Question 1

Our old friend, Edmund Stench, of Chapter 2 loves punk rock video tapes.He has no income and therefore has to accept garbage in his backyard in return for money.Each video tape cost $2 and each sack of garbage that he accepts brings him $1.His utility function is given by U(c, g)= min{2c, 20 - g}, where c is the number of video tapes and g is the number of sacks of garbage that he gets per month.Each month he will choose to accept

Accepted Answer

A) 20 sacks of garbage. 
B) no garbage. 
C) 5 sacks of garbage. 
D) 10 sacks of garbage. 
E) 15 sacks of garbage.

Question 2

Ed and Al both consume only bread and cheese.Both of them always choose to have some bread and some cheese, and both have strictly convex preferences.However, Ed likes to have a great deal of bread with a little cheese, and Al likes lots of cheese with a little bread.Both face the same prices for both goods and have chosen bundles to maximize their utilities subject to their budgets.

Accepted Answer

A) Al's marginal rate of substitution is larger in absolute value than Ed's. 
B) Ed's marginal rate of substitution is larger in absolute value than Al's. 
C) Their marginal rates of substitution are the same. 
D) Who has the larger marginal rate of substitution depends on income levels. 
E) There is not enough information for us to be able to tell who has the larger marginal rate of substitution.

Question 3

Badger Madison consumes only beer and sausages.His income is $100.Beer costs him $.50 per can and sausages cost $1 each.Where x is the number of cans of beer and y the number of sausages he consumes per week, Badger's utility function is U(x, y)=-[(x - 50)2 + (y - 40)2].

Accepted Answer

A) Badger must always be unhappy since whatever he consumes, his utility is negative. 
B) He has monotonic preferences. 
C) If his income increases, he won't change the commodity bundle that he buys. 
D) If the price of beer goes down, he will buy more beer. 
E) More than one of the above statements is true.

Question 4

Other things being equal, a lump sum tax is at least as good for a consumer as a sales tax that collects the same revenue from him.

Accepted Answer

A) True 
 B)False

Question 5

Ambrose's utility function is U(x1, x2)=4x1/21 + x2.If the price of nuts (good 1)is $1, the price of berries (good 2)is $5, and his income is $145, how many units of nuts will Ambrose choose?

Accepted Answer

A) 100 
B) 200 
C) 9 
D) 103 
E) 50

Question 6

At a boundary optimum, a consumer's indifference curve must be tangent to her budget line.

Accepted Answer

A) True 
 B)False

Question 7

Wanda Littlemore's utility function is U(x, y)= x + 47y - 3y2.Her income is $107.If the price of x is $1 and the price of y is $23, how many units of good x will Wanda demand?

Accepted Answer

A) 11 
B) 19 
C) 0 
D) 18 
E) 15

Question 8

Mary Granola consumes apples and uglifruits.Mary's indifference curves are kinky.When she is consuming more apples than uglifruits, she is just willing to trade 3 apples for 1 uglifruit.When she is consuming more uglifruits than apples, she is just willing to trade 4 uglifruits for 1 apple.Let P1 be the price of uglifruits and P2 the price of apples.Mary maximizes her utility subject to her budget constraint.(Hint: Sketch one of her indifference curves.)

Accepted Answer

A) When P1 >3P2, she must consume only apples. 
B) When P1 > P2, she must consume 3 times as many apples as uglifruits. 
C) When 4P1 >P2, she must consume only uglifruits. 
D) When P1 >P2, she must consume only apples. 
E) She must consume equal numbers of both.

Question 9

Mary Granola consumes tomatoes and nectarines.Mary's indifference curves are kinky.When she is consuming more tomatoes than nectarines, she is just willing to trade 3 tomatoes for 1 nectarine.When she is consuming more nectarines than tomatoes, she is just willing to trade 4 nectarines for 1 tomato.Let P1 be the price of nectarines, and P2 the price of tomatoes.Mary maximizes her utility subject to her budget constraint.(Hint: Sketch one of her indifference curves.)

Accepted Answer

A) When P1 >P2, she must consume only tomatoes. 
B) When P1 >P2, she must consume 3 times as many tomatoes as nectarines. 
C) When P1 > 3P2, she must consume only tomatoes. 
D) When 4P1 >P2, she must consume only nectarines. 
E) She must consume equal numbers of both.

Question 10

Max has a utility function U(x, y)= 2xy + 1.The prices of x and y are both $1 and Max has an income of $20.
a.How much of each good will he demand?
b.A tax is placed on x so that x now costs Max $2 while his income and the price of y stay the same.How much of good x does he now demand?
c.Would Max be as well off as he was before the tax if when the tax was imposed, his income rose by an amount equal to $1 times the answer to part (b)?

