Deck 2: A Theory of Preferences

Question 1

Which of the following preference orderings violates the transitivity assumption?

A)Bananas are indifferent to Oranges, Bananas are preferred to Apples, Apples are preferred to Bananas.
B)Apples are preferred to Oranges, Oranges are preferred to Bananas, Apples are preferred to Bananas.
C)Oranges are indifferent to Bananas, Bananas are indifferent to Apples, Apples are indifferent to Oranges.
D)Bananas are preferred to Apples, Apples are indifferent to Oranges, Bananas are preferred to Oranges.

Answer 1

Bananas are indifferent to Oranges, Bananas are preferred to Apples, Apples are preferred to Bananas.

Question 2

Assume that when you get home today, there is a letter in your mailbox from Joe Granburg, the stock market wizard. He has the latest expert advice for you about purchasing stocks. You should:

A)immediately phone your broker and follow his advice.
B)wonder why Joe didn't follow his own advice rather than sell the information.
C)only follow his advice if it details accurate past trends in stock prices.
D)only follow his advice if he has good information about the future income streams of those companies whose stock he recommends you purchase.

Answer 2

wonder why Joe didn't follow his own advice rather than sell the information.

Question 3

If we consider the bundles A = (5,30)and B = (6,40), then:

A)the consumer is indifferent between A and B.
B)A is preferred to B.
C)utility at point A is lower than the utility at point B.
D)B is preferred to A.

Answer 3

B is preferred to A.

Question 4

Nonsatiation implies that consumption bundles:

A)which are nearer the origin are preferred.
B)which contain more of all goods are preferred.
C)which contain fewer of all goods are preferred.
D)which contain more of one good and less of another are preferred.

Question 5

Economists assume that an individual's preference orderings include all of the following except:

A)transitivity.
B)preference or indifference.
C)homogeneity.
D)completeness.

Question 6

If the marginal rate of substitution is a constant (5, for example), then indifference curves are not:

A)smooth.
B)straight lines.
C)downward sloping.
D)kinked.

Question 7

Jane's utility function is U(x,y)= 2xy. She has 2 units of good x and 4 units of good y. Tim's utility function is U(x,y)= 5x + 2y. He has 4 units of good x and 1 unit of good y. We can conclude that:

A)each prefers their own bundle to the other's bundle.
B)Jane prefers Tim's bundle to her own, but Tim prefers his own bundle to Jane's.
C)each prefers the other's bundle to their own.
D)Tim prefers Jane's bundle to his own, but Jane prefers her own bundle to Tim's.

Question 8

Smoking can lead to lung cancer and premature death. Which of the following would an economist use to explain why people smoke?

A)Smokers exhibit irrational behaviour.
B)Smokers face tradeoffs.
C)Since smoking is addictive, smokers need to smoke.
D)Smokers are not maximizers.

Question 9

The fact that I'm willing to eat tater tots when french fries are not available illustrates:

A)diminishing MV.
B)maximization.
C)substitution.
D)inconsistency.

Question 10

If an indifference curve is smooth and convex to the origin, then:

A)the two goods are said to be concave combinations of each other.
B)there is a diminishing marginal rate of substitution.
C)the two goods are said to be convex combinations of each other.
D)the indifference curve is said to be normal.

Question 11

In economics, consumption bundles are:

A)utility functions.
B)bags used by retail merchants.
C)preference orderings.
D)combinations of goods and services.

Question 12

People driving on a four- lane expressway during the rush hour tend to distribute their vehicles fairly evenly among the four lanes because:

A)their tastes and preferences differ.
B)the law of large numbers is operating.
C)they all tend to be maximizers.
D)they choose lanes on a random basis.

Question 13

A vegetarian's indifferent curve in a space defined by hamburgers on the horizontal axis and broccoli on the vertical axis:

A)is concave to the origin.
B)is horizontal.
C)is vertical.
D)cannot be defined.

