Question 1

Jane's utility function is represented as: U = F⁰.⁵ C⁰.⁵,F is quantity of food and C is quantity of clothing.If her budget constraint is represented as: 120 = 2F + C,her optimal bundle of consumption should be

Accepted Answer

A)  (40F, 40
C) . 
B)  (20F, 60
C) . 
C)  (50F, 50
C) . 
D)  (45F, 20
C) .

Question 2

Lisa eats both pizzas and burritos.If the price of a pizza increases,Lisa's opportunity set

Accepted Answer

A)  becomes larger. 
B)  becomes smaller. 
C)  is unchanged. 
D)  cannot be determined without more information.

Question 3

An indifference curve represents bundles of goods that a consumer

Accepted Answer

A)  views as equally desirable. 
B)  ranks from most preferred to least preferred. 
C)  refers to any other bundle of goods. 
D)  All of the above.

Question 4

Joe's income is $500,the price of food (F)is $2 per unit,and the price of shelter (S)is $100.Which of the following represents his budget constraint?

Accepted Answer

A)  500 = 2F + 100S 
B)  F = 250 - 50S 
C)  S = 5 - .02F 
D)  All of the above

Question 5

For the following, please answer "True" or "False" and explain why
-The absolute value of the slope of an indifference curve equals the ratio of the marginal utilities of the two goods involved.

Accepted Answer

A) True 
 B)False

Question 6

Suppose Joe's utility for lobster (L)and soda (S)can be represented as U = L⁰.⁵ S⁰.⁵.Draw the indifference curve that yields a utility level of 9.Calculate the MUL,MUS,and MRS of L for S on that indifference curve when S = 3.

Accepted Answer

The answer of Suppose Joe's utility for lobster (L)and soda...

Question 7

Consider a consumer with the Cobb-Douglas utility function U(q₁,q₂)=  ,where q₁ and q₂ are the quantities of goods 1 and 2 consumed,respectively.This consumer derives a level of utility denoted by U₀.The prices of goods 1 and 2 are denoted p₁ and p₂.
a.Write out the Lagrangian for the consumer's expenditure minimization problem.
b.Using the Lagrangian method,derive the consumer's (expenditure-minimizing)quantity of good 1 as functions of the variables p₁,p₂,and U₀.
c.Derive the consumer's expenditure function,E(p₁,p₂,U₀).

Accepted Answer

The answer of Consider a consumer with the Cobb-Douglas utility...

Question 8

Measuring "y" on the vertical axis and "x" on the horizontal axis,convexity of indifference curves imply that the MRS of "y" for "x"

Accepted Answer

A)  is decreasing as "x" increases. 
B)  is increasing as "x" increases. 
C)  is constant as "x" increases. 
D)  cannot be calculated for large levels of "x".

Question 9

Lisa consumes only pizzas (P)and burritos (B).Her utility function is U = P⁰.⁵ B⁰.⁵.The price of per pizza is $10 and the price per burrito is $5.In equilibrium,Lisa consumes four pizzas.Using Lisa's utility function,calculate how many burritos she consumes.

Accepted Answer

The answer of Lisa consumes only pizzas (P)and burritos (B).Her...

Exam 3: A Consumers Constrained Choice