Accepted Answer

The answer of Max has a utility function U(x, y)=...

Question 11

Sharon spends all of her income on peaches and strawberries.Peaches are a normal good for her.Her income increased by 20 percent and prices did not change.Her consumption of strawberries could not have increased by more than 20 percent.

Accepted Answer

A) True 
 B)False

Question 12

The prices of goods x and y are each $1.Jane has $20 to spend and is considering choosing 10 units of x and 10 units of y.Jane has nice convex preferences and more of each good is better for her.Where x is drawn on the horizontal axis and y is drawn on the vertical axis, the slope of her indifference curve at the bundle (10, 10)is -2.

Accepted Answer

A) The bundle (10, 10)is the best she can afford. 
B) She would be better off consuming more of good x and less of good y. 
C) She would be better off consuming more of good y and less of good x. 
D) She must dislike one of the goods. 
E) More than one of the above is true.

Question 13

Charlie's utility function is U(x, y)= xy2.His marginal rate of substitution between x and y does not change if the amount of both goods doubles.

Accepted Answer

A) True 
 B)False

Question 14

Millie's utility function is U(x, y)=min{x, y}.She maximizes her utility subject to a budget constraint.The price of x is the same as the price of y.If the price of x rises and the price of y and her income remain constant, then her consumption of y will certainly decrease.

Accepted Answer

A) True 
 B)False

Question 15

Mary Granola's utility function is U(x, y)= min{x + 2y, y + 2x}.Mary maximizes her utility subject to a budget constraint.If she chooses the bundle (5, 6), then the price of x must be exactly twice the price of y.

Accepted Answer

A) True 
 B)False

Question 16

Hans has $27 which he decides to spend on x and y.Commodity x costs $16 per unit and commodity y costs $10 per unit.He has the utility function U(x, y)= 5x2 +2y2 and he can purchase fractional units of x and y.Hans will choose

Accepted Answer

A) only x. 
B) only y. 
C) some of each commodity but more y than x. 
D) some of each commodity but more x than y. 
E) equal amounts of the two commodities.

Question 17

Wanda Littlemore's utility function is U(x, y)= x + 46y - 2y2.Her income is $135.If the price of x is $1 and the price of y is $18, how many units of good x will Wanda demand?

Accepted Answer

A) 5 
B) 12 
C) 16 
D) 0 
E) 9

Question 18

As you may know, Mungoites each have two left feet and one right foot.Their preferences for left and right shoes display perfect complementarity.Mungoites find shoes useful only in trios of two lefts and a right.The price of each type of shoe is $10 a shoe, and Mungoites consume nothing other than shoes.A Mungoite's Engel curve for right shoes has the equation

Accepted Answer

A) R = m/30. 
B) R = m - 10. 
C) R = 2m. 
D) R = 10m. 
E) R = m/10.

Question 19

Martha's utility function is U(x, y)= min{x + 2y, 2x + y}.George's utility function is U(x, y)=min{2x + 4y, 4x + 2y}.If George and Martha have the same income and face the same prices for the goods x and y,

Accepted Answer

A) George and Martha will both demand the same amount of y. 
B) Martha will always prefer George's consumption bundle to her own. 
C) George will always prefer Martha's consumption bundle to his own. 
D) George will demand more x than Martha demands. 
E) None of the above.

Question 20

Which of the following could possibly change a rational consumer's demand?

Accepted Answer

A) Changing his utility function by cubing it 
B) Changing his utility function by multiplying it by 3 and subtracting 100 from it 
C) Increasing all prices and his income by $3 
D) Multiplying all prices and income by 2.2 
E) More than one of the above

Exam 4: Choice-Part A

Badger Madison consumes only beer and sausages.His income is $100.Beer costs him $.50 per can and sausages cost $1 each.Where x is the number of cans of beer and y the number of sausages he consumes per week, Badger's utility function is U(x, y) =-[(x - 50) ² + (y - 40) ²].

Other things being equal, a lump sum tax is at least as good for a consumer as a sales tax that collects the same revenue from him.

Ambrose's utility function is U(x₁, x₂) =4x^1/2₁ + x₂.If the price of nuts (good 1) is $1, the price of berries (good 2) is $5, and his income is $145, how many units of nuts will Ambrose choose?

At a boundary optimum, a consumer's indifference curve must be tangent to her budget line.

Wanda Littlemore's utility function is U(x, y) = x + 47y - 3y².Her income is $107.If the price of x is $1 and the price of y is $23, how many units of good x will Wanda demand?

Sharon spends all of her income on peaches and strawberries.Peaches are a normal good for her.Her income increased by 20 percent and prices did not change.Her consumption of strawberries could not have increased by more than 20 percent.