Question 14

Overtime pay is higher than regular pay because:

A)foregone leisure hours in addition to the ones for regular work are valued lower.
B)employers want to insure quality work after hours.
C)labour unions have the upper hand in the Canadian economy.
D)foregone leisure hours in addition to the ones for regular work are valued higher.

Question 15

Employees demand more more for overtime work because:

A)they are greedy.
B)longer hours are tiresome.
C)only the hardworking ones self- select for extra hours.
D)working extra hours makes them less willing to trade off leisure for income.

Question 16

Benoit's preferences are given by the utility function U(x,y)= 10x + 5y. He consumes 10 units of good x and 9 units of good y. If he consumes only one unit of x, how many units of y must he consume in order to be as well off as before?

A)10
B)27
C)18
D)30

Question 17

Which of the following is not a reason that economists use the assumption that indifference curves are convex?

A)It directs attention to the relevant part of the curve.
B)It is measurable.
C)It is convenient.
D)It is reasonable.

Question 18

Which of the following is consistent with the transitivity assumption?

A)If A>B and A>C then B>C.
B)If AA
C)If A>B and A>C then B=C.
D)If A>B and A=C then B

Question 19

Carl has the utility function U(x,y)= 2xy. His indifference curve passing through the bundle (4,3)must also pass through the point where x is equal to 6 and y is equal to:

A)12.
B)24.
C)2.
D)10.

Question 20

Which of the following assumptions is not generally applied to an indifference curve?

A)transitive
B)smooth
C)convex
D)diminishing MRS

Question 21

If the indifference curves for some individual are vertical straight lines, the utility function is:

A)U(x,y)= x + 2y.
B)U(x,y)= xy.
C)U(x,y)= x² + 5.
D)U(x,y)= 2xy^{2 .}

Question 22

Consider the following preference statements: (7, 9)is preferred to (5, 8); (18, 0)is preferred to (7, 9); and (5, 8)is preferred to (6, 5). If the individual's preferences are consistent, then the preferences ordering over these four consumption bundles is:

A)(7, 9), (5, 8), (18, 0), (6, 5).
B)(18, 0), (5, 8), (7, 9), (6, 5).
C)(18, 0), (7, 9), (5, 8), (6, 5).
D)(5, 8), (6, 5), (18, 0), (7, 9).

Question 23

Figure 2A

In Figure 2A (a):

A)c is preferred to d, d is preferred to e, e is preferred to c.
B)e is preferred to c, e is preferred to d, c is indifferent to d.
C)c is preferred to e, d is preferred to e, c is indifferent to d.
D)d is indifferent to c, d is indifferent to e, e is indifferent to c.

Question 24

Given the utility function U(x,y)= x² + y, which of the following preference statements is true?

A)(2,3)is preferred to (3,2)
B)(2,1)is indifferent to (1,4)
C)(2,1)is indifferent to (1,3)
D)(2,1)is preferred to (1,2)

Question 25

Which of the following is not required for the existence of a utility function?

A)completeness
B)universality
C)continuity
D)nonsatiation

Question 26

If the utility number associated with consumption bundle a is exactly twice the utility number associated with bundle b, then:

A)bundle a is preferred to bundle b.
B)bundle b is preferred to bundle a.
C)bundle a offers as much utility as two of bundle b.
D)bundle a is twice as desirable as b.

Question 27

Tim consumes goods x and y. His utility function is given by U(x,y)= y(x + 5). Which of the following is true?

A)Tim prefers bundle (1,2)to bundle (2,1)
B)Tim likes good x but hates good y.
C)Tim likes good y but hates good x.
D)Tim prefers bundle (7,3)to bundle (3,7).

Question 28

The utility function assigns a utility number that is higher for:

A)more expensive bundles.
B)more preferred bundles.
C)less preferred bundles.
D)bundles which the individual is indifferent between.

