Question 1

Darlene's utility function is U(x, y, z) = x3y7z. If her income doubles and prices remain unchanged, her demand for good y will more than double.

Accepted Answer

A) True 
 B)False

Question 2

Harry has $10 to spend on cans of Coke and Pepsi, which he regards as perfect substitutes, one for one. Pepsi costs $.50 a can and Coke costs $.60 a can. Harry has 20 coupons, each of which can be used to buy 1 can of Coke for $.40. Which of the following bundles will Harry buy?

Accepted Answer

A)  20 cans of Pepsi and no Coke 
B)  cans of Coke and no Pepsi 
C)  10 cans of Coke and 8 cans of Pepsi 
D)  10 cans of Coke and 12 cans of Pepsi 
E)  None of the above. 
A)  20 cans of Pepsi and no Coke 
B)  cans of Coke and no Pepsi 
C)  10 cans of Coke and 8 cans of Pepsi 
D)  10 cans of Coke and 12 cans of Pepsi 
E)  None of the above.

Question 3

If Charlie's utility function is X5AXB, the price of apples is pA, the price of bananas is pB, and his income is m, then Charlie's demand for apples will be

Accepted Answer

A)    
B)    
C)    
D)    
E)    
A)    
B)    
C)    
D)    
E)

Question 4

Will Feckless unexpectedly inherits $10,000 from a rich uncle. He is observed to consume fewer hamburgers than he used to.

Accepted Answer

A)  Hamburgers are a Giffen good for Will. 
B)  Hamburgers are a normal good for Will. 
C)  Will's Engel curve for hamburgers is vertical. 
D)  Will's Engel curve for hamburgers is horizontal. 
E)  Will's preferences are not homothetic. 
A)  Hamburgers are a Giffen good for Will. 
B)  Hamburgers are a normal good for Will. 
C)  Will's Engel curve for hamburgers is vertical. 
D)  Will's Engel curve for hamburgers is horizontal. 
E)  Will's preferences are not homothetic.

Question 5

Ray Starr has the utility function   . 
a. Does Ray prefer more to less of both goods?
b. Draw a diagram showing Ray's indifference curves corresponding to the utility levels U =   , U = 1, and U = 2. 
c. How can you describe the set of indifference curves for Ray?
d. If the price of x is $1 and the price of y is $1, find Ray's demand for x as a function of his income and draw a diagram showing his Engel curve for x.

Accepted Answer

a. Yes.
b. These curves are straight lin

Question 6

Cecil consumes x1 and x2 in fixed proportions. He consumes A units of good 1 with B units of good 2. To solve for his demand functions for goods 1 and 2,

Accepted Answer

A)  setand solve for x1. 
B)  solve the following two equations in two unknowns: Ax1 = Bx2 and p1x1 + p2x2 = m. 
C)  solve the following two equations in two unknowns: Bx1 = Ax2 and p1x1 + p2x2 = m. 
D)  you only need to use the equation given by his budget line. 
E)  use the fact that he spends all of his income on good 1 so long as it is the cheaper good. 
A)  setand solve for x1. 
B)  solve the following two equations in two unknowns: Ax1 = Bx2 and p1x1 + p2x2 = m. 
C)  solve the following two equations in two unknowns: Bx1 = Ax2 and p1x1 + p2x2 = m. 
D)  you only need to use the equation given by his budget line. 
E)  use the fact that he spends all of his income on good 1 so long as it is the cheaper good.

Question 7

Seppo consumes brandy and saunas. Neither is an inferior good. Seppo has a total of $30 a day and 6 hours a day to spend on brandy and saunas. Each brandy costs $2 and takes half an hour to consume. Each sauna costs $1 and takes 1 hour to consume. (It is, unfortunately, impossible to consume a brandy in the sauna.) Seppo suddenly inherits a lot of money and now has $50 a day to spend on brandy and saunas. Since Seppo is a rational consumer, he will

Accepted Answer

A)  increase brandy consumption only. 
B)  increase sauna consumption only. 
C)  increase consumption of both. 
D)  consume the same amounts of both goods as before. 
E)  We can't tell since we are told nothing about his indifference curves. 
A)  increase brandy consumption only. 
B)  increase sauna consumption only. 
C)  increase consumption of both. 
D)  consume the same amounts of both goods as before. 
E)  We can't tell since we are told nothing about his indifference curves.

