Question 1

Angela consumes only two goods, x and y. Her income doubles and the prices of the two goods remain unchanged. Assuming that she is a utility maximizer and likes both goods,

Accepted Answer

A)  she will consume more of both goods. 
B)  the ratio of her consumption of x to y remains constant. 
C)  her utility doubles. 
D)  if her preferences are convex, she must consume more x. 
E)  None of the above. 
A)  she will consume more of both goods. 
B)  the ratio of her consumption of x to y remains constant. 
C)  her utility doubles. 
D)  if her preferences are convex, she must consume more x. 
E)  None of the above.

Question 2

Danny Featherweight is taking a tough course in law school. His professor agreed to give him a course grade of max{ 2x, 3y} where x and y are the number of answers he gets right on the first and second midterms, respectively. Danny needs a course grade of 150 to pass. He finds that for the first midterm, for every A minutes of study, he will get one more answer right. For the second midterm, for every B minutes that he studies, he will get one more answer right. If he doesn't study at all, Danny will get nothing right on either exam. All Danny cares about is passing. He doesn't want to waste any time getting a higher grade than he needs.

Accepted Answer

A)  If, then Danny will not study for the second exam. 
B)  The ratio of the time Danny spends on exam 1 to the time he spends on exam 2 will be. 
C)  The ratio of the time Danny spends on exam 2 to the time he spends on exam 1 will be. 
D)  If A < B, then Danny will not study for the first exam. 
E)  Danny will spendminutes studying for each exam. 
A)  If, then Danny will not study for the second exam. 
B)  The ratio of the time Danny spends on exam 1 to the time he spends on exam 2 will be. 
C)  The ratio of the time Danny spends on exam 2 to the time he spends on exam 1 will be. 
D)  If A < B, then Danny will not study for the first exam. 
E)  Danny will spendminutes studying for each exam.

Question 3

Max has the utility function U(x, y) = x(y + 1). The price of x is $2 and the price of y is $1. Income is $10. How much x does Max demand? How much y? If his income doubles and prices stay unchanged, will Max's demand for both goods double?

Accepted Answer

To set his MRS equal to the price ratio,

Question 4

Mort's utility function is U(x1, x2) = x1x2. His income is $100. The price of good 2 is $10. Good 1 is priced as follows. The first 6 units cost $10 per unit and any additional units cost $5 per unit. What consumption bundle does Mort choose?

Accepted Answer

A)  (5, 5) 
B)  (7, 3.5) 
C)  (9, 3) 
D)  (6, 4) 
E)  None of the above. 
A)  (5, 5) 
B)  (7, 3.5) 
C)  (9, 3) 
D)  (6, 4) 
E)  None of the above.

Question 5

Ambrose's utility function is U(x1, x2) =   . If the price of nuts (good 1) is $1, the price of berries (good 2) is $6, and his income is $264, how many units of nuts will Ambrose choose?

Accepted Answer

A)  20 
B)  144 
C)  288 
D)  147 
E)  72 
A)  20 
B)  144 
C)  288 
D)  147 
E)  72

Question 6

Is the following statement true or false? Briefly explain your answer. "A utility maximizer will always choose a bundle at which his indifference curve is tangent to his budget line."

Accepted Answer

A) True 
 B)False

Question 7

Janet consumes two commodities x and y. Her utility function is min{x + 2y, y + 2x}. She chooses to buy 10 units of good x and 20 units of good y. The price of good x is $1. Janet's income is

Accepted Answer

A)  $40. 
B)  $50. 
C)  $30. 
D)  $20. 
E)  There is not enough information in the problem to determine her income because we are not told the price of good y. 
A)  $40. 
B)  $50. 
C)  $30. 
D)  $20. 
E)  There is not enough information in the problem to determine her income because we are not told the price of good y.

Question 8

The prices of goods x and y are each $1. Jane has $20 to spend and is considering choosing 10 units of x and 10 units of y. Jane has nice convex preferences and more of each good is better for her. Where x is drawn on the horizontal axis and y is drawn on the vertical axis, the slope of her indifference curve at the bundle (10, 10) is -2.