Question 29

Indifference curves provide a way to graphically represent:

A)the income level of an individual.
B)an individual's preferences.
C)the relative price of goods.
D)the constraints faced by consumers.

Question 30

If an indifference curve has a kink, then:

A)the indifference curve is not convex to the origin.
B)the marginal rate of substitution is a meaningless concept.
C)preferences are normal.
D)the marginal rate of substitution is undefined at the kink.

Question 31

If the utility number associated with consumption bundle a is exactly the square root of the utility number associated with bundle b, then:

A)bundle b offers as much utility as two of bundle a.
B)bundle a is preferred to bundle b.
C)bundle b is twice as desirable as a.
D)bundle b is preferred to bundle a.

Question 32

Traffic in the city moves along as well as it does (i.e., few accidents, reasonable speed)because:

A)drivers are usually concentrating intently on their own welfare.
B)people take others' goals and interests into account.
C)insurance does not cover all the costs of an accident.
D)almost all drivers have the same attitude regarding safety and speed.

Question 33

Which of the following is a psychological assumption?

A)self interest
B)common property
C)perfect competition
D)resource endowment

Question 34

Indifference curves are not:

A)downward sloping.
B)continuous.
C)insatiable.
D)intersecting.

Question 35

If the utility number associated with consumption bundle a is exactly half the utility number associated with bundle b, then:

A)bundle b is twice as desirable as a.
B)bundle b is preferred to bundle a.
C)bundle b offers as much utility as two of bundle a.
D)bundle a is preferred to bundle b.

Question 36

Utility functions assign a:

A)preference ordering to each individual.
B)service truck to each customer request.
C)unique number to each indifference curve.
D)unique indifference curve to each number.

Question 37

The value of a good is determined by:

A)the amount of resources used to produce it.
B)the maximum amount of goods in the market.
C)the amount of time it takes to produce it.
D)the maximum amount that one is willing to sacrifice to get it.

Question 38

Sheila has preferences represented by the utility function U (x, y)= 8x + 4y. She consumes 12 units of good x and 3 units of good y. If her consumption of good x is lowered to 10, how many units of y must she have in order to be exactly as well off as before?

A)10 units of good y
B)5 units of good y
C)12 units of good y
D)7 units of good y

Question 39

The rate at which a consumer is willing to exchange one good for another, and maintain a constant level of satisfaction is:

A)the marginal rate of substitution.
B)the relative price ratio.
C)the value of marginal product.
D)the relative expenditure ratio.

Question 40

If Henry decides to give up his social life in order to be more productive at work, an economist would consider this:

A)hedonistic.
B)inevitable.
C)one of life's many trade offs.
D)contrary to maximizing behaviour.

Question 41

Which of the following assumptions implies that bundles on indifference curves further from the origin are preferred to bundles closer to the origin?

A)non- satiation.
B)transitivity.
C)homogeneity
D)completeness.

Question 42

Horizontal indifference curves imply that:

A)the goods are perfect complements.
B)the consumer gets no utility from the Y axis good.
C)the consumer gets no utility from the X axis good.
D)the goods are perfect substitutes.

Question 43

Figure 2A

In Figure 2A, which of the following curves represents a weakly convex indifference curve?

A)Figure 2A (a)
B)Figure 2A (b)
C)Figure 2A (c)
D)Figure 2A (d)

Question 44

When two goods are perfect substitutes, they will have:

A)indifference curves with a slope equal to +1.
B)indifference curves that slope upward.
C)linear indifference curves.
D)indifference curves that are kinked.

Question 45

For the utility function: U = x + y², the MRS is given by: (calculus required)

A)x/2.
B)1/2y.
C)1/2.
D)x/2y.

Question 46

Mary's utility function is U(x,y)= 4x^1/2 + y. She has 25 units of x and 12 units of y. If her consumption of x is reduced to 0, how many units of y would she need in order to be exactly as well off as before?