Question 8

If the demand curve is a downward-sloping straight line, then the price elasticity of demand is constant all along the demand curve.

Accepted Answer

A) True 
 B)False

Question 9

When other variables are held fixed, the demand for a Giffen good rises when income increases.

Accepted Answer

A) True 
 B)False

Question 10

If preferences are quasilinear, then for very high incomes the income offer curve is a straight line parallel to one of the axes.

Accepted Answer

A) True 
 B)False

Question 11

If there are two goods and if income doubles and the price of good 1 doubles while the price of good 2 stays constant, a consumer's demand for good

Accepted Answer

A)  1 will increase only if it is a Giffen good for her. 
B)  2 will decrease only if it is a Giffen good for her. 
C)  2 will increase only if it is an inferior good for her. 
D)  2 will decrease only if it is an inferior good for her. 
E)  None of the above. 
A)  1 will increase only if it is a Giffen good for her. 
B)  2 will decrease only if it is a Giffen good for her. 
C)  2 will increase only if it is an inferior good for her. 
D)  2 will decrease only if it is an inferior good for her. 
E)  None of the above.

Question 12

Robert's utility function is U(x, y) = min{ 4x, 2x + y}. The price of x is $3 and the price of y is $1. Robert's income offer curve is

Accepted Answer

A)  a ray from the origin with a slope of 2. 
B)  a line parallel to the x axis. 
C)  a line parallel to the y axis. 
D)  the same as his Engel curve for x. 
E)  none of the above. 
A)  a ray from the origin with a slope of 2. 
B)  a line parallel to the x axis. 
C)  a line parallel to the y axis. 
D)  the same as his Engel curve for x. 
E)  none of the above.

Question 13

A consumer has a utility function given by U = min{x1, 2x2}. If good 2 has a price of zero, the consumer will always prefer more of good 2 to less.

Accepted Answer

A) True 
 B)False

Question 14

Angela's utility function is   . It is possible that if her income is very high, an increase in income will not make her spend more on y.

Accepted Answer

A) True 
 B)False

Question 15

Darlene's utility function is U(x, y, z) = x4y8z. If her income doubles and prices remain unchanged, her demand for good y will more than double.

Accepted Answer

A) True 
 B)False

Question 16

Walt consumes strawberries and cream but only in the fixed ratio of three boxes of strawberries to two cartons of cream. At any other ratio, the excess goods are totally useless to him. The cost of a box of strawberries is $10 and the cost of a carton of cream is $10. Walt's income is $200.

Accepted Answer

A)  Walt demands 10 cartons of cream. 
B)  Walt demands 10 boxes of strawberries. 
C)  Walt considers strawberries and cartons of cream to be perfect substitutes. 
D)  Walt demands 12 boxes of strawberries. 
E)  None of the above. 
A)  Walt demands 10 cartons of cream. 
B)  Walt demands 10 boxes of strawberries. 
C)  Walt considers strawberries and cartons of cream to be perfect substitutes. 
D)  Walt demands 12 boxes of strawberries. 
E)  None of the above.

Question 17

Carlos consumes only two goods, apples and bananas. His utility function is U(a, b) = min{a, b}. Before trade, his initial endowment is wa apples and wb bananas. After he trades to his optimal consumption point at these prices, the relative prices change. Carlos is allowed to make further trades if he wishes.

Accepted Answer

A)  Carlos will definitely be better off after the price change. 
B)  Carlos will be better off if the price of the good he was selling goes up and worse off if the price of the good he was selling goes down. 
C)  Unless the price of both goods goes down, we cannot tell if Carlos is better off or worse off. 
D)  Carlos will be better off if the price of the good he was selling goes down and worse off if the price of the good he was selling goes up. 
E)  Carlos's utility will not be affected by the change. 
A)  Carlos will definitely be better off after the price change. 
B)  Carlos will be better off if the price of the good he was selling goes up and worse off if the price of the good he was selling goes down. 
C)  Unless the price of both goods goes down, we cannot tell if Carlos is better off or worse off. 
D)  Carlos will be better off if the price of the good he was selling goes down and worse off if the price of the good he was selling goes up. 
E)  Carlos's utility will not be affected by the change.

