Question 1

A person's full income is the amount of income that he or she would have if there were no taxes.

Accepted Answer

A) True 
 B)False

Question 2

Les is allowed to work only 8 hours a day at his main job,although he would like to work more hours.He takes a second job.He can work as many hours as he wishes at the second job,but at a lower wage.If leisure is a normal good,then an increase in the wage rate for his first job will reduce the number of hours he chooses to work at his second job.

Accepted Answer

A) True 
 B)False

Question 3

There are no taxes on the first $500 that Debra earns per week,but on income above $500 per week,she must pay a 60% tax.Debra's job pays $10 per hour.Her utility function is U(c,r)= rc2,where r is hours of leisure and c is dollars worth of consumption.She has 100 hours to divide between work and leisure.How many hours per week will she choose to work?

Accepted Answer

A)  66.66 
B)  50 
C)  40 
D)  33.33 
E)  20 
A)  66.66 
B)  50 
C)  40 
D)  33.33 
E)  20

Question 4

If a utility maximizer is a net seller of something and the price of that good rises while other prices stay constant,her situation might improve so much that she becomes a net buyer.

Accepted Answer

A) True 
 B)False

Question 5

Charlie consumes apples and bananas;his utility function is U(a,b)= ab.Charlie's fruit farm yielded 5 apples and 10 bananas.In addition,Charlie has $10 that he was given by a secret admirer.Charlie can buy or sell apples at $2 each and he can buy or sell bananas at $1 each.Charlie will consume

Accepted Answer

A)  more apples and more bananas than he grows. 
B)  more apples and fewer bananas than he grows. 
C)  fewer apples and more bananas than he grows. 
D)  exactly as many apples as he grows and more bananas than he grows. 
A)  more apples and more bananas than he grows. 
B)  more apples and fewer bananas than he grows. 
C)  fewer apples and more bananas than he grows. 
D)  exactly as many apples as he grows and more bananas than he grows.

Question 6

Milton consumes two commodities in a perfect market system.The price of x is $5 and the price of y is $1.His utility function is U(x,y)= xy.He is endowed with 40 units of good x and no y.Find his consumption of good y.

Accepted Answer

A)  110 
B)  105 
C)  50 
D)  100 
E)  None of the above. 
A)  110 
B)  105 
C)  50 
D)  100 
E)  None of the above.

Question 7

Dr.Johnson receives a lump sum payment of $150 per week.Suppose that the first $150 per week of labor income is untaxed but all labor income above $150 is taxed at a rate of 10%.

Accepted Answer

A)  Dr.Johnson's budget line has a kink in it at the point where he takes 60 units of leisure. 
B)  Dr.Johnson's budget line has a kink where his income is $300 and his leisure is 50 units. 
C)  Dr.Johnson's budget line has slope -4.50 everywhere. 
D)  Dr.Johnson's budget line has no kinks in the part of it that corresponds to a positive labor supply. 
E)  Dr.Johnson's budget line has a piece that is a horizontal straight line. 
A)  Dr.Johnson's budget line has a kink in it at the point where he takes 60 units of leisure. 
B)  Dr.Johnson's budget line has a kink where his income is $300 and his leisure is 50 units. 
C)  Dr.Johnson's budget line has slope -4.50 everywhere. 
D)  Dr.Johnson's budget line has no kinks in the part of it that corresponds to a positive labor supply. 
E)  Dr.Johnson's budget line has a piece that is a horizontal straight line.

Question 8

May's utility function is U = C +14D1/22.5(H + J)2,where C is dollars spent on goods other than housecleaning,D is the number of hours per day that somebody spends cleaning her house,H is the number of hours per day May spends cleaning her house,and J is the number of hours per day May spends working at her job.All May's income comes from her job.She can work as many hours a day as she wishes at a wage of $7 an hour.
a.If she cannot hire anyone to do her housecleaning,how many hours will she spend on the job and how many hours will she spend housecleaning?
b.If she can hire a housecleaner at $5 an hour,how many hours will she work on her job,how many hours of housecleaning will she hire,and how many hours will she clean house?

