Deck 2: Utility Maximization and Choice

Question 1

Suppose that at current consumption levels an individual's marginal utility of consuming an extra hot dog is 10 whereas the marginal utility of consuming an extra soft drink is 2.Then the MRS (of soft drinks for hot dogs)-that is,the number of hot dogs the individual is willing to give up to get one more soft drink-is:

A)5.
B)2.
C)1/2.
D)1/5.

Answer 1

1/5.

Question 2

Suppose utility is given by
And p_x = 1,I = 10.If y must be purchased in whole units,what is the maximum price this person would pay for that good?

A)1
B)5
C)10
D)20

Answer 2

5

Question 3

If an individual's utility function is given by
And I = 100,p_x = 1,p_y = 4,his or her preferred consumption bundle will be:

A)(20,20).
B)(50,12.5).
C)(40,15).
D)(30,15).

Answer 3

(50,12.5).

Question 4

An increase in an individual's income without changing relative prices will:

A)rotate the budget constraint about the X-axis.
B)shift the indifference curves outward.
C)shift the budget constraint outward in a parallel way.
D)rotate the budget constraint about the Y-axis.

Question 5

assume that a person has a quasi-linear utility function of the form
​If
,what is the utility maximizing commodity bundle?

A)​(8,1)
B)​(2,4)
C)​(1,4.5)
D)​(5,2.5)

Question 6

Suppose that an individual has a constant MRS of shoes for sneakers of 4:3 (that is,he or she is always willing to give up 3 pairs of sneakers to get 4 pairs of shoes).Then,if sneakers and shoes are equally costly,he or she will:

A)buy only sneakers.
B)buy only shoes.
C)spend his or her income equally on sneakers and shoes.
D)wear sneakers only 3/4 of the time.

Question 7

If utility is given by
And p_x = 2,p_y = 3,I = 50,this person will choose:

A)(10,10).
B)(15,6.67).
C)(25,0).
D)(0,50/3).

Question 8

If the price of x falls,the budget constraint:

A)shifts outward in a parallel fashion.
B)shifts inward in a parallel fashion.
C)rotates outward about the x-intercept.
D)rotates outward about the y-intercept.

Question 9

"If an individual is to maximize the utility received from consumption,he or she should spend all available income...." This statement assumes:

A)that saving is impossible.
B)that the individual is not satiated in any one good.
C)that no goods are "inferior."
D)that every good has a positive marginal utility.

Question 10

An individual has a utility function for tennis rackets (x)and tennis balls (y)of the form His or her expenditure function is given by:

A)
B)
C)
D)

Question 11

assume that a person has a quasi-linear utility function of the form
If this person starts from a utility maximizing position,an increase in income will cause:​

A)​more of both goods to be bought.
B)​more of only good y to be bought.
C)​more of only good x to be bought.
D)​more x and less y to be bought.

Question 12

The slope of the budget constraint line is:

A)the ratio of the prices (p_x/p_y).
B)the negative of the ratio of the prices (p_x/p_y).
C)the ratio of income divided by price of y (I/p_y).
D)none of the above.

Question 13

If an individual's indifference curve map does not obey the assumption of a diminishing MRS,then:

A)the individual will not maximize utility.
B)the individual will buy none of good x.
C)tangencies of indifference curves to the budget constraint may not be points of utility maximization.
D)the budget constraint cannot be tangent to an appropriate indifference curve.

Question 14

Suppose an individual's MRS (of steak for beer)is 2:1.That is,at the current consumption choices he or she is willing to give up 2 beers to get an extra steak.Suppose also that the price of a steak is $1 and a beer is $4.Then in order to increase utility the individual should:

A)buy more steak and less beer.
B)buy more beer and less steak.
C)continue with current consumption plans.

Question 15

If an individual's utility function for coffee (x)and cream (y)is given by ,the demand function for coffee is given by:

A)
B)
C)
D)