Charlie's utility function is U(x, y)= xy².His marginal rate of substitution between x and y does not change if the amount of both goods doubles.

Millie's utility function is U(x, y)=min{x, y}.She maximizes her utility subject to a budget constraint.The price of x is the same as the price of y.If the price of x rises and the price of y and her income remain constant, then her consumption of y will certainly decrease.

Mary Granola's utility function is U(x, y)= min{x + 2y, y + 2x}.Mary maximizes her utility subject to a budget constraint.If she chooses the bundle (5, 6), then the price of x must be exactly twice the price of y.

Hans has $27 which he decides to spend on x and y.Commodity x costs $16 per unit and commodity y costs $10 per unit.He has the utility function U(x, y) = 5x² +2y² and he can purchase fractional units of x and y.Hans will choose

Wanda Littlemore's utility function is U(x, y) = x + 46y - 2y².Her income is $135.If the price of x is $1 and the price of y is $18, how many units of good x will Wanda demand?

Martha's utility function is U(x, y) = min{x + 2y, 2x + y}.George's utility function is U(x, y) =min{2x + 4y, 4x + 2y}.If George and Martha have the same income and face the same prices for the goods x and y,

Which of the following could possibly change a rational consumer's demand?

Exam 4: Choice-Part A

Badger Madison consumes only beer and sausages.His income is $100.Beer costs him $.50 per can and sausages cost $1 each.Where x is the number of cans of beer and y the number of sausages he consumes per week, Badger's utility function is U(x, y) =-[(x - 50) 2 + (y - 40) 2].

Other things being equal, a lump sum tax is at least as good for a consumer as a sales tax that collects the same revenue from him.

Ambrose's utility function is U(x1, x2) =4x1/21 + x2.If the price of nuts (good 1) is $1, the price of berries (good 2) is $5, and his income is $145, how many units of nuts will Ambrose choose?

At a boundary optimum, a consumer's indifference curve must be tangent to her budget line.

Wanda Littlemore's utility function is U(x, y) = x + 47y - 3y2.Her income is $107.If the price of x is $1 and the price of y is $23, how many units of good x will Wanda demand?

Sharon spends all of her income on peaches and strawberries.Peaches are a normal good for her.Her income increased by 20 percent and prices did not change.Her consumption of strawberries could not have increased by more than 20 percent.

Charlie's utility function is U(x, y)= xy2.His marginal rate of substitution between x and y does not change if the amount of both goods doubles.

Millie's utility function is U(x, y)=min{x, y}.She maximizes her utility subject to a budget constraint.The price of x is the same as the price of y.If the price of x rises and the price of y and her income remain constant, then her consumption of y will certainly decrease.

Mary Granola's utility function is U(x, y)= min{x + 2y, y + 2x}.Mary maximizes her utility subject to a budget constraint.If she chooses the bundle (5, 6), then the price of x must be exactly twice the price of y.

Hans has $27 which he decides to spend on x and y.Commodity x costs $16 per unit and commodity y costs $10 per unit.He has the utility function U(x, y) = 5x2 +2y2 and he can purchase fractional units of x and y.Hans will choose

Wanda Littlemore's utility function is U(x, y) = x + 46y - 2y2.Her income is $135.If the price of x is $1 and the price of y is $18, how many units of good x will Wanda demand?

Martha's utility function is U(x, y) = min{x + 2y, 2x + y}.George's utility function is U(x, y) =min{2x + 4y, 4x + 2y}.If George and Martha have the same income and face the same prices for the goods x and y,

Which of the following could possibly change a rational consumer's demand?

Badger Madison consumes only beer and sausages.His income is $100.Beer costs him $.50 per can and sausages cost $1 each.Where x is the number of cans of beer and y the number of sausages he consumes per week, Badger's utility function is U(x, y) =-[(x - 50) ² + (y - 40) ²].

Ambrose's utility function is U(x₁, x₂) =4x^1/2₁ + x₂.If the price of nuts (good 1) is $1, the price of berries (good 2) is $5, and his income is $145, how many units of nuts will Ambrose choose?

Wanda Littlemore's utility function is U(x, y) = x + 47y - 3y².Her income is $107.If the price of x is $1 and the price of y is $23, how many units of good x will Wanda demand?

Charlie's utility function is U(x, y)= xy².His marginal rate of substitution between x and y does not change if the amount of both goods doubles.

Hans has $27 which he decides to spend on x and y.Commodity x costs $16 per unit and commodity y costs $10 per unit.He has the utility function U(x, y) = 5x² +2y² and he can purchase fractional units of x and y.Hans will choose

Wanda Littlemore's utility function is U(x, y) = x + 46y - 2y².Her income is $135.If the price of x is $1 and the price of y is $18, how many units of good x will Wanda demand?