Accepted Answer

a.6 hours and 1 hour

Question 9

Susan's utility function is U(x,y)=(x +y)R2,where x and y are the quantities of goods X and Y that she consumes and R is the number of hours of leisure that she has per day.Good X costs 4 dollars per unit and good Y costs 2 dollars per unit.Her wage rate is 8 dollars per hour and she has 15 hours per day to allocate between labor and leisure.She will

Accepted Answer

A)  consume equal amounts of goods X and Y. 
B)  consume 10 units of good X. 
C)  consume 20 units of good Y. 
D)  work 10 hours a day. 
E)  consume twice as much of good X as of good Y. 
A)  consume equal amounts of goods X and Y. 
B)  consume 10 units of good X. 
C)  consume 20 units of good Y. 
D)  work 10 hours a day. 
E)  consume twice as much of good X as of good Y.

Question 10

Is it ever possible that if someone is a net seller of a good,and the price of the good he sells falls,the consumer could wind up better off than he was before by switching from being a seller to being a buyer? Draw a graph to justify your answer.

Accepted Answer

Yes,it is possible.For example,one can d

Question 11

If a person is a net supplier of a normal good and its price increases while all other prices stay the same,then his demand for the good must decrease.

Accepted Answer

A) True 
 B)False

Question 12

Jackie's net demands for x and y are (6,-6)and her gross demands are (15,15).What is her initial endowment of x?

Accepted Answer

A)  16 
B)  13 
C)  5 
D)  9 
E)  None of the above. 
A)  16 
B)  13 
C)  5 
D)  9 
E)  None of the above.

Question 13

Ernie's wage rate is $10 an hour.He has no earnings other than his labor income.His utility function is U(C,L)=CR2,where C is the amount of money he spends on consumption,and R is the number of hours a day he spends not working.
a.Write an equation that describes Ernie's budget constraint.
b.How many hours does Ernie choose to work per day?
c.How much money does he spend on consumption per day?

Accepted Answer

a.C+ 10R=2

Question 14

Harvey's net demands for goods 1 and 2 are (2,-3)and his endowment is (6,5).
a.What are his gross demands?
b.Draw a diagram illustrating his budget line,his endowment,and his consumption.(Put good 1 on the horizontal axis. )
c.Draw a dotted line to show what his budget line would be if the price of good 1 doubled and the price of good 2 stayed the same.

Accepted Answer

a.Harvey's gross demands are (

Question 15

Mario consumes eggplants and tomatoes in the ratio of 1 bushel of eggplants per 1 bushel of tomatoes.His garden yields 30 bushels of eggplants and 10 bushels of tomatoes.He initially faced prices of $25 per bushel for each vegetable,but the price of eggplants rose to $100 per bushel,while the price of tomatoes stayed unchanged.After the price change,he would

Accepted Answer

A)  increase his eggplant consumption by 6 bushels. 
B)  decrease his eggplant consumption by at least 6 bushels. 
C)  increase his consumption of eggplants by 8 bushels. 
D)  decrease his consumption of eggplants by 8 bushels. 
E)  decrease his tomato consumption by at least 1 bushel. 
A)  increase his eggplant consumption by 6 bushels. 
B)  decrease his eggplant consumption by at least 6 bushels. 
C)  increase his consumption of eggplants by 8 bushels. 
D)  decrease his consumption of eggplants by 8 bushels. 
E)  decrease his tomato consumption by at least 1 bushel.

Question 16

Russ Tickman is a dairy farmer.He consumes milk and other goods.His utility function is given by U(x,y)=y(x+1),where x is his milk consumption and y is his consumption of other goods.His initial endowment is 19 units of milk per day and no units of other goods.If the price of milk is $2 and the price of other goods is $1,how much milk does he consume?

Accepted Answer

A)  9 gallons 
B)  38 gallons 
C)  20 gallons 
D)  14 gallons 
E)  12 gallons 
A)  9 gallons 
B)  38 gallons 
C)  20 gallons 
D)  14 gallons 
E)  12 gallons

Question 17

Yoram insists on consuming 4 times as much of y as he consumes of x (so he always has y = 4x).He will consume these goods in no other ratio.The price of x is 3 times the price of y.Yoram has an endowment of 20 x's and 45 y's which he can trade at the going prices.He has no other source of income.What is Yoram's gross demand for x?

