Question 1

At the initial prices, Teodoro is a net seller of apples and a net buyer of bananas. If the price of apples decreases and the price of bananas does not change,

Accepted Answer

A)  the compensating variation must be negative and the equivalent variation positive. 
B)  the compensating variation must be positive and the equivalent variation negative. 
C)  both the compensating variation and the equivalent variation must be positive. 
D)  both the compensating variation and the equivalent variation must be negative. 
E)  the compensating variation must be negative but the equivalent variation could be of either sign. 
A)  the compensating variation must be negative and the equivalent variation positive. 
B)  the compensating variation must be positive and the equivalent variation negative. 
C)  both the compensating variation and the equivalent variation must be positive. 
D)  both the compensating variation and the equivalent variation must be negative. 
E)  the compensating variation must be negative but the equivalent variation could be of either sign.

Question 2

Lolita, the Holstein cow, has a utility function is   , where x is her consumption of cow feed and y is her consumption of hay. If the price of cow feed is $.10, the price of hay is $1, and her income is $2, and if Lolita chooses the combination of hay and cow feed that she likes best from among those combinations she can afford, her utility will be

Accepted Answer

A)  1.90. 
B)  3.40. 
C)  2.40. 
D)  0.40. 
E)  1.40. 
A)  1.90. 
B)  3.40. 
C)  2.40. 
D)  0.40. 
E)  1.40.

Question 3

Ella's utility function is min{ 5x, y}. If the price of x is $10 and the price of y is $15, how much money would she need to be able to purchase a bundle that she likes as well as the bundle (x, y) = (10, 25)?

Accepted Answer

A)  $209 
B)  $440 
C)  $425 
D)  $475 
E)  $85 
A)  $209 
B)  $440 
C)  $425 
D)  $475 
E)  $85

Question 4

Sam's utility function is U(x, y) = 2x + y, where x is the number of x's he consumes per week and y is the number of y's he consumes per week. Sam has $200 a week to spend. The price of x is $4. Sam currently doesn't consume any y. Sam has received an invitation to join a club devoted to the consumption of y. If he joins the club, Sam can get a discount on the purchase of y. If he belonged to the club, he could buy y for $1 a unit. How much is the most Sam would be willing to pay to join this club?

Accepted Answer

A)  Nothing 
B)  $100 a week 
C)  $50 a week 
D)  $40 a week 
E)  None of the above. 
A)  Nothing 
B)  $100 a week 
C)  $50 a week 
D)  $40 a week 
E)  None of the above.

Question 5

Izaak likes to eat pizza and to fish. The more fishing he does the happier he is, up to 8 hours a day. If he fishes longer than 8 hours he gets a sore back and is less happy than if he hadn't fished at all. For y less than or equal to 8, his utility function is U(x, y) = x + 3y, where x is money spent on pizza and y is hours per day spent fishing. His income is $40 a day and he has no expenses other than pizza. The Bureau of Fisheries has just decided to allow people without fishing licenses to fish only 3 hours a day. But if you buy a fishing license, you can fish as many hours as you wish. How much is Izaak willing pay for a license?

Accepted Answer

A)  $15 
B)  $24 
C)  $18 
D)  $13 
E)  $0 
A)  $15 
B)  $24 
C)  $18 
D)  $13 
E)  $0

Question 6

The indirect utility function for a consumer with a utility function U(x1, x2) is defined to be a function V(p1, p2, m) such that V(p1, p2, m) is the maximum of U(x1, x2) subject to the constraint that the consumer can afford (x1, x2) at the prices (p1, p2) with income m.
a. Find the indirect utility function for someone with the utility function U(x, y) = 2x + y.
b. Find the indirect utility function for someone with the utility function U(x, y) = min{ 2x, y}. Explain how you got your answers.

Accepted Answer

a. @#IMG-DLM& . Consumer spends entire i

Question 7

Ellsworth's utility function is U(x, y) = min{x, y}. Ellsworth has $150 and the price of x and the price of y are both $1. Ellsworth's boss is thinking of sending him to another town where the price of x is $1 and the price of y is $2. The boss offers no raise in pay. Ellsworth, who understands compensating and equivalent variation perfectly, complains bitterly. He says that although he doesn't mind moving for its own sake and the new town is just as pleasant as the old, having to move is as bad as a cut in pay of $A. He also says he wouldn't mind moving if when he moved he got a raise of $B. What are A and B?

