Question 1

If two goods are substitutes, then an increase in the price of one of them will increase the demand for the other.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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) set MU1/MU2 = p1/p2 and 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) set MU1/MU2 = p1/p2 and 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 4

Miss Muffet insists on consuming 2 units of whey per 1 unit of curds.If the price of curds is $5 and the price of whey is $6, then if Miss Muffet's income is m, her demand for curds will be

Accepted Answer

A) 5c + 6w = m. 
B) 6m/5. 
C) 5m. 
D) m/5. 
E) m/17. 
A) 5c + 6w = m. 
B) 6m/5. 
C) 5m. 
D) m/5. 
E) m/17.

Question 5

It is impossible for a person to have a demand curve that slopes upward at all prices.

Accepted Answer

A) True 
 B)False

Question 6

Mary has homothetic preferences.When her income was $1,000, she bought 40 books and 60 newspapers.When her income increased to $1,500 and prices did not change, she bought

Accepted Answer

A) 60 books and 90 newspapers. 
B) 80 books and 120 newspapers. 
C) 60 books and 60 newspapers. 
D) 40 books and 120 newspapers. 
E) There is not enough information for us to determine what she would buy. 
A) 60 books and 90 newspapers. 
B) 80 books and 120 newspapers. 
C) 60 books and 60 newspapers. 
D) 40 books and 120 newspapers. 
E) There is not enough information for us to determine what she would buy.

Question 7

Define each of the following:
a.Inverse demand function
b.Engel curve

Accepted Answer

a.The inverse demand function expresses

Question 8

If Charlie's utility function is X 4A XB, 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) m/(2p
A) . 
B) 0.25 pAm. 
C) m/(pA + p
B) . 
D) 0.08m/pA. 
E) 1.25pB m/pA. 
A) m/(2p
A) . 
B) 0.25 pAm. 
C) m/(pA + p
B) . 
D) 0.08m/pA. 
E) 1.25pB m/pA.

Question 9

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 10

Ms.Laura Mussel's preferences between golf and tennis are represented by U(g, t)= gt, where g is the number of rounds of golf and t is the number of tennis matches she plays per week.She has $24 per week to spend on these sports.A round of golf and a tennis match each cost $4.She used to maximize her utility subject to this budget.She decided to limit the time she spends on these sports to 16 hours a week.A round of golf takes 4 hours.A tennis match takes 2 hours.As a result of this additional constraint on her choice,

Accepted Answer

A) she plays 1 less round of golf and 1 more tennis match each week. 
B) she plays more golf and less tennis, but can't say how much. 
C) her choices and her utility are unchanged. 
D) she plays 2 less rounds of golf and 3 more rounds of tennis per week. 
E) There is too little information to tell about her choices. 
A) she plays 1 less round of golf and 1 more tennis match each week. 
B) she plays more golf and less tennis, but can't say how much. 
C) her choices and her utility are unchanged. 
D) she plays 2 less rounds of golf and 3 more rounds of tennis per week. 
E) There is too little information to tell about her choices.

Question 11

Miss Muffet insists on consuming 2 units of whey per 1 unit of curds.If the price of curds is $3 and the price of whey is $3, then if Miss Muffett's income is m, her demand for curds will be

Accepted Answer

A) m/3. 
B) 3m/3. 
C) 3C + 3W = m. 
D) 3m. 
E) m/9. 
A) m/3. 
B) 3m/3. 
C) 3C + 3W = m. 
D) 3m. 
E) m/9.

Question 12

Clarissa's utility function is U(r, z)= z + 120r - r2, where r is the number of rose plants she has in her garden and z is the number of zinnias.She has 250 square feet to allocate to roses and zinnias.Roses each take up 4 square feet and zinnias each take up 1 square foot.She gets the plants for free from a generous friend.If she acquires another 100 square feet of land for her garden and her utility function remains unchanged, she will plant

Accepted Answer

A) 99 more zinnias and some more roses. 
B) 20 more roses and 20 more zinnias. 
C) 25 more roses and no more zinnias. 
D) 100 more zinnias and no more roses. 
E) None of the above. 
A) 99 more zinnias and some more roses. 
B) 20 more roses and 20 more zinnias. 
C) 25 more roses and no more zinnias. 
D) 100 more zinnias and no more roses. 
E) None of the above.

Question 13

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 14

Casper's utility function is 3x + y, where x is his consumption of cocoa and y is his consumption of cheese.If the total cost of x units of cocoa is x2, the price of cheese is $8, and Casper's income is $174, how many units of cocoa will he consume?

Accepted Answer

A) 9 
B) 11 
C) 12 
D) 23 
E) 24 
A) 9 
B) 11 
C) 12 
D) 23 
E) 24

Question 15

With some services, e.g., checking accounts, phone service, or pay TV, a consumer is offered a choice of two or more payment plans. One can either pay a high entry fee and get a low price per unit of service or pay a low entry fee and a high price per unit of service. Suppose you have an income of $100. There are two plans. Plan A has an entry fee of $20 with a price of $2 per unit. Plan B has an entry fee of $40 with a price of $1 per unit for using the service. Let x be expenditure on other goods and y be consumption of the service.
a. Write down the budget equation that you would have after you paid the entry fee for each of the two plans.
b. 	If your utility function is xy, how much y would you choose in each case?
c.	 Which plan would you prefer? Explain.

