Question 1

If all goods,including leisure,are normal goods,then an increase in the wage rate will necessarily make people want to work more hours.

Accepted Answer

A) True 
 B)False

Question 2

Rhoda takes a job with a construction company.She earns $5 an hour for the first 40 hours of each week and then gets "double-time" for overtime.That is,she is paid $10 an hour for every hour beyond 40 hours a week that she works.Rhoda has 70 hours a week available to divide between construction work and leisure.She has no other source of income,and her utility function is U = cr,where c is her income to spend on goods and r is the number of hours of leisure that she has per week.She is allowed to work as many hours as she wants to.How many hours will she work?

Accepted Answer

A)  50 
B)  30 
C)  45 
D)  35 
E)  None of the above. 
A)  50 
B)  30 
C)  45 
D)  35 
E)  None of the above.

Question 3

Wilhelm consumes only apples and bananas.His endowment is 5 units of apples and 10 units of bananas.Both goods are normal goods for Wilhelm.At current prices,Wilhelm is a net seller of apples.If the price of apples rises and the price of bananas stays the same,his demand for apples must decrease.

Accepted Answer

A) True 
 B)False

Question 4

A farmer gets 20 eggs and 10 tomatoes every week from her chickens and her tomato plants.She has no other source of income.She has convex,downward-sloping indifference curves.The current market prices are $2 per egg and $3 per tomato.At these prices she chooses the same bundle that she is endowed with (20 eggs and 10 tomatoes).

Accepted Answer

A)  If relative prices change in any way whatsoever,she will certainly be no worse off and may be better off than she was before the price change. 
B)  An increase in the price of eggs (with the price of tomatoes remaining constant)will decrease her utility. 
C)  An increase in the price of tomatoes (with the price of eggs remaining constant)will make her worse off. 
D)  If both prices rise,she will be worse off,but if only one price rises,she might be made better off or worse off,depending on her tastes. 
E)  Since she earns her income from tomatoes and eggs only,she treats eggs and tomatoes as perfect substitutes. 
A)  If relative prices change in any way whatsoever,she will certainly be no worse off and may be better off than she was before the price change. 
B)  An increase in the price of eggs (with the price of tomatoes remaining constant)will decrease her utility. 
C)  An increase in the price of tomatoes (with the price of eggs remaining constant)will make her worse off. 
D)  If both prices rise,she will be worse off,but if only one price rises,she might be made better off or worse off,depending on her tastes. 
E)  Since she earns her income from tomatoes and eggs only,she treats eggs and tomatoes as perfect substitutes.

Question 5

If a rational utility maximizer is a net demander of a good and if an increase in its price causes him to buy more of it,then it must be an inferior good.

Accepted Answer

A) True 
 B)False

Question 6

Quincy consumes only uglifruits and bananas.His only source of income is an initial endowment of 30 units of uglifruits and 10 units of bananas.Quincy insists on consuming uglifruits and bananas in fixed proportions,1 unit of uglifruits per 1 unit of bananas.He initially faces a price of $20 per unit for each fruit.The price of uglifruits rose to $40 per unit while the price of bananas stayed unchanged.After the price change,he would

Accepted Answer

A)  increase his consumption of uglifruits by exactly 3.33 units. 
B)  decrease his consumption or uglifruits by at least 3.33 units. 
C)  decrease his consumption of uglifruits by exactly 5.33 units. 
D)  increase his consumption of uglifruits by exactly 13.33 units. 
E)  decrease his consumption of bananas by at least 1 unit. 
A)  increase his consumption of uglifruits by exactly 3.33 units. 
B)  decrease his consumption or uglifruits by at least 3.33 units. 
C)  decrease his consumption of uglifruits by exactly 5.33 units. 
D)  increase his consumption of uglifruits by exactly 13.33 units. 
E)  decrease his consumption of bananas by at least 1 unit.

Question 7

Diana consumes commodities x and y and her utility function is U(x,y)=xy2.Good x costs $2 per unit and good y costs $1 per unit.If she is endowed with 3 units of x and 6 units of y,how many units of good y will she consume?

Accepted Answer

A)  11 
B)  3 
C)  8 
D)  14 
E)  None of the above. 
A)  11 
B)  3 
C)  8 
D)  14 
E)  None of the above.

Question 8

If someone has a Cobb-Douglas utility function and no income from any source other than labor earnings,then an increase in wages will not change the amount that person chooses to work.

Accepted Answer

A) True 
 B)False

Question 9

Gladys Goodhands is an insurance agent.She must choose one and only one of two possible alternative jobs.She can either work for a large national insurance company for which she must work exactly 40 hours a week and will receive a salary of S dollars per week,or she can work as an independent insurance agent,in which case she can work exactly as many hours per week as she wishes and will earn w dollars for every hour that she works.Gladys satisfies the weak axiom of revealed preference and she cares only about how much money she makes and about how much leisure time she has.

Accepted Answer

A)  If S/40 $\gt$ w,she will prefer to work for the large national insurance company. 
B)  If S/40  $\lt$w and she decides to work independently,then it must be that she chooses to work more than 40 hours a week. 
C)  If S/40 $\lt$ w and she decides to work independently,then it must be that she chooses to work less than 40 hours a week. 
D)  If S/40 = w,she will be indifferent between working for the large insurance company and working independently. 
E)  None of the above. 
A)  If S/40 $\gt$ w,she will prefer to work for the large national insurance company. 
B)  If S/40  $\lt$w and she decides to work independently,then it must be that she chooses to work more than 40 hours a week. 
C)  If S/40 $\lt$ w and she decides to work independently,then it must be that she chooses to work less than 40 hours a week. 
D)  If S/40 = w,she will be indifferent between working for the large insurance company and working independently. 
E)  None of the above.

