Question 1

Suppose that U = min{2X, 0.5Y}, where X is units of good X and Y is units of good Y. The price of good X is $1 and the price of good Y is $2. What is the minimum expenditure necessary to achieve a utility level of 100?
A) $333.33
B) $550
C) $1,200
D) $450

Accepted Answer

The answer of Suppose that U = min{2X, 0.5Y}, where...

Question 2

The consumer's budget constraint is $6 = 0.50G + P, where G is packs of gum and P is bags of pretzels. The marginal utility of pretzels is MU_P = G^0.5, and the marginal utility of gum is MU_G = 0.5G^-0.5P. The consumer's utility function is U = G^0.5P. The utility-maximizing bundle consists of _____ packs of gum and _____ bags of pretzels. A) 8; 2 B) 4; 4 C) 2; 5 D) 6; 3

Accepted Answer

To maximize utility, the consumer should equalize the marginal rate of substitution (MRS) to the price ratio. MRS = MU_G / MU_P = (0.5G^-0.5P) / (G^0.5) = 0.5P/G. The price ratio is 0.50/1. Solving 0.5P/G = 0.50/1 gives P = G. Substituting P = G into the budget constraint 6 = 0.50G + P gives G = 4 and P = 4.

Question 3

Suppose that Lloyd cares only about shoes and clothes. Lloyd's utility function is U = S^0.5C^0.5, where S is the number of pairs of shoes and C is the number of clothing items that Lloyd owns. The price of shoes is $80, and the price of clothes is $100. Lloyd has a budget of $3200. Which levels of S and C maximize Lloyd's utility? A) S = 40 and C = 0 B) S = 16 and C = 20 C) S = 20 and C = 16 D) S = 10 and C = 24

Accepted Answer

Given Lloyd's utility function and budget constraint, we can solve for the optimal combination of shoes (S) and clothes (C) by setting up the budget constraint equation: 80S + 100C = 3200. Without the specific utility function provided in a clear format, we typically use the method of Lagrange multipliers or equate the marginal utilities per dollar spent on each good to find the optimal bundle that maximizes utility subject to the budget constraint. However, based on the given options and the budget constraint, option C) S = 20 and C = 16 is the correct choice because it is the only option that exactly uses the budget of $3200 (20*$80 + 16*$100 = $3200) and reflects a plausible allocation that could maximize utility based on typical consumer behavior of diversifying goods to increase overall satisfaction.

Question 4

Kyle's utility function is U = 4X + 3.7Y, where X is units of good X and Y is units of good Y. What is the marginal utility of good X?
A) 4X + 3.7
B) 4
C) 0.3X
D) U/4

Accepted Answer

The marginal utility of a good is the additional satisfaction (utility) a consumer gains from consuming one more unit of that good. It is calculated by taking the partial derivative of the utility function with respect to the good in question. For good X, the marginal utility is the derivative of U with respect to X, which is 4.

Question 5

Beth has $400 of income to spend on e-books (E), priced at $20 per book, and exercise classes called Zumba (Z), priced at $16 per class. Which of the following consumption bundles is infeasible?
A) E = 20 and Z = 0
B) E = 2 and Z = 22
C) E = 10 and Z = 13
D) E = 8 and Z = 15

Accepted Answer

The answer of Beth has $400 of income to spend...

Question 6

Sofia's utility is a function of golf (G) and music lessons (M), where MU_G = 1/G and MU_M = 1/M. What is the equation for the marginal rate of substitution of music lessons for golf (MRS_GM)? A) GM B) M/G C) G/M D) M - G

Accepted Answer

MRS_GM = MU_G / MU_M = (1/G) / (1/M) = M/G

Question 7

(Figure: Good Y and Good X V) Suppose the budget constraint shifted from constraint 2 to constraint 1. What could have caused this change? 
A) a decrease in income
B) a decrease in the price of good X relative to that of good Y
C) a decrease in income and an increase in the price of good X relative to that of good Y
D) an increase in the price of good X and no change in the price of Y

Accepted Answer

The answer of (Figure: Good Y and Good X V)...

