Question 1

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.

Question 2

The maximum quantity of good Y that is affordable is:

Accepted Answer

A) M/PX. 
B) M/X. 
C) M/PY. 
D) M/Y.

Question 3

If the slope of the indifference curve is steeper than the slope of the budget line, and X is on the horizontal axis

Accepted Answer

A) the consumer is willing to give up more of good Y to get an additional unit of good X than is necessary under the current market prices. 
B) MRS X /PY. 
C) MRS X /PY. 
D) the consumer is willing to give up more of good X to get an additional unit of good Y than is necessary under the current market prices.

Question 4

If the price of computers decreases, then the

Accepted Answer

A) sales of a substitute, such as a telephone, decreases. 
B) sales of a substitute, such as a telephone, increases. 
C) inventory of computers increases. 
D) inventory of computer software increases.

Question 5

Suppose that a consumer's preferences are well behaved in that properties 4-1 - 4-4 are satisfied and the initial equilibrium consumption bundle consists of 100 units of X and 50 units of Y.If PX increases such that the new equilibrium consumption bundle is 150 units of X and 75 units of Y, then goods X and Y are

Accepted Answer

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

Question 6

When the price of one good decreases, the associated substitution effect is represented by a

Accepted Answer

A) move from one indifference to a higher indifference curve since real income is now higher. 
B) move from one indifference to a lower indifference curve since real income is now lower. 
C) move along a given indifference curve holding real income constant. 
D) move along a given indifference curve since real income increases.

Question 7

Mitchell's money income is $150, the price of X is $2, and the price of Y is $2.Given these prices and income, Mitchell buys 50 units of X and 25 units of Y.Call this combination of X and Y bundle J.At bundle J Mitchell's MRS is 2.Given these prices and income, what is Mitchell's equilibrium consumption of X?

Accepted Answer

A) X  50. 
D) none of the statements associated with this question are correct.

Question 8

Suppose an individual's marginal rate of substitution is three slices of pizza for one beer at the present bundle of beer and pizza she is consuming.If the price of beer is $1.00 and the price of a slice of pizza is $1.50, is the consumer maximizing her welfare? If not, how should she change her consumption?

Accepted Answer

The answer of Suppose an individual's marginal rate of substitution...

Question 9

The equilibrium consumption bundle is

Accepted Answer

A) the bundle where the budget line and the indifference curve meet. 
B) the affordable bundle that yields the greatest satisfaction to the consumer. 
C) any bundle that is the farthest from the origin. 
D) any affordable bundle in the budget set.

Question 10

Joe prefers a three pack of soda to a six-pack.What properties does this preference violate?

Accepted Answer

A) Completeness. 
B) Transitivity. 
C) More is better. 
D) Diminishing MRS.

Question 11

A decrease in the price of good Y will have what effect on the budget line on a normal X-Y graph?

Accepted Answer

A) Increase the vertical intercept. 
B) Decrease the horizontal intercept. 
C) Parallel outward shift of the line. 
D) Parallel inward shift of the line.

Question 12

By the property of "more is better," the consumer views the products under consideration as

Accepted Answer

A) goods. 
B) bads. 
C) inferior goods. 
D) normal.

Question 13

How does a decrease in the price of good X affect the market rate of substitution between goods X and Y?

Accepted Answer

A) It increases. 
B) It decreases. 
C) Remains unchanged. 
D) Indeterminable without more information.

Question 14

The slope of the budget line represents

Accepted Answer

A) the marginal rate of substitution. 
B) the market rate of substitution. 
C) the budget rate of substitution. 
D) the opportunity rate of substitution.

Question 15

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

Accepted Answer

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

Question 16

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day.What is the minimum the worker can earn in a day?

Accepted Answer

A) $50. 
B) $100. 
C) $192. 
D) $200.

Question 17

When the price of one good increases, the associated income effect is represented by a move from one indifference curve to a

Accepted Answer

A) lower indifference curve since real income is now higher. 
B) lower indifference curve since real income is now lower. 
C) higher indifference curve since real income is now higher. 
D) higher indifference curve since real income is now lower.

Question 18

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

Accepted Answer

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

Question 19

By the property of "more is better" and transitivity, indifference curves

Accepted Answer

A) can intersect one another only once. 
B) can intersect one another only twice. 
C) do not intersect one another. 
D) may overlap one another.

Question 20

Suppose that a consumer's preferences are well behaved in that properties 4-1 - 4-4 are satisfied and the initial budget constraint is given by 300 = 2X + 4Y.At the initial budget constraint, this consumer purchases 100 units of good X and 25 units of good Y.Suppose the price of X increases to $4 per unit resulting in a new consumption bundle consisting of 60 units of X and 15 units of Y.Then, slope of the inverse demand for good X over this consumption range is

Accepted Answer

A) 0.05. 
B) -0.05. 
C) -0.267. 
D) -0.444.

Exam 4: The Theory of Individual Behavior