A)112 units
B)32 units
C)37 units
D)48 units

Question 47

Given the utility function U(x₁,x₂)= x₁ + 2x₂, the marginal rate of substitution (MRS)is:

A)equal to 1/2.
B)undefined.
C)equal to 2.
D)zero.

Question 48

An indifference curve represents:

A)a complete preference ordering.
B)consumption bundles of equivalent value.
C)average preferences.
D)complete apathy.

Question 49

If an individual turns down more spinach at dinner, this individual:

A)is violating the principle of diminishing marginal rate of substitution.
B)is not maximizing.
C)is not violating any postulates and could still be maximizing.
D)is violating the principle of substitution.

Question 50

If Al's indifference curves are downward sloping straight lines, then Al's marginal rate of substitution is:

A)increasing.
B)constant.
C)zero.
D)diminishing.

Question 51

Scarcity means that:

A)our desire for a good exceeds the amount that is freely available.
B)at the current market price there is a shortage of the good.
C)we are unable to find a particular good in any of the stores we visit.
D)a particular good is difficult to produce.

Question 52

The utility function U(x,y)= 2x + y is an apt description of the preferences when:

A)x is a left shoe and y is a right shoe.
B)x is nickels and y is quarters.
C)x is nickels and y is dimes.
D)x is pizza and y is cola.

Question 53

If Jane's utility function is given by U = xy:

A)Jane prefers bundle (1,3)to bundle (2,5).
B)Jane is indifferent between bundle (2,2)and bundle (2,1).
C)Jane prefers bundle (2,2)to bundle (3,3).
D)Jane is indifferent between bundle (1,2)and bundle (2,1).

Question 54

The utility function U(x₁,x₂)= min(x₁,x₂)is an apt description of preferences when:

A)x₁ is money and x₂ is cocaine.
B)x₁ is $5 bills and x₂ is $5 bills.
C)x₁ is a Coke and x₂ is a Pepsi.
D)x₁ is a left hand glove and x₂ is a right hand glove.

Question 55

If x₁ is good and x₂ is bad, then indifference curves:

A)have a positive slope.
B)cannot be linear.
C)have a negative slope.
D)are not smooth.

Question 56

Indifference curves between left shoes and right shoes are:

A)smooth and convex.
B)upward sloping.
C)downward sloping straight lines.
D)L- shaped.

Question 57

The nonsatiation assumption says that given any two consumption bundles, if bundle 1 has more of one good and does not contain less of any other good then:

A)the individual is indifferent between bundle 1 and all other bundles.
B)bundle 1 is never preferred to others.
C)all other bundles are preferred to bundle 1.
D)bundle 1 is preferred to other bundles.

Question 58

The completeness assumption implies that:

A)indifference curves are convex.
B)the individual is indifferent between all bundles.
C)indifference curves are smooth.
D)any two points in the x - y space can be ranked.

Question 59

Anna's preferences can be expressed by the utility function U(x₁, x₂)= x₁ + x₂. Which of the following does NOT represent the same preferences?

A)U(x₁, x₂)= (x₁ + x₂)2
B)U(x₁, x₂)= ln(x₁ + x₂)+ 12
C)U(x₁, x₂)= x₁ + 4x₂ D)U(x₁, x₂)= 1000(x₁ + x₂)

Question 60

Suppose Jane enjoys coffee (x)but is allergic to tea (y). Which of the following utility functions would best represent Tim's utility function for coffee and tea?

A)U(x,y)= min[x,y]
B)U(x,y)= x + y
C)U(x,y)= xy
D)U(x,y)= x/y

Question 61

The nonsatiation assumption implies that:

A)indifference curves do not cross.
B)indifference curves have a negative slope.
C)indifference curves have a positive slope.
D)indifference curves are continuous.

Question 62

Which of the following is required for the existence of a utility function?

