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Exam 3: Consumer Behavior

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Question 51

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John consumes two goods,X and Y.The marginal utility of X and the marginal utility of Y satisfy the following equations: MU_X = Y MU_Y = X. The price of X is $9,and the price of Y is $12. a.Write an expression for John's MRS. b.What is the optimal mix between X and Y in John's market basket? c.John is currently consuming 15 X and 10 Y per time period. Is he consuming an optimal mix of X and Y?

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a. MRS = = b. Optimal mix of X and Y: ...

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Question 52

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If a consumer is always indifferent between an additional one grapefruit or an additional two oranges,then when oranges are on the horizontal axis the indifference curves:

A) will be straight lines with a slope of -1/2.
B) will be straight lines with a slope of -1.
C) will be straight lines with a slope of +1/2.
D) will be right angles whose corners occur on a ray from the origin with a slope of +2.
E) none of the above

F) C) and E)
G) C) and D)

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Question 53

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Suppose that the government subsidizes housing expenditures of low-income families by providing a dollar-for-dollar subsidy to a family's housing expenditure.The Cunninghams qualify for this subsidy and spend a total of $500 per month on housing: they spend $250 of their own and receive a government subsidy of $250.Recently,a new policy has been proposed that would provide each low income family with a lump sum transfer of $250 which can be used for housing or other goods.Using a graph,demonstrate whether the Cunninghams would prefer the current program,the proposed program,or would be indifferent between the two.

Alfred derives utility from consuming iced tea and lemonade.For the bundle he currently consumes,the marginal utility he receives from iced tea is 16 utils,and the marginal utility he receives from lemonade is 8 utils.Instead of consuming this bundle,Alfred should:

Which of the following is NOT an assumption regarding people's preferences in the theory of consumer behavior?

If the quantity of good A (Q_A) is plotted along the horizontal axis,the quantity of good B (Q_B) is plotted along the vertical axis,the price of good A is P_A,the price of good B is P_B and the consumer's income is I,then the slope of the consumer's budget constraint is __________.

An individual consumes products X and Y and spends $25 per time period.The prices of the two goods are $3 per unit for X and $2 per unit for Y.The consumer in this case has a utility function expressed as: U(X,Y)= .5XY MU_X = .5Y MU_Y = .5X. a.Express the budget equation mathematically. b.Determine the values of X and Y that will maximize utility in the consumption of X and Y. c.Determine the total utility that will be generated per unit of time for this individual.

Which of the following is true about the indifference curve where one commodity (such as pollution) is "bad"?

Suppose the table below lists the price and consumption levels of food and clothing during 1990 and 2000.Calculate a Laspeyres and Paasche index using 1990 as the base year.

Which of the following statements concerning utility as a measure for well being are false?

If X and Y are perfect substitutes,which of the following assumptions about indifference curves is not satisfied?

Suppose a consumer only purchases food and clothing,and food is plotted along the horizontal axis of the consumer's indifference map.If the price of clothing increases and the price of food and income do not change,then the budget line changes by rotating:

Suppose that a consumer's increase in nominal income from the base year exceeds the inflation level given by a Paasche cost of living index for their level of purchases Is this information enough to imply how the consumer's level of well-being has changed? (HINT: Use a revealed preference argument)

Sue views hot dogs and hot dog buns as perfect complements in her consumption,and the corners of her indifference curves follow the 45-degree line.Initially,the price of hot dogs is $3 per package (8 hot dogs) ,the price of buns is $3 per package (8 hot dog buns) ,and Sue's budget is $48 per month.How does her optimal consumption bundle change if the price of hot dog buns increases to $5 per package?

Scenario 3.1: Andy derives utility from two goods,potato chips (Qp) and Cola (Qc) .Andy receives zero utility unless he consumes some of at least one good.The marginal utility that he receives from the two goods is given as follows: -Refer to Scenario 3.1.What is the total utility that Andy will receive if he consumes 5 units of potato chips (Qp) and no Cola drink (Qc) ?

Consider the following three market baskets: Table 3.1 -Refer to Table 3.1.If preferences satisfy all four of the basic assumptions:

Which of the following are examples of situations in which the standard model of the consumer may not be realistic?

The following table presents Mary's marginal utility for each of the four goods she consumes to exhaust her income.The price of Good 1 is $1,the price of Good 2 is $2,the price of Good 3 is $3 and the price of Good 4 is $4.Indicate the consumption bundle in the table that maximizes Mary's level of utility.

Figure 3.3 -Refer to the indifference curve in Figure 3.3.Which of the following statements is correct?

Monica consumes only goods A and B.Suppose that her marginal utility from consuming good A is equal to 1/Qa,and her marginal utility from consuming good B is 1/Qb.If the price of A is $0.50,the price of B is $4.00,and the Monica's income is $120.00,how much of good A will she purchase?