Question 1

When prices are ($6,$3),Holly chooses the bundle (9,18),and when prices are ($1,$2),she chooses the bundle (8,14).

Accepted Answer

A)  The bundle (9,18)is revealed preferred to the bundle (8,14)and she does not violate WARP. 
B)  She violates SARP but not WARP. 
C)  The bundle (8,14)is revealed preferred to the bundle (9,18)and she does not violate WARP. 
D)  She violates WARP. 
E)  None of the above. 
A)  The bundle (9,18)is revealed preferred to the bundle (8,14)and she does not violate WARP. 
B)  She violates SARP but not WARP. 
C)  The bundle (8,14)is revealed preferred to the bundle (9,18)and she does not violate WARP. 
D)  She violates WARP. 
E)  None of the above.

Question 2

Stan Ford currently spends $100 a week on entertainment.A rich uncle offers him a choice between a $50 a week allowance and the opportunity to buy all of his entertainment at half price.Stan has no kinks in his difference curves.Stan would

Accepted Answer

A)  prefer the $50 allowance. 
B)  prefer the half-price subsidy. 
C)  be indifferent between the allowance and the subsidy. 
D)  prefer the subsidy if entertainment is a normal good and be indifferent otherwise. 
E)  prefer the allowance if entertainment is an inferior good and prefer the subsidy otherwise. 
A)  prefer the $50 allowance. 
B)  prefer the half-price subsidy. 
C)  be indifferent between the allowance and the subsidy. 
D)  prefer the subsidy if entertainment is a normal good and be indifferent otherwise. 
E)  prefer the allowance if entertainment is an inferior good and prefer the subsidy otherwise.

Question 3

Patience was maximizing her utility subject to her budget constraint.Prices changed and Patience was less well off than before.Therefore,at the old prices her new bundle must cost less than her old bundle.

Accepted Answer

A) True 
 B)False

Question 4

An increase in the price of an inferior good makes the people who consume that good better off.

Accepted Answer

A) True 
 B)False

Question 5

If the government gave you a subsidy of $100 per month that you had to spend on housing and if you could spend the remainder of your income in any way you wished,the effect of the subsidy would differ from the effect of a $100 per month unrestricted increase in your income only if

Accepted Answer

A)  housing were an inferior good for you. 
B)  housing were a normal good for you. 
C)  you would spend less than $100 per month on housing when you received the unrestricted $100 monthly increase in your income. 
D)  you would spend more than $100 per month on housing when you received the unrestricted $100 monthly increase in your income. 
E)  your preferences were homothetic. 
A)  housing were an inferior good for you. 
B)  housing were a normal good for you. 
C)  you would spend less than $100 per month on housing when you received the unrestricted $100 monthly increase in your income. 
D)  you would spend more than $100 per month on housing when you received the unrestricted $100 monthly increase in your income. 
E)  your preferences were homothetic.

Question 6

Hillary has an initial endowment of $500 and is interested in two things: how many visits she can make to the doctor and how much money will be left over to spend on other things.When a trip to the doctor costs $60,Hillary sees the doctor 2 times.After health care reform,a visit to the doctor will cost $10 but her taxes will rise by $100.
a.Explain what conditions are necessary for Hillary to be made better off by health care reform.
b.Is it possible to tell whether Hillary has been made better off with the given information?
c.Explain what conditions are necessary for Hillary to be made worse off by health care reform.
d.Is it possible to tell whether Hillary has been made worse off with the given information?

Accepted Answer

a.Hillary must be able to afford a bundl

Question 7

It is possible for a consumer to satisfy the weak axiom of revealed preference but violate the strong axiom of revealed preference.

Accepted Answer

A) True 
 B)False

Question 8

The Laspeyres price index differs from the Paasche price index because the Laspeyres index holds prices constant and varies quantities while the Paasche price index holds quantities constant and varies prices.

