Question 1

Suppose earnings are given by E = $50 + $20(24 - L), where E is earnings and L is the hours of leisure. What is the price to the worker of consuming an additional hour of leisure?

Accepted Answer

A)  $30 
B)  $26 
C)  $24 
D)  $20

Question 2

Joe consumes 10 units of food and 12 units of clothing. Since food is an inferior good, a gift to Joe of a $12 gift certificate at a clothing store will:

Accepted Answer

A)  induce Joe to eat more than 10 units of food. 
B)  definitely make Joe better off than a gift of $12 in cash. 
C)  definitely make Joe worse off than a gift of $12 in cash. 
D)  None of the statements is correct.

Question 3

If income increases, the budget line:

Accepted Answer

A)  shifts to the right. 
B)  shifts to the left. 
C)  rotates clockwise. 
D)  rotates counterclockwise.

Question 4

What is/are the important things that must be developed when characterizing consumer behavior?

Accepted Answer

A)  Individual goals of the firm 
B)  Consumer opportunities 
C)  Individual goals of the firm and consumer opportunities 
D)  Consumer preferences and consumer opportunities

Question 5

The total earnings of a worker are represented by E = 100 + $10(24 - L), where E is earnings and L is the number of hours of leisure. How many hours of leisure are consumed if this worker's total earnings are $160?

Accepted Answer

A)  18 hours 
B)  16 hours 
C)  12 hours 
D)  10 hours

Question 6

The horizontal intercept of the budget line is:

Accepted Answer

A)  -PX/PY. 
B)  M/PX. 
C)  M/PY. 
D)  PYY.

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.

Question 8

What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, Y = 0, and M = 400?

Accepted Answer

A)  0 
B)  20 
C)  40 
D)  30

Question 9

If a consumer is given a $10 gift certificate good for items in store X, and all items in store X are inferior goods, then the consumer desires to consume:

Accepted Answer

A)  more goods in store X. 
B)  fewer goods in store X. 
C)  the same amount of goods in store X. 
D)  None of the statements is correct.

Question 10

Consumers adjust their purchasing behavior so that:

Accepted Answer

A)  they purchase as many scarce resources as possible. 
B)  marginal rate of substitution is maximized. 
C)  marginal rate of substitution is minimized. 
D)  the ratio of prices they pay equals their marginal rate of substitution.

Question 11

Sam Voter prefers Jack to Rob, Rob to Mark, and Jack to Mark. Sam's preferences:

Accepted Answer

A)  are not consistent with our assumptions about consumer behavior. 
B)  indicate that he is a liberal. 
C)  are not complete. 
D)  are transitive.

Question 12

The total earnings of a worker are represented by E = 100 + $10(24 - L), where E is earnings and L is the number of hours of leisure. How much will the worker earn if he takes 14 hours of leisure per day?

Accepted Answer

A)  $150 
B)  $240 
C)  $100 
D)  $200

Question 13

Sam Voter prefers Ronald to Joe, Joe to Gary, and Gary to Ronald. Sam's preferences:

Accepted Answer

A)  are consistent with our assumptions about consumer behavior. 
B)  indicate that he is a liberal. 
C)  are not complete. 
D)  are not transitive.

Question 14

At the equilibrium consumption bundle, which of the following holds?

Accepted Answer

A)  MRSX,Y = PX/PY. 
B)  MRSX,Y = -PX/PY. 
C)  MRSX,Y = -PY/PX. 
D)  MRSX,Y = PY/PX.

Question 15

Suppose you are the manager of a firm that produces Ultrasweet, a sugar substitute. Show graphically the effect of a reduction in the price of Sweet and Healthy, a competitor's product, on a typical consumer's consumption of Ultrasweet.

Accepted Answer

The answer of Suppose you are the manager of a...

Question 16

Sally Consumer's indifference curve between cigarettes and hamburgers is upward sloping. Based on this information, can we conclude that Sally views cigarettes as "bads" and hamburgers as "goods"? Explain.

Accepted Answer

The answer of Sally Consumer's indifference curve between cigarettes and...

Question 17

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 statements is correct.

Question 18

Suppose that a consumer's preferences are well behaved in that properties 4-1 to 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, the 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.

Question 19

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 20

After a price decrease for good X, the new consumer equilibrium level of good X will be:

Accepted Answer

A)  higher than before the price change. 
B)  lower than before the price change. 
C)  indeterminate without more information. 
D)  the same as before the price change.

Exam 4: The Theory of Individual Behavior

Suppose earnings are given by E = $50 + $20(24 - L) , where E is earnings and L is the hours of leisure. What is the price to the worker of consuming an additional hour of leisure?