Question 1

If both prices increases by 50%,
A) budget constraint will be unchanged.
B) slope of the budget constraint stay the same.
C) slope of the budget constraint will decrease.
D) budget constraint will shift outward in a parallel fashion.

Accepted Answer

The slope of the budget constraint represents the rate at which one good can be substituted for another while staying within the budget. If both prices increase by the same percentage, the relative price (and thus the slope of the budget constraint) remains unchanged, as the increase does not affect the consumer's ability to substitute one good for another based on their prices.

Question 2

What is the difference between ordinal and cardinal measurement?

Accepted Answer

The answer of What is the difference between ordinal and...

Question 3

Joe's income is $500,the price of food (F)is $2,and the price of shelter (S)is $100.Which of the following bundles is in Joe's opportunity set?
A) 50 units of food, 5 units of shelter
B) 200 units of food, 2 units of shelter
C) 100 units of food, 1 unit of shelter
D) 150 units of food, 3 units of shelter

Accepted Answer

Since Joe's income is $500, he can purchase a combination of food and shelter that costs $500 or less.

For option A, 50 units of food cost $100 and 5 units of shelter cost $500, which totals $600. This is higher than Joe's income, so this option is not in his opportunity set.

For option B, 200 units of food cost $400 and 2 units of shelter cost $200, which totals $600. This option is also not in his opportunity set.

For option C, 100 units of food cost $200 and 1 unit of shelter cost $100, which adds up to $300, leaving Joe with $200 to spend on other items. Since this option is affordable and provides enough shelter for Joe, option C is in his opportunity set.

For option D, 150 units of food cost $300 and 3 units of shelter cost $300, which adds up to $600. Similar to option A and B, this option is not in his opportunity set.

Therefore, the best choice for Joe is option C since it is in his opportunity set and affordable.

Question 4

If the consumer's income increases while the prices of both goods remain unchanged,what will happen to the budget line?
A) The budget line rotates inward from the intercept on the horizontal axis.
B) The budget line rotates outward from the intercept on the vertical axis.
C) The budget line shifts inward without a change in slope.
D) The budget line shifts outward without a change in slope.

Accepted Answer

With an increase in income, the consumer can afford more of both goods. Thus, the budget line shifts outward without a change in slope. This is because the relative prices of the two goods have remained constant.

Question 5

Suppose Joe's utility for lobster (L)and soda (S)can be represented as U = L^0.5 S^0.5.Draw the indifference curve that yields a utility level of 9.Calculate the MUL,MUS,and MRS of L for S on that indifference curve when S = 3.

Accepted Answer

The answer of Suppose Joe's utility for lobster (L)and soda...

Question 6

Joe's income is $500,the price of food (F)is $2 per unit,and the price of shelter (S)is $100.Which of the following represents his marginal rate of transformation of food for shelter?
A) -5
B) -50
C) -.02
D) None of the above.

Accepted Answer

The formula for the marginal rate of transformation of food for shelter is the change in food divided by the change in shelter (-ΔF/ΔS). Since the price of food is constant at $2 per unit, we can use Joe's income and the price of shelter to calculate the maximum amount of shelter he can afford: $500 - $2F = $100S. Solving for F, we get F = 200 - 0.2S. Taking the derivative of this equation with respect to S gives us -0.2, which represents the change in food for a one-unit increase in shelter. Therefore, the marginal rate of transformation of food for shelter is -0.2/-1 = 0.2, or -50 when expressed as a ratio.

Question 7

Betty consumes good x and good y.If the price of x = $3 and the price of y = $4,then
A) an extra unit of x costs 4/3 units of y.
B) an extra unit of y costs 4/3 units of x.
C) an extra unit of x costs 3/4 units of y.
D) Both B and C.

Accepted Answer

The price ratio of x to y is 3/4, meaning an extra unit of x costs 3/4 units of y, and conversely, an extra unit of y costs 4/3 units of x, making both B and C correct.

Question 8

A consumer buys food (F)and shelter (S).If the consumer's income rises and there is no change in the prices of F or S,the marginal rate of transformation of F for S will
A) increase.
B) decrease.
C) stay the same.
D) change, but there is not enough information to know how.

Accepted Answer

The marginal rate of transformation (MRT) reflects the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility. It is determined by the relative prices of the two goods and the consumer's preferences, not by the consumer's income. Therefore, if a consumer's income rises and there is no change in the prices of food (F) or shelter (S), the MRT of F for S will stay the same because the trade-off between the two goods, based on their prices and the consumer's preferences, has not changed.