Accepted Answer

A) True 
 B)False

Question 9

If Goldie chooses the bundle (6,6)when prices are ($6,$2)and the bundle (10,0)when prices are ($2,$5),

Accepted Answer

A)  the bundle (6,6)is revealed preferred to (10,0)but there is no evidence that she violates WARP. 
B)  neither bundle is revealed preferred to the other. 
C)  Goldie violates WARP. 
D)  the bundle (10,0)is revealed preferred to (6,6)and she violates WARP. 
E)  the bundle (10,0)is revealed preferred to (6,6)and there is no evidence that she violates WARP. 
A)  the bundle (6,6)is revealed preferred to (10,0)but there is no evidence that she violates WARP. 
B)  neither bundle is revealed preferred to the other. 
C)  Goldie violates WARP. 
D)  the bundle (10,0)is revealed preferred to (6,6)and she violates WARP. 
E)  the bundle (10,0)is revealed preferred to (6,6)and there is no evidence that she violates WARP.

Question 10

Hillary has an initial endowment of $500 and is interested in two things: how many visits she can make to the doctor and how much money will be left over to spend on other things.When a trip to the doctor costs $40,Hillary sees the doctor 4 times.After health care reform,a visit to the doctor will cost $10 but her taxes will rise by $160.
a.Explain what conditions are necessary for Hillary to be made better off by health care reform.
b.Is it possible to tell whether Hillary has been made better off with the given information?
c.Explain what conditions are necessary for Hillary to be made worse off by health care reform.
d.Is it possible to tell whether Hillary has been made worse off with the given information?

Accepted Answer

a.Hillary must be able to afford a bundl

Question 11

Remember that the Laspeyres price index uses the old quantities for the weights.In 1991,good x cost $5 and good y cost $1.The current price of good x is $7 and the current price of good y is $6.In 1991 the consumption bundle was (x,y)=(2,4).The current consumption bundle is (x,y)= (5,3).The Laspeyres index of current prices relative to 1991 prices is closest to which of the following numbers?

Accepted Answer

A)  3.79 
B)  2.71 
C)  0.26 
D)  1.89 
E)  1.26 
A)  3.79 
B)  2.71 
C)  0.26 
D)  1.89 
E)  1.26

Question 12

At prices (p1,p2)=($4,$2),Ivan buys the bundle (x1,x2)= (8,20).At prices (p'1,p'2)=($2,$4),he buys the bundle (x'1,x'2)=(10,13).At prices (p''1,p''2),he buys the bundle (x''1,x''2)=(14,11).If his preferences satisfy the strong axiom of revealed preferences,then it must be that

Accepted Answer

A)  8p1  $\gt$2p2. 
B)  6p''1 $\lt$9p''2. 
C)  6p''1  $\lt$8p''2. 
D)  p''1 = p''2. 
E)  None of the above. 
A)  8p1  $\gt$2p2. 
B)  6p''1 $\lt$9p''2. 
C)  6p''1  $\lt$8p''2. 
D)  p''1 = p''2. 
E)  None of the above.

Question 13

Hillary has an initial endowment of $500 and is interested in two things: how many visits she can make to the doctor and how much money will be left over to spend on other things.When a trip to the doctor costs $50,Hillary sees the doctor 7 times.After health care reform,a visit to the doctor will cost $10 but her taxes will rise by $360.

Accepted Answer

A)  Hillary will be made better off by health care reform. 
B)  Hillary will be made worse off by health care reform. 
C)  We cannot tell how health care reform will affect Hillary. 
D)  Hillary violates the Weak Axiom of Revealed Preference. 
E)  Hillary violates the Strong Axiom of Revealed Preference. 
A)  Hillary will be made better off by health care reform. 
B)  Hillary will be made worse off by health care reform. 
C)  We cannot tell how health care reform will affect Hillary. 
D)  Hillary violates the Weak Axiom of Revealed Preference. 
E)  Hillary violates the Strong Axiom of Revealed Preference.

Question 14

When prices are ($2,$10),Emil chooses the bundle (1,6),and when prices are ($12,$4),he chooses the bundle (7,2).