Accepted Answer

A)  105 
B)  65 
C)  15 
D)  12 
E)  We can't determine the answer without knowing the price of x. 
A)  105 
B)  65 
C)  15 
D)  12 
E)  We can't determine the answer without knowing the price of x.

Question 18

Milton consumes two commodities in a perfect market system.The price of x is $4 and the price of y is $1.His utility function is U(x,y)= xy.He is endowed with 76 units of good x and no y.Find his consumption of good y.

Accepted Answer

A)  76 
B)  157 
C)  152 
D)  162 
E)  None of the above. 
A)  76 
B)  157 
C)  152 
D)  162 
E)  None of the above.

Question 19

Holly consumes commodities x and y and her utility function is U(x,y)= xy5.Good x costs $2 per unit and good y costs $1 per unit.If she is endowed with 7 units of x and 4 units of y,how many units of good y will she consume?

Accepted Answer

A)  7 
B)  15 
C)  19 
D)  18 
E)  None of the above. 
A)  7 
B)  15 
C)  19 
D)  18 
E)  None of the above.

Question 20

Marsha Mellow is very flexible.She consumes x and y.She says,"Give me x or give me y,I don't care.I can't tell the difference between them." She is currently endowed with 8 units of x and 17 units of y.The price of x is 3 times the price of y.Marsha can trade x and y at the going prices but has no other source of income.How many units of y will Marsha consume?

Accepted Answer

A)  17 
B)  44 
C)  25 
D)  41 
E)  21 
A)  17 
B)  44 
C)  25 
D)  41 
E)  21

Exam 9:Buying and Selling-Part A

A person's full income is the amount of income that he or she would have if there were no taxes.

If a utility maximizer is a net seller of something and the price of that good rises while other prices stay constant,her situation might improve so much that she becomes a net buyer.

Charlie consumes apples and bananas;his utility function is U(a,b)= ab.Charlie's fruit farm yielded 5 apples and 10 bananas.In addition,Charlie has $10 that he was given by a secret admirer.Charlie can buy or sell apples at $2 each and he can buy or sell bananas at $1 each.Charlie will consume

Milton consumes two commodities in a perfect market system.The price of x is $5 and the price of y is $1.His utility function is U(x,y)= xy.He is endowed with 40 units of good x and no y.Find his consumption of good y.

Dr.Johnson receives a lump sum payment of $150 per week.Suppose that the first $150 per week of labor income is untaxed but all labor income above $150 is taxed at a rate of 10%.

Is it ever possible that if someone is a net seller of a good,and the price of the good he sells falls,the consumer could wind up better off than he was before by switching from being a seller to being a buyer? Draw a graph to justify your answer.

If a person is a net supplier of a normal good and its price increases while all other prices stay the same,then his demand for the good must decrease.

Jackie's net demands for x and y are (6,-6)and her gross demands are (15,15).What is her initial endowment of x?

Milton consumes two commodities in a perfect market system.The price of x is $4 and the price of y is $1.His utility function is U(x,y)= xy.He is endowed with 76 units of good x and no y.Find his consumption of good y.

Holly consumes commodities x and y and her utility function is U(x,y)= xy5.Good x costs $2 per unit and good y costs $1 per unit.If she is endowed with 7 units of x and 4 units of y,how many units of good y will she consume?

Demand-Part A

Revealed Preference-Part A

Revealed Preference-Part B

Slutsky Equation-Part A

Slutsky Equation-Part B

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-Part A

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

Information Technology-Part B

Public Goods-Part A

Public Goods-Part B

Asymmetric Information-Part A

Asymmetric Information-Part B

Filters

Holly consumes commodities x and y and her utility function is U(x,y)= xy⁵.Good x costs $2 per unit and good y costs $1 per unit.If she is endowed with 7 units of x and 4 units of y,how many units of good y will she consume?