Question 10

Donald consumes goods x and y.His utility function is U(x,y)= xy3.He is endowed with 10 units of x and 15 units of y.The price of x is $1 and the price of y is $2.Find his net demand for x.

Accepted Answer

A)  15 
B)  0 
C)  12 
D)  -3 
E)  20 
A)  15 
B)  0 
C)  12 
D)  -3 
E)  20

Question 11

Is it ever possible that an increase in the price of a good for which a person is a net seller can make him worse off? Use a diagram to illustrate your answer.

Accepted Answer

No,it is not.If one is a net s

Question 12

Dr.Johnson receives a lump sum payment of $100 per week.Suppose that the first $100 per week of labor income is untaxed but all labor income above $100 is taxed at a rate of 40%.

Accepted Answer

A)  Dr.Johnson's budget line has a kink in it at the point where he takes 70 units of leisure. 
B)  Dr.Johnson's budget line has no kinks in the part of it that corresponds to a positive labor supply. 
C)  Dr.Johnson's budget line has slope 23 everywhere. 
D)  Dr.Johnson's budget line has a kink where his income is $200 and his leisure is 60 units. 
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 70 units of leisure. 
B)  Dr.Johnson's budget line has no kinks in the part of it that corresponds to a positive labor supply. 
C)  Dr.Johnson's budget line has slope 23 everywhere. 
D)  Dr.Johnson's budget line has a kink where his income is $200 and his leisure is 60 units. 
E)  Dr.Johnson's budget line has a piece that is a horizontal straight line.

Question 13

Mr.Cog has 18 hours per day to divide between labor and leisure.His utility function is U(C,R)= CR,where C is dollars per year spent on consumption and R is hours of leisure.If he has a nonlabor income of 40 dollars per day and a wage rate of 8 dollars per hour,he will choose a combination of labor and leisure that allows him to spend

Accepted Answer

A)  184 dollars per day on consumption. 
B)  82 dollars per day on consumption. 
C)  112 dollars per day on consumption. 
D)  92 dollars per day on consumption. 
E)  138 dollars per day on consumption. 
A)  184 dollars per day on consumption. 
B)  82 dollars per day on consumption. 
C)  112 dollars per day on consumption. 
D)  92 dollars per day on consumption. 
E)  138 dollars per day on consumption.

Question 14

Mike Teevee likes to watch television and to eat candy.In fact his utility function is U(x,y)=x2y,where x is the number of hours he spends watching television and y is the number of dollars per week he spends on candy.Mike's mother doesn't like him to watch so much television.She limits his television watching to 36 hours a week and in addition she pays him $1 an hour for every hour that he reduces his television watching below 36 hours a week.If this is Mike's only source of income to buy candy,how many hours of television does he watch per week?

Accepted Answer

A)  36 
B)  12 
C)  24 
D)  18 
E)  16 
A)  36 
B)  12 
C)  24 
D)  18 
E)  16

Question 15

Albert consumes only tangerines and bananas.His only source of income is an initial endowment of 30 units of tangerines and 10 units of bananas.Albert insists on consuming tangerines and bananas in fixed proportions,1 unit of tangerines per 1 unit of bananas.He initially faces a price of $10 per unit for each fruit.The price of tangerines rose to $30 per unit while the price of bananas stayed unchanged.After the price change,he would

Accepted Answer

A)  increase his consumption of tangerines by exactly 5 units. 
B)  decrease his consumption or tangerines by at least 5 units. 
C)  increase his consumption of tangerines by exactly 15 units. 
D)  decrease his consumption of tangerines by exactly 7 units. 
E)  decrease his consumption of bananas by at least 1 unit. 
A)  increase his consumption of tangerines by exactly 5 units. 
B)  decrease his consumption or tangerines by at least 5 units. 
C)  increase his consumption of tangerines by exactly 15 units. 
D)  decrease his consumption of tangerines by exactly 7 units. 
E)  decrease his consumption of bananas by at least 1 unit.

Exam 9:Buying and Selling-Part A

If all goods,including leisure,are normal goods,then an increase in the wage rate will necessarily make people want to work more hours.

Wilhelm consumes only apples and bananas.His endowment is 5 units of apples and 10 units of bananas.Both goods are normal goods for Wilhelm.At current prices,Wilhelm is a net seller of apples.If the price of apples rises and the price of bananas stays the same,his demand for apples must decrease.

If a rational utility maximizer is a net demander of a good and if an increase in its price causes him to buy more of it,then it must be an inferior good.

Diana consumes commodities x and y and her utility function is U(x,y)=xy2.Good x costs $2 per unit and good y costs $1 per unit.If she is endowed with 3 units of x and 6 units of y,how many units of good y will she consume?

If someone has a Cobb-Douglas utility function and no income from any source other than labor earnings,then an increase in wages will not change the amount that person chooses to work.

Donald consumes goods x and y.His utility function is U(x,y)= xy3.He is endowed with 10 units of x and 15 units of y.The price of x is $1 and the price of y is $2.Find his net demand for x.

Is it ever possible that an increase in the price of a good for which a person is a net seller can make him worse off? Use a diagram to illustrate your answer.

Dr.Johnson receives a lump sum payment of $100 per week.Suppose that the first $100 per week of labor income is untaxed but all labor income above $100 is taxed at a rate of 40%.

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

Diana consumes commodities x and y and her utility function is U(x,y)=xy².Good x costs $2 per unit and good y costs $1 per unit.If she is endowed with 3 units of x and 6 units of y,how many units of good y will she consume?

Donald consumes goods x and y.His utility function is U(x,y)= xy³.He is endowed with 10 units of x and 15 units of y.The price of x is $1 and the price of y is $2.Find his net demand for x.