Accepted Answer

A)  Emil violates WARP. 
B)  Emil has kinked indifference curves. 
C)  The bundle (1,6)is revealed preferred to (7,2),but (7,2)is not revealed preferred to (1,6). 
D)  The bundle (7,2)is revealed preferred to (1,6),but (1,6)is not revealed preferred to (7,2). 
E)  None of the above. 
A)  Emil violates WARP. 
B)  Emil has kinked indifference curves. 
C)  The bundle (1,6)is revealed preferred to (7,2),but (7,2)is not revealed preferred to (1,6). 
D)  The bundle (7,2)is revealed preferred to (1,6),but (1,6)is not revealed preferred to (7,2). 
E)  None of the above.

Question 15

When the prices were ($4,$1),Maria chose the bundle (x,y=(8,6).Now at the new prices, (px,py),she chooses the bundle (x,y)= (7,9).For Maria's behavior to be consistent with the weak axiom of revealed preference,it must be that

Accepted Answer

A)  py=4px. 
B)  4py  $\lt$ px. 
C)  3py  $\lt$ px. 
D)  px  $\lt$3py. 
E)  None of the above. 
A)  py=4px. 
B)  4py  $\lt$ px. 
C)  3py  $\lt$ px. 
D)  px  $\lt$3py. 
E)  None of the above.

Question 16

If a consumer maximizes a utility function subject to a budget constraint and has strictly convex preferences,then his behavior will necessarily satisfy the weak axiom of revealed preference and the strong axiom of revealed preference.

Accepted Answer

A) True 
 B)False

Question 17

Consider the case of Ronald.Let the prices and consumptions in the base year be as in situation D,where p1 = 3,p2=1,x1 = 5,and x2=15.If in the current year,the price of good 1 is $1 and the price of good 2 is $2,and Ronald's current consumptions of good 1 and good 2 are 25 and 25 respectively,what is the Laspeyres price index of current prices relative to base year prices? (Pick the most nearly correct answer. )

Accepted Answer

A)  1.17 
B)  2.50 
C)  0.75 
D)  0.50 
E)  1.75 
A)  1.17 
B)  2.50 
C)  0.75 
D)  0.50 
E)  1.75

Question 18

At prices ($4,$12),Harry chooses the bundle (9,4).At the prices ($8,$4),Harry chooses the bundle (2,9).Is this behavior consistent with the weak axiom of revealed preference?

Accepted Answer

A)  Yes. 
B)  No. 
C)  It depends on his income. 
D)  We would have to observe a third choice to be able to say. 
E)  None of the above. 
A)  Yes. 
B)  No. 
C)  It depends on his income. 
D)  We would have to observe a third choice to be able to say. 
E)  None of the above.

Question 19

When prices are ($2,$4),Ms.Consumer chooses the bundle (7,9),and when prices are ($15,$3),she chooses the bundle (10,3).Is her behavior consistent with the weak axiom of revealed preference?

Accepted Answer

A)  Yes. 
B)  No. 
C)  We would have to observe a third choice to be able to say. 
D)  We can't tell because we are not told her income in the two cases. 
E)  None of the above. 
A)  Yes. 
B)  No. 
C)  We would have to observe a third choice to be able to say. 
D)  We can't tell because we are not told her income in the two cases. 
E)  None of the above.

Question 20

Remember that the Laspeyres price index uses the old quantities for the weights.In 1991,good x cost $2 and good y cost $1.The current price of good x is $6 and the current price of good y is $2.In 1971 the consumption bundle was (x,y)= (3,6).The current consumption bundle is (x,y)= (6,4).The Laspeyres index of current prices relative to 1991 prices is closest to which of the following numbers?

Accepted Answer

A)  2.50 
B)  3.67 
C)  2.75 
D)  0.27 
E)  1.27 
A)  2.50 
B)  3.67 
C)  2.75 
D)  0.27 
E)  1.27

Exam 7:Revealed Preference-Part A

When prices are ($6,$3),Holly chooses the bundle (9,18),and when prices are ($1,$2),she chooses the bundle (8,14).

Stan Ford currently spends $100 a week on entertainment.A rich uncle offers him a choice between a $50 a week allowance and the opportunity to buy all of his entertainment at half price.Stan has no kinks in his difference curves.Stan would

Patience was maximizing her utility subject to her budget constraint.Prices changed and Patience was less well off than before.Therefore,at the old prices her new bundle must cost less than her old bundle.