Accepted Answer

A)  The bundle (10, 10) is the best she can afford. 
B)  She would be better off consuming more of good x and less of good y. 
C)  She would be better off consuming more of good y and less of good x. 
D)  She must dislike one of the goods. 
E)  More than one of the above is true. 
A)  The bundle (10, 10) is the best she can afford. 
B)  She would be better off consuming more of good x and less of good y. 
C)  She would be better off consuming more of good y and less of good x. 
D)  She must dislike one of the goods. 
E)  More than one of the above is true.

Question 9

Andrew's utility function is U(x1, x2) = 4x21 + x2. Andrew's income is $32, the price of good 1 is $16 per unit, and the price of good 2 is $1 per unit. What happens if Andrew's income increases to $80 and prices do not change? (Hint: Does he have convex preferences?)

Accepted Answer

A)  He will consume 48 more units of good 2 and the same number of units of good 1 as before. 
B)  He will increase his consumption of both goods. 
C)  He will reduce his consumption of good 2. 
D)  He will consume the same number of units of good 2 and 3 more units of good 1 as before. 
E)  None of the above. 
A)  He will consume 48 more units of good 2 and the same number of units of good 1 as before. 
B)  He will increase his consumption of both goods. 
C)  He will reduce his consumption of good 2. 
D)  He will consume the same number of units of good 2 and 3 more units of good 1 as before. 
E)  None of the above.

Question 10

Minnie Applesauce is shopping for a summer lake cottage. Minnie hates mosquito bites, but the cheapest lake cottages have the most mosquitos. The price of a lake cabin is related to b, the number of mosquito bites you can expect per hour, according to the formula p = $20,000 - 100b. Minnie's utility function is u = x - 5b2, where x is her expenditure on all goods other than her lake cabin. If Minnie makes her best choice of lake cabin, how many mosquito bites per hour will she get?

Accepted Answer

A)  10 
B)  5 
C)  20 
D)  25 
E)  None of the above. 
A)  10 
B)  5 
C)  20 
D)  25 
E)  None of the above.

Question 11

Which of the following could possibly change a rational consumer's demand?

Accepted Answer

A)  Changing his utility function by cubing it 
B)  Changing his utility function by multiplying it by 3 and subtracting 100 from it 
C)  Increasing all prices and his income by $3 
D)  Multiplying all prices and income by 2.2 
E)  More than one of the above 
A)  Changing his utility function by cubing it 
B)  Changing his utility function by multiplying it by 3 and subtracting 100 from it 
C)  Increasing all prices and his income by $3 
D)  Multiplying all prices and income by 2.2 
E)  More than one of the above

Question 12

Other things being equal, a lump sum tax is at least as good for a consumer as a sales tax that collects the same revenue from him.

Accepted Answer

A) True 
 B)False

Question 13

Clara's utility function is U(x, y) = (x + 2)(y + 1). If her consumption of both x and y are doubled, then her marginal rate of substitution between x and y remains constant.

Accepted Answer

A) True 
 B)False

Question 14

If a consumer doesn't consume any snails but does consume Big Macs, then his marginal rate of substitution between snails and Big Macs when his snail consumption is zero must be equal to the ratio of the price of snails to the price of Big Macs.

Accepted Answer

A) True 
 B)False

Question 15

Max has a utility function U(x, y) = 2xy + 1. The prices of x and y are both $1 and Max has an income of $20.
a. How much of each good will he demand?
b. A tax is placed on x so that x now costs Max $2 while his income and the price of y stay the same. How much of good x does he now demand?
c. Would Max be as well off as he was before the tax if when the tax was imposed, his income rose by an amount equal to $1 times the answer to part (b)?

Accepted Answer

a. 10x and

Question 16

Elmer's utility function is U(x, y) = min{x, y2}. If the price of x is $10 and the price of y is $15 and if Elmer chooses to consume 4 units of y, what must his income be?

Accepted Answer

A)  $220 
B)  $100 
C)  $320 
D)  $440 
E)  There is not enough information to determine his income. 
A)  $220 
B)  $100 
C)  $320 
D)  $440 
E)  There is not enough information to determine his income.