Question 8

Suppose that Arthur cares only about video games and coffee. His utility function is U = VC, where V is the number of video games that he plays and C is the number of cups of coffee that he drinks. The price of video games is $50, and the price of coffee is $3. Arthur has a budget of $800. Which levels of V and C maximize Arthur's utility?
A) V = 10 and C = 100
B) V = 13 and C = 50
C) V = 16 and C = 0
D) V = 8 and C = 133.33

Accepted Answer

The answer of Suppose that Arthur cares only about video...

Question 9

(Figure: Pineapples and Oranges I) This figure shows the level of happiness that Sam receives when consuming pineapples and oranges. Sam's grandmother, who is visiting from Florida, gives Sam 10 oranges and 1 pineapple. According to his levels of happiness in consuming pineapples and oranges, Sam will be willing to: 
A) trade away more than one orange for an additional pineapple.
B) trade lots of pineapples for an additional orange.
C) trade his only pineapple for one more orange.
D) give up all of his oranges for four more pineapples.

Accepted Answer

The answer of (Figure: Pineapples and Oranges I) This figure...

Question 10

Which of the following is NOT a result of completeness and rankability?
I. A person prefers one consumption bundle to another.
II. A person is indifferent between two consumption bundles.
III. A person likes jelly beans more than hamburgers.
A) I
B) II
C) III
D) None of the above

Accepted Answer

Completeness and rankability imply that a person can compare any two consumption bundles and rank them in order of preference. Therefore, a person cannot like jelly beans more than hamburgers without also being able to compare them and rank them in order of preference.

Question 11

Suppose a consumer spends all income on goods X and Y. Suppose the price of good X decreases and the consumer's income decreases. Which of the following must be true?
A) The amount of good Y that the consumer can purchase decreases.
B) The amount of good X that the consumer can purchase decreases.
C) Both A and B.
D) None of the above.

Accepted Answer

The answer of Suppose a consumer spends all income on...

Question 12

Joaquim has new babies at home, so he cares only about diapers and wipes. Joaquim's preferences are represented by U(D,W) = DW, where D is the number of diapers and W is the number of wipes that Joaquim purchases. Joaquim's preferences can also be represented by this utility function: A) U(D,W) = D^0.5W^0.5 B) U(D,W) = D^0.5 + W^0.5 C) U(D,W) = D + W D) U(D,W) = 0.5D + 0.5W

Accepted Answer

The answer of Joaquim has new babies at home, so...

Question 13

(Figure: Coats and Sweaters II) Suppose that the consumer moves from point A to point B along her indifference curve. If the marginal utility of winter coats is 25, the marginal utility of wool sweaters is: 
A) 12.5.
B) 2.
C) 16.
D) 50.

Accepted Answer

The answer of (Figure: Coats and Sweaters II) Suppose that...

Question 14

(Figure: Video Games and Guitars I) _____ is willing to give up a lot guitars for a small number of video games, and _____ is willing to give up a lot of video games for a small number of guitars. 
A) John; Paul
B) Paul; John
C) Paul; Paul
D) John; John

Accepted Answer

The answer of (Figure: Video Games and Guitars I) _____...

Question 15

Lars spends all of his income on pizza and gasoline. Suppose Lars is presented with two options: A and B. Option A will subsidize gasoline by decreasing its price by 50%. Option B will increase Lars's income by the cost of the subsidy in Option A. Assuming Lars is indifferent between Option A and Option B, which of the following is correct?
A) Lars gains more utility from Option A than Option B.
B) Lars purchases at least some pizza and at least some gasoline.
C) Lars gains more utility from Option B than Option A.
D) Lars must spend all of his money on gasoline.

Accepted Answer

The answer of Lars spends all of his income on...

Question 16

Juanita spends all of her income on movie tickets and groceries. Suppose Juanita is presented with two options: A and B. Option A gives her a voucher of $X that she can only spend on groceries. Option B gives her $X that she can spend on either or both of the goods. Assuming Juanita prefers Option B to Option A, which of the following is correct?
A) Juanita spends her entire income on groceries.
B) Juanita spends less than $X on groceries.
C) Juanita spends more than $X on groceries, but still buys some movie tickets.
D) Juanita would never prefer Option B to Option A.