A)transitivity
B)relativity
C)universality
D)satiation

Question 63

The nonsatiation assumption:

A)is saying that individuals always maximize.
B)is a formal way of saying that more is always better.
C)implies that indifference curves have a positive slope.
D)is a well founded empirical truth.

Question 64

People smooth out consumption over time:

A)because they become wiser as they age.
B)because older people require less consumption.
C)because utility of consumption increases with age.
D)to raise their level of utility.

Question 65

Which of the following statements about indifference curve analysis is false?

A)Indifference curve analysis is identical to the n- good problem.
B)Indifference curve analysis is a special case of the n- good problem.
C)Indifference curve analysis simplifies the n- good problem for detailed study.
D)Indifference curve analysis relies on the same assumptions as the n- good problem.

Question 66

When Doug is asked whether he would prefer sweetbreads and kumquats or tripe and starfruit, he replies "I don't know". This is a violation of which assumption?

A)Non- satiation
B)Consistency.
C)Completeness
D)Transitivity

Question 67

The transitivity assumption implies that:

A)indifference curves measure preferences.
B)indifference curves are convex.
C)indifference curves never cross.
D)indifference curves are smooth.

Question 68

Which of the following are necessary assumptions to guarantee that an individual can consistently rank any set of consumption bundles?

A)completeness and non- satiation
B)transitivity and non satiation
C)completeness and universality
D)transitivity and completeness

Question 69

If an indifference curve is convex, the marginal rate of substitution is not:

A)the rate at which an individual is willing to trade goods.
B)constant.
C)a function.
D)minus one times the slope of an indifference curve.

Question 70

Which of the following is a scarce commodity?

A)fresh air
B)stock market advice
C)air
D)pollution

Question 71

If people regard pollution as a bad thing, then their indifference curves for pollution and income (P, I)are:

A)kinked.
B)upward sloping.
C)undefined.
D)convex.

Question 72

A consumer's set of indifference curves provides:

A)a relative ranking of bundles that provide more of all goods.
B)a mechanism to determine market equilibria.
C)a complete ranking of all possible consumption bundles.
D)a ranking of a set of bundles on an indifference curve.

Question 73

If x₁ is $20 bills and x₂ is $100 bills, then:

A)the utility function is x + 5z.
B)indifference curves have many kinks.
C)the marginal rate of substitution is 5.
D)the marginal rate of substitution is 1/5.

Question 74

The continuity assumption implies that:

A)the indifference curves are smooth.
B)the indifference curves are continuous.
C)the indifference curves never cross.
D)the indifference curves are convex.

Question 75

Given the utility function U(x₁,x₂)= min(x₁,x₂), the marginal rate of substitution when x₁ exceeds
X₂ is:

A)undefined.
B)one.
C)zero.
D)infinite.

Question 76

Cheryl is always willing to trade 3 cheeseburgers for a bucket of shrimp. Her indifference curves are:

A)bowed in to the origin
B)straight lines
C)L- shaped
D)bowed out from the origin

Question 77

Given the utility function U(x₁,x₂)= min(x₁,x₂), the marginal rate of substitution when x₁ equals
X₂ is:

A)undefined.
B)zero.
C)infinite.
D)one.

Question 78

The increase in the size of shopping carts for the past three decades is due to:

A)the increase in the income per capita over time.
B)the intention of store owners to sell more.
C)the decrease in the cost of producing the carts.
D)the increase in the opportunity cost of time.

Question 79

Given the following utility function, U(x₁,x₂)= x₁ * x₂, which of the following does not represent the same preference ordering:

A)x₁x₂ + 15.
B)(x₁x₂)².
C)x₁ + x₂.
D)x₁x₂ - 1000.

Question 80

Figure 2A

In Figure 2A, the utility function for some individual is U(x₁,x₂)=x₁x₂. An indifference curve for this individual is depicted in:

A)Figure 2A (a).
B)Figure 2A (b).
C)Figure 2A (c).
D)Figure 2A (d).