Question 18

Quasilinear preferences are homothetic when the optimal amount of one of the goods is not affordable.

Accepted Answer

A) True 
 B)False

Question 19

If Charlie's utility function were X4AXB and if apples cost 30 cents each and bananas cost 10 cents each, Charlie's budget line would be tangent to one of his indifference curves whenever

Accepted Answer

A)  4XB = 3XA. 
B)  XB = XA. 
C)  XA = 4XB. 
D)  XB = 4XA. 
E)  30XA + 10XB = M. 
A)  4XB = 3XA. 
B)  XB = XA. 
C)  XA = 4XB. 
D)  XB = 4XA. 
E)  30XA + 10XB = M.

Question 20

If consumers spend all of their income, it is impossible for all goods to be inferior goods.

Accepted Answer

A) True 
 B)False

Exam 5: Demand

Darlene's utility function is U(x, y, z) = x3y7z. If her income doubles and prices remain unchanged, her demand for good y will more than double.

Harry has $10 to spend on cans of Coke and Pepsi, which he regards as perfect substitutes, one for one. Pepsi costs $.50 a can and Coke costs $.60 a can. Harry has 20 coupons, each of which can be used to buy 1 can of Coke for $.40. Which of the following bundles will Harry buy?

If Charlie's utility function is X5AXB, the price of apples is pA, the price of bananas is pB, and his income is m, then Charlie's demand for apples will be

Will Feckless unexpectedly inherits $10,000 from a rich uncle. He is observed to consume fewer hamburgers than he used to.

Cecil consumes x1 and x2 in fixed proportions. He consumes A units of good 1 with B units of good 2. To solve for his demand functions for goods 1 and 2,

If the demand curve is a downward-sloping straight line, then the price elasticity of demand is constant all along the demand curve.

When other variables are held fixed, the demand for a Giffen good rises when income increases.

If preferences are quasilinear, then for very high incomes the income offer curve is a straight line parallel to one of the axes.

If there are two goods and if income doubles and the price of good 1 doubles while the price of good 2 stays constant, a consumer's demand for good

Robert's utility function is U(x, y) = min{ 4x, 2x + y}. The price of x is $3 and the price of y is $1. Robert's income offer curve is

A consumer has a utility function given by U = min{x1, 2x2}. If good 2 has a price of zero, the consumer will always prefer more of good 2 to less.

Angela's utility function is . It is possible that if her income is very high, an increase in income will not make her spend more on y.

Darlene's utility function is U(x, y, z) = x4y8z. If her income doubles and prices remain unchanged, her demand for good y will more than double.

Walt consumes strawberries and cream but only in the fixed ratio of three boxes of strawberries to two cartons of cream. At any other ratio, the excess goods are totally useless to him. The cost of a box of strawberries is $10 and the cost of a carton of cream is $10. Walt's income is $200.

Quasilinear preferences are homothetic when the optimal amount of one of the goods is not affordable.

If Charlie's utility function were X4AXB and if apples cost 30 cents each and bananas cost 10 cents each, Charlie's budget line would be tangent to one of his indifference curves whenever

If consumers spend all of their income, it is impossible for all goods to be inferior goods.

Budget Constraint

A: Budget Constraint

Preferences

A: Preferences

Utility

A: Utility

Choice

A: Choice

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

Darlene's utility function is U(x, y, z) = x³y⁷z. If her income doubles and prices remain unchanged, her demand for good y will more than double.

If Charlie's utility function is X⁵_AX_B, the price of apples is p_A, the price of bananas is p_B, and his income is m, then Charlie's demand for apples will be

Cecil consumes x₁ and x₂ in fixed proportions. He consumes A units of good 1 with B units of good 2. To solve for his demand functions for goods 1 and 2,

A consumer has a utility function given by U = min{x₁, 2x₂}. If good 2 has a price of zero, the consumer will always prefer more of good 2 to less.

Darlene's utility function is U(x, y, z) = x⁴y⁸z. If her income doubles and prices remain unchanged, her demand for good y will more than double.

If Charlie's utility function were X⁴_AX_B and if apples cost 30 cents each and bananas cost 10 cents each, Charlie's budget line would be tangent to one of his indifference curves whenever