Accepted Answer

a.x + 2y = 80, x + y = 60.
b.2

Question 16

Angela's utility function is x + y1/2.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 17

John Parker Nosey works for the Internal Revenue Service.He is in charge of auditing income of self-employed people.In any year, people divide their total income between consumption and saving.John cannot determine people's consumptions, but he is able to determine how much people have saved over the course of a year.From years of experience, he has learned that people act as if they are maximizing a utility function of the form U(c, s)= 10,000ln(c)+ s, where c is the number of dollars worth of consumption in a year and s is the number of dollars saved.

Accepted Answer

A) If someone saves at least $1,000, then that person's income is at least $11,000. 
B) If someone saves nothing, then that person must earn less than $1,000. 
C) If someone saves exactly $1,000, then that person's income must be greater than $1,000 and less than $10,000. 
D) If someone saves exactly $10,000, then that person must earn exactly $21,000. 
E) If someone saves more than $1,000, then that person's income must be more than $20,000. 
A) If someone saves at least $1,000, then that person's income is at least $11,000. 
B) If someone saves nothing, then that person must earn less than $1,000. 
C) If someone saves exactly $1,000, then that person's income must be greater than $1,000 and less than $10,000. 
D) If someone saves exactly $10,000, then that person must earn exactly $21,000. 
E) If someone saves more than $1,000, then that person's income must be more than $20,000.

Question 18

Marie's utility function is U(x, y)= min{3x + 2y, 2x + 5y}, where x is the number of units of sugar she consumes and y is the number of units of spice she consumes.She is currently consuming 12 units of sugar and 40 units of spice and she is spending all of her income.
a.Draw a graph showing her indifference curve through this point.
b.The price of spice is $1.In order for this to be her consumption bundle, what must the price of sugar be and what must her income be?

Accepted Answer

a.Her indifference curve is a broken lin

Question 19

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 20

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

Exam 5: Demand-Part A

If two goods are substitutes, then an increase in the price of one of them will increase the demand for the other.

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

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,

Miss Muffet insists on consuming 2 units of whey per 1 unit of curds.If the price of curds is $5 and the price of whey is $6, then if Miss Muffet's income is m, her demand for curds will be

It is impossible for a person to have a demand curve that slopes upward at all prices.

Mary has homothetic preferences.When her income was $1,000, she bought 40 books and 60 newspapers.When her income increased to $1,500 and prices did not change, she bought

Define each of the following: a.Inverse demand function b.Engel curve

If Charlie's utility function is X 4A XB, 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

Miss Muffet insists on consuming 2 units of whey per 1 unit of curds.If the price of curds is $3 and the price of whey is $3, then if Miss Muffett's income is m, her demand for curds will be

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

Casper's utility function is 3x + y, where x is his consumption of cocoa and y is his consumption of cheese.If the total cost of x units of cocoa is x2, the price of cheese is $8, and Casper's income is $174, how many units of cocoa will he consume?

Angela's utility function is x + y1/2.It is possible that if her income is very high, an increase in income will not make her spend more on y.

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

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

Budget Constraint-Part A

Budget Constraint-Part B

Preferences-Part A

Preferences-Part B

Utility-Part A

Utility-Part B

Choice-Part A

Choice-Part B

Demand-Part B

Revealed Preference-Part A

Revealed Preference-Part B

Slutsky Equation-Part A

Slutsky Equation-Part B

Buying and Selling-Part A

Buying and Selling-Part B

Intertemporal Choice-Part A

Intertemporal Choice-Part B

Asset Markets-Part A

Asset Markets-Part B

Uncertainty-Part A

Uncertainty-Part B

Risky Assets-Part A

Risky Assets-Part B

Consumers Surplus-Part A

Consumers Surplus-Part B

Market Demand-Part A

Market Demand-Part B

Equilibrium-Part A

Equilibrium-Part B

Auctions-Part A

Auctions-Part B

Technology-Part A

Technology-Part B

Profit Maximization-Part A

Profit Maximization-Part B

Cost Minimization-Part A

Cost Minimization-Part B

Cost Curves-Part A

Cost Curves-Part B

Firm Supply-Part A

Firm Supply-Part B

Industry Supply-Part A

Industry Supply-Part B

Monopoly-Part A

Monopoly-Part B

Monopoly Behavior-Part A

Monopoly Behavior-Part B

Factor Markets-Part A

Factor Markets-Part B

Oligopoly-Part A

Oligopoly-Part B

Game Theory-Part A

Game Theory-Part B

Game Applications-Part A

Game Applications-Part B

Behavioral Economics

Exchange-Part A

Exchange-Part B

Production-Part A

Production-Part B

Welfare-Part A

Welfare-Part B

Externalities-Part A

Externalities-Part B

Information Technology-Part A

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 Charlie's utility function is X ⁴_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

Casper's utility function is 3x + y, where x is his consumption of cocoa and y is his consumption of cheese.If the total cost of x units of cocoa is x², the price of cheese is $8, and Casper's income is $174, how many units of cocoa will he consume?

Angela's utility function is x + y^1/2.It is possible that if her income is very high, an increase in income will not make her spend more on y.