Question 9

Individuals derive utility from picnics,p,and kayak trips,k.Assuming that an individual's utility is U(p,k)= k^0.5p^0.5and income is $100,what is the marginal rate of substitution (MRS)between picnics and kayak trips? A) MRS = 1. B) MRS = -1. C) MRS = - D) There is no substitution because picnics and kayak trips are perfect complements.

Accepted Answer

The answer of Individuals derive utility from picnics,p,and kayak trips,k.Assuming...

Question 10

Lisa eats both pizzas and burritos.If the price of a pizza increases,Lisa's opportunity set
A) becomes larger.
B) becomes smaller.
C) is unchanged.
D) cannot be determined without more information.

Accepted Answer

If the price of pizza increases, Lisa's budget for food will be reduced, meaning that her opportunity set will become smaller. She may have to choose between buying a pizza or a burrito, or reduce the number of pizzas or burritos she can buy with her budget. Therefore, the correct answer is B) becomes smaller.

Question 11

If the price of one good increases while the price of the other good and the consumer's income remain unchanged,what will happen to the budget line?
A) The budget line rotates inward from the intercept on the axis of the good that did not change in price.
B) The budget line rotates outward from the intercept on the axis of the good that did not change in price.
C) The budget line shifts inward without a change in slope.
D) The budget line shifts outward without a change in slope.

Accepted Answer

When the price of one good increases while the price of the other good and the consumer's income remain unchanged, the budget line rotates inward from the intercept on the axis of the good that did not change in price. This is because the consumer can now afford less of the good that increased in price and therefore the maximum combination of the two goods that can be purchased with the given income decreases.

Question 12

If the prices of both goods and income increase by the same percentage,what will happen to the budget line?
A) The budget line rotates inward from the intercept on the axis of the good that did not change in price.
B) The budget line rotates outward from the intercept on the axis of the good that did not change in price.
C) The budget line shifts outward without a change in slope.
D) Nothing.

Accepted Answer

If both the prices of goods and income increase by the same percentage, there will be no change in the relative price of goods, and hence, the slope of the budget line will remain unchanged. Therefore, the budget line will shift outwards parallel to the original one, without any change in slope.

Question 13

The marginal rate of transformation of y for x represents
A) the slope of the budget constraint.
B) the rate at which the consumer must give up y to get one more x.
C) -  /  .
D) All of the above.

Accepted Answer

The answer of The marginal rate of transformation of y...

Question 14

Joe's income is $500,the price of food (F)is $2 per unit,and the price of shelter (S)is $100.Which of the following represents his budget constraint?
A) 500 = 2F + 100S
B) F = 250 - 50S
C) S = 5 - .02F
D) All of the above.

Accepted Answer

All the options represent the same budget constraint but in different forms. Option A directly states the budget constraint. Options B and C rearrange the equation in A to solve for F and S, respectively.

Question 15

Joe's budget constraint equals 500 = 2F + 100S,where $500 is Joe's income,$2 is the price of food (F)and $100 is the price of shelter (S).How much food can Joe buy if he buys one unit of shelter?
A) 2 units
B) 200 units
C) 250 units
D) 400 units

Accepted Answer

Substituting 1 unit of shelter (S=1) into the equation gives 500 = 2F + 100(1). Solving for F, we get 400 = 2F, so F = 200 units.

Question 16

The absolute value of the slope of an indifference curve equals the ratio of the marginal utilities of the two goods involved.

Accepted Answer

The MRS can be represented as the ratio of both those quantities.

Question 17

If the utility function (U)between bananas (B)and jam (J)can be represented as U = 3ln(B)+4ln(J)the marginal utility of jam equals
A) 4B.
B) 3B/J.
C) 4/J.
D) B/J.

Accepted Answer

The marginal utility of jam (MU_J) is found by taking the partial derivative of the utility function with respect to jam (J). The utility function is U = 3ln(B) + 4ln(J). The partial derivative with respect to J is dU/dJ = 4/J, which corresponds to option C.

Question 18

If the utility function (U)between bananas (B)and jam (J)can be represented as U(B,J)= 3ln(B)+4ln(J),what is the marginal rate of substitution (MRS)between bananas and jam?
A) 4B.
B) -3J/(4B).
C) 4/(3J).
D) 3B/J.

Accepted Answer

The MRS is the negative ratio of the marginal utilities of the two goods. Here, MRS = -(dU/dB) / (dU/dJ) = -(3/B) / (4/J) = -3J/(4B).

