted Answer

A)  market rate of indifference. 
B)  indifference curve. 
C)  marginal rate of substitution. 
D)  consumer preference. 
A)  market rate of indifference. 
B)  indifference curve. 
C)  marginal rate of substitution. 
D)  consumer preference.

Question 5

Suppose a consumer has M = $200 to spend on two goods,X and Y.If the per-unit prices of X and Y are respectively given by PX = $2 and PY = $4,then utility maximization subject to a budget constraint can be found from which of the following Lagrangians?

Accepted Answer

A)  ℒ = U(X,Y) + F1F1F1S1F1F1F10(200 − 2X − 4Y) 
B)  ℒ = U(X,Y) + F1F1F1S1F1F1F10(200 − 2PX − 4PY) 
C)  ℒ = (200 − 2X − 4Y) + F1F1F1S1F1F1F10U(X,Y) 
D)  ℒ = U(X,Y) + F1F1F1S1F1F1F10(2X − 4Y + 200) 
A)  ℒ = U(X,Y) + F1F1F1S1F1F1F10(200 − 2X − 4Y) 
B)  ℒ = U(X,Y) + F1F1F1S1F1F1F10(200 − 2PX − 4PY) 
C)  ℒ = (200 − 2X − 4Y) + F1F1F1S1F1F1F10U(X,Y) 
D)  ℒ = U(X,Y) + F1F1F1S1F1F1F10(2X − 4Y + 200)

Question 6

Over the past decade,medical costs have increased more rapidly than other prices.In order to illustrate how rising medical costs have affected consumer alternatives,let X represent the quantity of medical services,and let Y represent the quantity of other goods.Furthermore,let income (M)be measured in hundreds of dollars,the price of medical services and other goods in terms of dollars per minute,with M = 100,Px = 4,and Py = 5.
a.Graph the budget line,and determine the market rate of substitution.
b.Illustrate the budget set.
c.Show in your graph what happens to the budget constraint if Px increases to $10.
d.What is the meaning of the slope of the two budget constraints?

Accepted Answer

a.See the figure below.
b.The budget set

Question 7

PXX + PYY = M is called:

Accepted Answer

A)  an indifference curve. 
B)  an opportunity set. 
C)  a budget set. 
D)  a budget line. 
A)  an indifference curve. 
B)  an opportunity set. 
C)  a budget set. 
D)  a budget line.

Question 8

Given that income is $200 and the price of good Y is $40,what is the vertical intercept of the budget line?

Accepted Answer

A)  8,000 
B)  20 
C)  1/5 
D)  5 
A)  8,000 
B)  20 
C)  1/5 
D)  5

Question 9

If the price of good X increases,what will happen to the budget line?

Accepted Answer

A)  It will shift outward. 
B)  It will become steeper. 
C)  It will become flatter. 
D)  It will shift inward. 
A)  It will shift outward. 
B)  It will become steeper. 
C)  It will become flatter. 
D)  It will shift inward.

Question 10

Consider a two-good world,with commodities X and Y.Which of the following statements is correct?

Accepted Answer

A)  Both X and Y must be normal goods. 
B)  If good X is a normal good, good Y must be an inferior good. 
C)  If good X is an inferior good, good Y must be a normal good. 
D)  Both good X and good Y can be inferior goods. 
A)  Both X and Y must be normal goods. 
B)  If good X is a normal good, good Y must be an inferior good. 
C)  If good X is an inferior good, good Y must be a normal good. 
D)  Both good X and good Y can be inferior goods.

Question 11

The income effect isolates the change in the consumption of a good caused by the change in:

Accepted Answer

A)  "real" income. 
B)  the relative prices of two goods. 
C)  consumer preferences. 
D)  None of the preceding statements is correct. 
A)  "real" income. 
B)  the relative prices of two goods. 
C)  consumer preferences. 
D)  None of the preceding statements is correct.

Question 12

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied.Furthermore,assume that X is a normal good,Y is an inferior good,and the price of good Y increases.Then,which of the following effects is known with certainty?

Accepted Answer

A)  The income and substitution effects reinforce one another, leading to an overall decrease in the consumption of good X. 
B)  The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y. 
C)  The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good X. 
D)  The income and substitution effects will have competing effects, leading to an indeterminate impact on the consumption of good Y. 
A)  The income and substitution effects reinforce one another, leading to an overall decrease in the consumption of good X. 
B)  The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y. 
C)  The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good X. 
D)  The income and substitution effects will have competing effects, leading to an indeterminate impact on the consumption of good Y.

Question 13

Suppose that a consumer's preferences are well behaved in that properties 4-1 to 4-4 are satisfied and the initial equilibrium consumption bundle consists of 10 units of X and 25 units of Y.If PY increases such that the new equilibrium consumption bundle is 15 units of X and 10 units of Y,then goods X and Y are:

Accepted Answer

A)  complements. 
B)  substitutes. 
C)  normal goods. 
D)  unrelated. 
A)  complements. 
B)  substitutes. 
C)  normal goods. 
D)  unrelated.

Question 14

The combinations of goods X and Y that are affordable to the consumer are defined by the:

Accepted Answer

A)  consumption set. 
B)  income line. 
C)  budget constraint. 
D)  budget set. 
A)  consumption set. 
B)  income line. 
C)  budget constraint. 
D)  budget set.

Question 15

If you are in the business of selling chicken and the price of chicken and the price of beef both were to drop dramatically,what should you do with your inventory level of chicken?

Accepted Answer

A)  Keep it the same. 
B)  Decrease the inventory. 
C)  Increase the inventory. 
D)  Get into the beef business. 
A)  Keep it the same. 
B)  Decrease the inventory. 
C)  Increase the inventory. 
D)  Get into the beef business.