Question 17

Henri's utility function is min{x, 5y + 2z}. The price of x is $1, the price of y is $15, and the price of z is $7. Henri's income is $44. How many units of x does Henri demand?

Accepted Answer

A)  9.78 
B)  11 
C)  5 
D)  3 
E)  None of the above. 
A)  9.78 
B)  11 
C)  5 
D)  3 
E)  None of the above.

Question 18

Wanda Littlemore's utility function is U(x, y) = x + 47y - 3y2. Her income is $107. If the price of x is $1 and the price of y is $23, how many units of good x will Wanda demand?

Accepted Answer

A)  11 
B)  19 
C)  0 
D)  18 
E)  15 
A)  11 
B)  19 
C)  0 
D)  18 
E)  15

Question 19

Mary Granola consumes apples and uglifruits. Mary's indifference curves are kinky. When she is consuming more apples than uglifruits, she is just willing to trade 3 apples for 1 uglifruit. When she is consuming more uglifruits than apples, she is just willing to trade 4 uglifruits for 1 apple. Let P1 be the price of uglifruits and P2 the price of apples. Mary maximizes her utility subject to her budget constraint. (Hint: Sketch one of her indifference curves.)

Accepted Answer

A)  When P1 > 3P2, she must consume only apples. 
B)  When P1 > P2, she must consume 3 times as many apples as uglifruits. 
C)  When 4P1 > P2, she must consume only uglifruits. 
D)  When P1 > P2, she must consume only apples. 
E)  She must consume equal numbers of both. 
A)  When P1 > 3P2, she must consume only apples. 
B)  When P1 > P2, she must consume 3 times as many apples as uglifruits. 
C)  When 4P1 > P2, she must consume only uglifruits. 
D)  When P1 > P2, she must consume only apples. 
E)  She must consume equal numbers of both.

Question 20

Arthur's preferences are defined over two basic food groups, beer, x1, and ice cream, x2. His utility function is u(x1, x2) = x21 + x2. He has $100 to spend, and each of these goods costs $10 per quart.

Accepted Answer

A)  Arthur will consume 5 quarts of ice cream and 5 quarts of beer. 
B)  Arthur will find that 10 quarts of beer and no ice cream is the best bundle. 
C)  Arthur will find that 10 quarts of ice cream and no beer is the best bundle. 
D)  Arthur is indifferent between any two points on the line that connects (5, 5) and (10, 10). 
E)  Arthur will spendof his income on beer andof his income on ice cream. 
A)  Arthur will consume 5 quarts of ice cream and 5 quarts of beer. 
B)  Arthur will find that 10 quarts of beer and no ice cream is the best bundle. 
C)  Arthur will find that 10 quarts of ice cream and no beer is the best bundle. 
D)  Arthur is indifferent between any two points on the line that connects (5, 5) and (10, 10). 
E)  Arthur will spendof his income on beer andof his income on ice cream.

Exam 4: Choice

Angela consumes only two goods, x and y. Her income doubles and the prices of the two goods remain unchanged. Assuming that she is a utility maximizer and likes both goods,

Max has the utility function U(x, y) = x(y + 1). The price of x is $2 and the price of y is $1. Income is $10. How much x does Max demand? How much y? If his income doubles and prices stay unchanged, will Max's demand for both goods double?

Mort's utility function is U(x1, x2) = x1x2. His income is $100. The price of good 2 is $10. Good 1 is priced as follows. The first 6 units cost $10 per unit and any additional units cost $5 per unit. What consumption bundle does Mort choose?

Ambrose's utility function is U(x1, x2) = . If the price of nuts (good 1) is $1, the price of berries (good 2) is $6, and his income is $264, how many units of nuts will Ambrose choose?

Is the following statement true or false? Briefly explain your answer. "A utility maximizer will always choose a bundle at which his indifference curve is tangent to his budget line."