An increase in the price of an inferior good makes the people who consume that good better off.

If the government gave you a subsidy of $100 per month that you had to spend on housing and if you could spend the remainder of your income in any way you wished,the effect of the subsidy would differ from the effect of a $100 per month unrestricted increase in your income only if

It is possible for a consumer to satisfy the weak axiom of revealed preference but violate the strong axiom of revealed preference.

The Laspeyres price index differs from the Paasche price index because the Laspeyres index holds prices constant and varies quantities while the Paasche price index holds quantities constant and varies prices.

If Goldie chooses the bundle (6,6)when prices are ($6,$2)and the bundle (10,0)when prices are ($2,$5),

At prices (p1,p2)=($4,$2),Ivan buys the bundle (x1,x2)= (8,20).At prices (p'1,p'2)=($2,$4),he buys the bundle (x'1,x'2)=(10,13).At prices (p''1,p''2),he buys the bundle (x''1,x''2)=(14,11).If his preferences satisfy the strong axiom of revealed preferences,then it must be that

When prices are ($2,$10),Emil chooses the bundle (1,6),and when prices are ($12,$4),he chooses the bundle (7,2).

When the prices were ($4,$1),Maria chose the bundle (x,y=(8,6).Now at the new prices, (px,py),she chooses the bundle (x,y)= (7,9).For Maria's behavior to be consistent with the weak axiom of revealed preference,it must be that

If a consumer maximizes a utility function subject to a budget constraint and has strictly convex preferences,then his behavior will necessarily satisfy the weak axiom of revealed preference and the strong axiom of revealed preference.

At prices ($4,$12),Harry chooses the bundle (9,4).At the prices ($8,$4),Harry chooses the bundle (2,9).Is this behavior consistent with the weak axiom of revealed preference?

When prices are ($2,$4),Ms.Consumer chooses the bundle (7,9),and when prices are ($15,$3),she chooses the bundle (10,3).Is her behavior consistent with the weak axiom of revealed preference?

Demand-Part A

Revealed Preference-Part B

Slutsky Equation-Part A

Slutsky Equation-Part B

Buying and Selling-Part A

Buying and Selling-Part B

Intertemporal Choice-Part A

Intertemporal Choice-Part B

Asset Markets-Part A

Asset Markets-Part B

Uncertainty-Part A

Uncertainty-Part B

Risky Assets-Part A

Risky Assets-Part B

Consumers Surplus-Part A

Consumers Surplus-Part B

Market Demand-Part A

Market Demand-Part B

Equilibrium-Part A

Equilibrium-Part B

Auctions-Part A

Auctions-Part B

Technology-Part A

Technology-Part B

Profit Maximization-Part A

Profit Maximization-Part B

Cost Minimization-Part A

Cost Minimization-Part B

Cost Curves-Part A

Cost Curves-Part B

Firm Supply-Part A

Firm Supply-Part B

Industry Supply-Part A

Industry Supply-Part B

Monopoly-Part A

Monopoly-Part B

Monopoly Behavior-Part A

Monopoly Behavior-Part B

Factor Markets-Part A

Factor Markets-Part B

Oligopoly-Part A

Oligopoly-Part B

Game Theory-Part A

Game Theory-Part B

Game Applications-Part A

Game Applications-Part B

Behavioral Economics-Part A

Exchange-Part A

Exchange-Part B

Production-Part A

Production-Part B

Welfare-Part A

Welfare-Part B

Externalities-Part A

Externalities-Part B

Information Technology-Part A

Information Technology-Part B

Public Goods-Part A

Public Goods-Part B

Asymmetric Information-Part A

Asymmetric Information-Part B

Filters

When the prices were ($4,$1),Maria chose the bundle (x,y=(8,6).Now at the new prices, (p_x,p_y),she chooses the bundle (x,y)= (7,9).For Maria's behavior to be consistent with the weak axiom of revealed preference,it must be that