Accepted Answer

A)  A = 50 and B = 50. 
B)  A = 75 and B = 75. 
C)  A = 75 and B = 100. 
D)  A = 50 and B = 75. 
E)  None of the above. 
A)  A = 50 and B = 50. 
B)  A = 75 and B = 75. 
C)  A = 75 and B = 100. 
D)  A = 50 and B = 75. 
E)  None of the above.

Question 8

Reginald is fond of cigars. His utility function is U(x, c) = x + 10c - .5c2, where c is the number of cigars he smokes per week and x is the money that he spends on the consumption of other goods. Reginald has $200 a week to spend. Cigars used to cost him $1 each, but their price went up to $2 each. This price increase was as bad for him as losing income of

Accepted Answer

A)  $5. 
B)  $7.25. 
C)  $9. 
D)  $8. 
E)  $8.50. 
A)  $5. 
B)  $7.25. 
C)  $9. 
D)  $8. 
E)  $8.50.

Question 9

The equivalent variation in income from a tax is the amount of extra income that a consumer would need in order to be as well off after the tax is imposed as he was originally.

Accepted Answer

A) True 
 B)False

Question 10

If somebody is buying 10 units of x and the price of x falls by $3, then that person's net consumer's surplus must increase by at least $30.

Accepted Answer

A) True 
 B)False

Question 11

Bernice's preferences can be represented by the utility function, U(x, y) = min{x, y}. She faces prices ($2, $1), and her income is $12. If prices change to ($3, $1), the compensating variation

Accepted Answer

A)  equals the equivalent variation. 
B)  is $2 greater than the equivalent variation. 
C)  is $2 smaller than the equivalent variation. 
D)  is $1 greater than the equivalent variation. 
E)  There is not enough information to determine which variation is larger. 
A)  equals the equivalent variation. 
B)  is $2 greater than the equivalent variation. 
C)  is $2 smaller than the equivalent variation. 
D)  is $1 greater than the equivalent variation. 
E)  There is not enough information to determine which variation is larger.

Question 12

There is a positive consumer's surplus when the total amount the consumer pays for something is less than the amount she would be willing to pay rather than do without it altogether.

Accepted Answer

A) True 
 B)False

Question 13

Bernice has the utility function U(x, y) = min{x, y}. The price of x used to be 3 but rose to 4. The price of y remained at 1. Her income is 12. The price increase was as bad for her as a loss of $3 in income.

Accepted Answer

A) True 
 B)False

Question 14

Holly consumes only goods X and Y. Her income is $500 and her utility function is U(x, y) = max{x, y}, where x is the number of units of X she consumes and y is the number of units of Y she consumes. The price of good Y is 1. The price of good X used to be   but is now 2. The equivalent variation of this price change for Holly is

Accepted Answer

A)  $111.11. 
B)  $1,566.67. 
C)  $1,000. 
D)  $333.33. 
E)  None of the above. 
A)  $111.11. 
B)  $1,566.67. 
C)  $1,000. 
D)  $333.33. 
E)  None of the above.

Question 15

Kristina consumes only goods X and Y. Her income is $600 and her utility function is U(x, y) = max{x, y}, where x is the number of units of X she consumes and y is the number of units of Y she consumes. The price of good Y is 1. The price of good X used to be   but is now 2. The equivalent variation of this price change for Kristina is

Accepted Answer

A)  $300. 
B)  $600. 
C)  $150. 
D)  $800. 
E)  None of the above. 
A)  $300. 
B)  $600. 
C)  $150. 
D)  $800. 
E)  None of the above.

Question 16

Sir Plus has a demand function for mead that is given by the equation D(p) = 100 - p. If the price of mead is $90, how much is Sir Plus's net consumer's surplus?