Janet consumes two commodities x and y. Her utility function is min{x + 2y, y + 2x}. She chooses to buy 10 units of good x and 20 units of good y. The price of good x is $1. Janet's income is

Andrew's utility function is U(x1, x2) = 4x21 + x2. Andrew's income is $32, the price of good 1 is $16 per unit, and the price of good 2 is $1 per unit. What happens if Andrew's income increases to $80 and prices do not change? (Hint: Does he have convex preferences?)

Which of the following could possibly change a rational consumer's demand?

Other things being equal, a lump sum tax is at least as good for a consumer as a sales tax that collects the same revenue from him.

Clara's utility function is U(x, y) = (x + 2)(y + 1). If her consumption of both x and y are doubled, then her marginal rate of substitution between x and y remains constant.

If a consumer doesn't consume any snails but does consume Big Macs, then his marginal rate of substitution between snails and Big Macs when his snail consumption is zero must be equal to the ratio of the price of snails to the price of Big Macs.

Elmer's utility function is U(x, y) = min{x, y2}. If the price of x is $10 and the price of y is $15 and if Elmer chooses to consume 4 units of y, what must his income be?

Henri's utility function is min{x, 5y + 2z}. The price of x is $1, the price of y is $15, and the price of z is $7. Henri's income is $44. How many units of x does Henri demand?

Wanda Littlemore's utility function is U(x, y) = x + 47y - 3y2. Her income is $107. If the price of x is $1 and the price of y is $23, how many units of good x will Wanda demand?

Arthur's preferences are defined over two basic food groups, beer, x1, and ice cream, x2. His utility function is u(x1, x2) = x21 + x2. He has $100 to spend, and each of these goods costs $10 per quart.

Budget Constraint

A: Budget Constraint

Preferences

A: Preferences

Utility

A: Utility

A: Choice

Demand

A: Demand

Revealed Preference

A: Revealed Preference

Slutsky Equation

A: Slutsky Equation

Buying and Selling

A: Buying and Selling

Intertemporal Choice

A: Intertemporal Choice

Asset Markets

A: Asset Markets

Uncertainty

A: Uncertainty

Risky Assets

A: Risky Assets

Consumers Surplus

A: Consumers Surplus

Market Demand

A: Market Demand

Equilibrium

A: Equilibrium

Auctions

A: Auctions

Technology

A: Technology

Profit Maximization

A: Profit Maximization

Cost Minimization

A: Cost Minimization

Cost Curves

A: Cost Curves

Firm Supply

A: Firm Supply

Industry Supply

A: Industry Supply

Monopoly

A: Monopoly

Monopoly Behavior

A: Monopoly Behavior

Factor Markets

A: Factor Markets

Oligopoly

A: Oligopoly

Game Theory

A: Game Theory

Game Applications

A: Game Applications

Behavioral Economics

Exchange

A: Exchange

Production

A: Production

Welfare

A: Welfare

Externalities

A: Externalities

Mort's utility function is U(x₁, x₂) = x₁x₂. His income is $100. The price of good 2 is $10. Good 1 is priced as follows. The first 6 units cost $10 per unit and any additional units cost $5 per unit. What consumption bundle does Mort choose?

Ambrose's utility function is U(x₁, x₂) = . If the price of nuts (good 1) is $1, the price of berries (good 2) is $6, and his income is $264, how many units of nuts will Ambrose choose?

Andrew's utility function is U(x₁, x₂) = 4x²₁ + x₂. Andrew's income is $32, the price of good 1 is $16 per unit, and the price of good 2 is $1 per unit. What happens if Andrew's income increases to $80 and prices do not change? (Hint: Does he have convex preferences?)

Elmer's utility function is U(x, y) = min{x, y²}. If the price of x is $10 and the price of y is $15 and if Elmer chooses to consume 4 units of y, what must his income be?

Wanda Littlemore's utility function is U(x, y) = x + 47y - 3y². Her income is $107. If the price of x is $1 and the price of y is $23, how many units of good x will Wanda demand?

Arthur's preferences are defined over two basic food groups, beer, x₁, and ice cream, x₂. His utility function is u(x₁, x₂) = x²₁ + x₂. He has $100 to spend, and each of these goods costs $10 per quart.