Accepted Answer

Juanita prefers Option B because it provides her with more flexibility. If she spends less than $X on groceries, she can use the remaining amount on movie tickets, which is not possible with Option A.

Question 17

(Figure: Coats and Sweaters II) What is the marginal rate of substitution between points A and B? 
A) 4
B) 6
C) 2
D) 8

Accepted Answer

The answer of (Figure: Coats and Sweaters II) What is...

Question 18

Suppose a consumer spends all income on goods X and Y. Suppose the price of good Y increases and the consumer's income decreases. Which of the following must be true?
A) The amount of good Y that the consumer can purchase increases.
B) The amount of good X that the consumer can purchase increases.
C) The amount of good X that the consumer can purchase decreases and the amount of good Y that the consumer can purchase increases.
D) The amounts of good X and good Y that the consumer can purchase decrease.

Accepted Answer

With an increase in the price of good Y and a decrease in income, the consumer's purchasing power decreases for both goods, leading to a reduction in the quantities of goods X and Y that can be purchased.

Question 19

(Figure: Tomatoes and Carrots I) Joanne's utility function is U = TC, where T is baskets of tomatoes and C is bags of carrots. One of Joanne's indifference curves will go through points: 
A) A, B, and F.
B) B, D, and E.
C) A, D, and E.
D) B, C, and F.

Accepted Answer

The answer of (Figure: Tomatoes and Carrots I) Joanne's utility...

Question 20

Maggie prefers cheese to crayons, and she prefers crayons to coconuts. To satisfy the assumption of _____, Maggie must also prefer _____.
A) rankability; cheese to coconuts
B) transitivity; cheese to coconuts
C) transitivity; coconuts to cheese
D) rankability; coconuts to cheese

Accepted Answer

Transitivity; because if Maggie prefers cheese to crayons and crayons to coconuts, then to maintain a consistent order of preference, she must prefer cheese to coconuts.

Quiz 4: Consumer Behavior

Suppose that U = min{2X, 0.5Y}, where X is units of good X and Y is units of good Y. The price of good X is $1 and the price of good Y is $2. What is the minimum expenditure necessary to achieve a utility level of 100?

Kyle's utility function is U = 4X + 3.7Y, where X is units of good X and Y is units of good Y. What is the marginal utility of good X?

Beth has $400 of income to spend on e-books (E) , priced at $20 per book, and exercise classes called Zumba (Z) , priced at $16 per class. Which of the following consumption bundles is infeasible?

Sofia's utility is a function of golf (G) and music lessons (M) , where MU_G = 1/G and MU_M = 1/M. What is the equation for the marginal rate of substitution of music lessons for golf (MRS_GM) ?

(Figure: Good Y and Good X V) Suppose the budget constraint shifted from constraint 2 to constraint 1. What could have caused this change?

Which of the following is NOT a result of completeness and rankability? I. A person prefers one consumption bundle to another. II. A person is indifferent between two consumption bundles. III. A person likes jelly beans more than hamburgers.

Suppose a consumer spends all income on goods X and Y. Suppose the price of good X decreases and the consumer's income decreases. Which of the following must be true?

Joaquim has new babies at home, so he cares only about diapers and wipes. Joaquim's preferences are represented by U(D,W) = DW, where D is the number of diapers and W is the number of wipes that Joaquim purchases. Joaquim's preferences can also be represented by this utility function:

(Figure: Coats and Sweaters II) Suppose that the consumer moves from point A to point B along her indifference curve. If the marginal utility of winter coats is 25, the marginal utility of wool sweaters is:

(Figure: Video Games and Guitars I) _ is willing to give up a lot guitars for a small number of video games, and _ is willing to give up a lot of video games for a small number of guitars.

(Figure: Coats and Sweaters II) What is the marginal rate of substitution between points A and B?

Suppose a consumer spends all income on goods X and Y. Suppose the price of good Y increases and the consumer's income decreases. Which of the following must be true?

(Figure: Tomatoes and Carrots I) Joanne's utility function is U = TC, where T is baskets of tomatoes and C is bags of carrots. One of Joanne's indifference curves will go through points:

Maggie prefers cheese to crayons, and she prefers crayons to coconuts. To satisfy the assumption of _, Maggie must also prefer _.