Accepted Answer

A)  $25 
B)  $10 
C)  $50 
D)  $100 
E)  $8,550 
A)  $25 
B)  $10 
C)  $50 
D)  $100 
E)  $8,550

Question 17

Albin has quasilinear preferences and he loves pretzels. His inverse demand function for pretzels is p(x) = 49 - 6x, where x is the number of pretzels that he consumes. He is currently consuming 8 pretzels at a price of $1 per pretzel. If the price of pretzels rises to $7 per pretzel, the change in Albin's consumer surplus is

Accepted Answer

A)  -$90. 
B)  -$56. 
C)  -$42. 
D)  -$45. 
E)  -$42 
A)  -$90. 
B)  -$56. 
C)  -$42. 
D)  -$45. 
E)  -$42

Question 18

Quasimodo from your workbook has the utility function   , where x is his consumption of earplugs and m is money left over to spend on other stuff. If he has $10,000 to spend on earplugs and other stuff and if the price of earplugs rises from $50 to $75, then his net consumer's surplus

Accepted Answer

A)  falls by 937.50. 
B)  increases by 468.75. 
C)  falls by 2,937.50. 
D)  falls by 625. 
E)  increases by 1,875. 
A)  falls by 937.50. 
B)  increases by 468.75. 
C)  falls by 2,937.50. 
D)  falls by 625. 
E)  increases by 1,875.

Question 19

Minnie gets 4 tapes for her birthday, but they are currently useless to her because she doesn't have a tape recorder and she cannot return them for a refund. Her utility function is U(x, y, z) = x + f(y)z5, where z is the number of tapes she has, y is the number of tape recorders she has, and x is the money she has to spend on other stuff. Let f(y) = 0 if y < 1 and f(y) = 7 otherwise. The price of tapes is $7.99. What is her reservation price for a tape recorder?

Accepted Answer

A)  $20 
B)  $7 
C)  $24 
D)  $0 
E)  None of the above. 
A)  $20 
B)  $7 
C)  $24 
D)  $0 
E)  None of the above.

Question 20

Ella's utility function is min{ 5x, y}. If the price of x is $20 and the price of y is $20, how much money would she need to be able to purchase a bundle that she likes as well as the bundle (x, y) = (7, 15)?

Accepted Answer

A)  $440 
B)  $360 
C)  $177 
D)  $372 
E)  $72 
A)  $440 
B)  $360 
C)  $177 
D)  $372 
E)  $72

Exam 13: Consumers Surplus

At the initial prices, Teodoro is a net seller of apples and a net buyer of bananas. If the price of apples decreases and the price of bananas does not change,

Ella's utility function is min{ 5x, y}. If the price of x is $10 and the price of y is $15, how much money would she need to be able to purchase a bundle that she likes as well as the bundle (x, y) = (10, 25)?

The equivalent variation in income from a tax is the amount of extra income that a consumer would need in order to be as well off after the tax is imposed as he was originally.

If somebody is buying 10 units of x and the price of x falls by $3, then that person's net consumer's surplus must increase by at least $30.

Bernice's preferences can be represented by the utility function, U(x, y) = min{x, y}. She faces prices ($2, $1), and her income is $12. If prices change to ($3, $1), the compensating variation

There is a positive consumer's surplus when the total amount the consumer pays for something is less than the amount she would be willing to pay rather than do without it altogether.

Bernice has the utility function U(x, y) = min{x, y}. The price of x used to be 3 but rose to 4. The price of y remained at 1. Her income is 12. The price increase was as bad for her as a loss of $3 in income.

Sir Plus has a demand function for mead that is given by the equation D(p) = 100 - p. If the price of mead is $90, how much is Sir Plus's net consumer's surplus?

Quasimodo from your workbook has the utility function , where x is his consumption of earplugs and m is money left over to spend on other stuff. If he has $10,000 to spend on earplugs and other stuff and if the price of earplugs rises from $50 to $75, then his net consumer's surplus

Ella's utility function is min{ 5x, y}. If the price of x is $20 and the price of y is $20, how much money would she need to be able to purchase a bundle that she likes as well as the bundle (x, y) = (7, 15)?

Budget Constraint

A: Budget Constraint

Preferences

A: Preferences

Utility

A: Utility

Choice

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

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

Information Technology

A: Information Technology

Public Goods

A: Public Goods

Asymmetric Information