Question 16

Suppose earnings are given by E = $60 + $7(24 − L),where E is earnings and L is the hours of leisure.What is the maximum this worker can earn in three (3)days?

Accepted Answer

A)  $519 
B)  $417 
C)  $228 
D)  $684 
A)  $519 
B)  $417 
C)  $228 
D)  $684

Question 17

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied.Furthermore,assume that both X and Y are normal goods and that the price of good Y decreases.Then,which of the following effects is known with certainty?

Accepted Answer

A)  The income and substitution effects reinforce one another, leading to an overall increase in the consumption of good X. 
B)  The income and substitution effects reinforce one another, leading to an overall decrease in the consumption of good X. 
C)  The income and substitution effects will have competing effects, leading to an indeterminate impact on the consumption of good X. 
D)  The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y. 
A)  The income and substitution effects reinforce one another, leading to an overall increase in the consumption of good X. 
B)  The income and substitution effects reinforce one another, leading to an overall decrease in the consumption of good X. 
C)  The income and substitution effects will have competing effects, leading to an indeterminate impact on the consumption of good X. 
D)  The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y.

Question 18

If money income doubles and the prices of all goods triples,then the:

Accepted Answer

A)  budget line remains unchanged. 
B)  consumer is worse off due to inflation. 
C)  consumer will buy more of normal goods. 
D)  budget line will shift out. 
A)  budget line remains unchanged. 
B)  consumer is worse off due to inflation. 
C)  consumer will buy more of normal goods. 
D)  budget line will shift out.

Question 19

The absolute value of the slope of the indifference curve is called the:

Accepted Answer

A)  marginal revenue. 
B)  average rate of substitution. 
C)  marginal rate of substitution. 
D)  marginal cost. 
A)  marginal revenue. 
B)  average rate of substitution. 
C)  marginal rate of substitution. 
D)  marginal cost.

Question 20

Given that income is $750 and PX = $32 and PY = $8,what is the market rate of substitution between goods X and Y?

Accepted Answer

A)  -0.75 
B)  -3 
C)  -4 
D)  -25 
A)  -0.75 
B)  -3 
C)  -4 
D)  -25

The property that implies that indifference curves are convex to the origin is:

At the point of consumer equilibrium,the slope of the budget line is equal to the:

Suppose a consumer has M = $200 to spend on two goods,X and Y.If the per-unit prices of X and Y are respectively given by P_X = $2 and P_Y = $4,then utility maximization subject to a budget constraint can be found from which of the following Lagrangians?

P_XX + P_YY = M is called:

Given that income is $200 and the price of good Y is $40,what is the vertical intercept of the budget line?

If the price of good X increases,what will happen to the budget line?

Consider a two-good world,with commodities X and Y.Which of the following statements is correct?

The income effect isolates the change in the consumption of a good caused by the change in:

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied.Furthermore,assume that X is a normal good,Y is an inferior good,and the price of good Y increases.Then,which of the following effects is known with certainty?

The combinations of goods X and Y that are affordable to the consumer are defined by the:

If you are in the business of selling chicken and the price of chicken and the price of beef both were to drop dramatically,what should you do with your inventory level of chicken?

Suppose earnings are given by E = $60 + $7(24 − L),where E is earnings and L is the hours of leisure.What is the maximum this worker can earn in three (3)days?

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied.Furthermore,assume that both X and Y are normal goods and that the price of good Y decreases.Then,which of the following effects is known with certainty?

If money income doubles and the prices of all goods triples,then the:

The absolute value of the slope of the indifference curve is called the:

Given that income is $750 and P_X = $32 and P_Y = $8,what is the market rate of substitution between goods X and Y?

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters

Exam 4: The Theory of Individual Behavior

The property that implies that indifference curves are convex to the origin is:

At the point of consumer equilibrium,the slope of the budget line is equal to the:

Suppose a consumer has M = $200 to spend on two goods,X and Y.If the per-unit prices of X and Y are respectively given by PX = $2 and PY = $4,then utility maximization subject to a budget constraint can be found from which of the following Lagrangians?

PXX + PYY = M is called:

Given that income is $200 and the price of good Y is $40,what is the vertical intercept of the budget line?

If the price of good X increases,what will happen to the budget line?

Consider a two-good world,with commodities X and Y.Which of the following statements is correct?

The income effect isolates the change in the consumption of a good caused by the change in:

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied.Furthermore,assume that X is a normal good,Y is an inferior good,and the price of good Y increases.Then,which of the following effects is known with certainty?

The combinations of goods X and Y that are affordable to the consumer are defined by the:

If you are in the business of selling chicken and the price of chicken and the price of beef both were to drop dramatically,what should you do with your inventory level of chicken?

Suppose earnings are given by E = $60 + $7(24 − L),where E is earnings and L is the hours of leisure.What is the maximum this worker can earn in three (3)days?

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied.Furthermore,assume that both X and Y are normal goods and that the price of good Y decreases.Then,which of the following effects is known with certainty?

If money income doubles and the prices of all goods triples,then the:

The absolute value of the slope of the indifference curve is called the:

Given that income is $750 and PX = $32 and PY = $8,what is the market rate of substitution between goods X and Y?

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters

Suppose a consumer has M = $200 to spend on two goods,X and Y.If the per-unit prices of X and Y are respectively given by P_X = $2 and P_Y = $4,then utility maximization subject to a budget constraint can be found from which of the following Lagrangians?

P_XX + P_YY = M is called:

Given that income is $750 and P_X = $32 and P_Y = $8,what is the market rate of substitution between goods X and Y?