Question 19

Joe's income is $500,the price of food (F)is $2 per unit,and the price of shelter (S)is $100.Which of the following represents his budget constraint?
A) 500 = 100F + 2S
B) 500 = 2F + 100S
C) S = 500 - 2F
D) All of the above.

Accepted Answer

The correct budget constraint equation is 500 = 2F + 100S, where 2F represents the total cost of food (at $2 per unit) and 100S represents the total cost of shelter (at $100 per unit). This equation correctly shows how Joe's income ($500) is allocated between food and shelter.

Question 20

If both prices decreases by 50%,
A) budget constraint will be unchanged.
B) slope of the budget constraint will increase.
C) slope of the budget constraint will decrease.
D) budget constraint will shift outward in a parallel fashion.

Accepted Answer

When both prices decrease by 50%, the consumer can afford more of both goods, causing the budget constraint to shift outward in a parallel manner.

Quiz 4: Consumer Choice

If both prices increases by 50%,

What is the difference between ordinal and cardinal measurement?

Joe's income is $500,the price of food (F) is $2,and the price of shelter (S) is $100.Which of the following bundles is in Joe's opportunity set?

If the consumer's income increases while the prices of both goods remain unchanged,what will happen to the budget line?

Suppose Joe's utility for lobster (L)and soda (S)can be represented as U = L^0.5 S^0.5.Draw the indifference curve that yields a utility level of 9.Calculate the MUL,MUS,and MRS of L for S on that indifference curve when S = 3.

Joe's income is $500,the price of food (F) is $2 per unit,and the price of shelter (S) is $100.Which of the following represents his marginal rate of transformation of food for shelter?

Betty consumes good x and good y.If the price of x = $3 and the price of y = $4,then

A consumer buys food (F) and shelter (S) .If the consumer's income rises and there is no change in the prices of F or S,the marginal rate of transformation of F for S will

Individuals derive utility from picnics,p,and kayak trips,k.Assuming that an individual's utility is U(p,k) = k^0.5p^0.5and income is $100,what is the marginal rate of substitution (MRS) between picnics and kayak trips?

Lisa eats both pizzas and burritos.If the price of a pizza increases,Lisa's opportunity set

If the price of one good increases while the price of the other good and the consumer's income remain unchanged,what will happen to the budget line?

If the prices of both goods and income increase by the same percentage,what will happen to the budget line?

The marginal rate of transformation of y for x represents

Joe's income is $500,the price of food (F) is $2 per unit,and the price of shelter (S) is $100.Which of the following represents his budget constraint?

Joe's budget constraint equals 500 = 2F + 100S,where $500 is Joe's income,$2 is the price of food (F) and $100 is the price of shelter (S) .How much food can Joe buy if he buys one unit of shelter?

The absolute value of the slope of an indifference curve equals the ratio of the marginal utilities of the two goods involved.

If the utility function (U) between bananas (B) and jam (J) can be represented as U = 3ln(B) +4ln(J) the marginal utility of jam equals

If the utility function (U) between bananas (B) and jam (J) can be represented as U(B,J) = 3ln(B) +4ln(J) ,what is the marginal rate of substitution (MRS) between bananas and jam?

Joe's income is $500,the price of food (F) is $2 per unit,and the price of shelter (S) is $100.Which of the following represents his budget constraint?

If both prices decreases by 50%,

Quiz 4: Consumer Choice

If both prices increases by 50%,

What is the difference between ordinal and cardinal measurement?

Joe's income is $500,the price of food (F) is $2,and the price of shelter (S) is $100.Which of the following bundles is in Joe's opportunity set?

If the consumer's income increases while the prices of both goods remain unchanged,what will happen to the budget line?

Suppose Joe's utility for lobster (L)and soda (S)can be represented as U = L0.5 S0.5.Draw the indifference curve that yields a utility level of 9.Calculate the MUL,MUS,and MRS of L for S on that indifference curve when S = 3.

Joe's income is $500,the price of food (F) is $2 per unit,and the price of shelter (S) is $100.Which of the following represents his marginal rate of transformation of food for shelter?

Betty consumes good x and good y.If the price of x = $3 and the price of y = $4,then

A consumer buys food (F) and shelter (S) .If the consumer's income rises and there is no change in the prices of F or S,the marginal rate of transformation of F for S will

Individuals derive utility from picnics,p,and kayak trips,k.Assuming that an individual's utility is U(p,k) = k0.5p0.5 and income is $100,what is the marginal rate of substitution (MRS) between picnics and kayak trips?

Lisa eats both pizzas and burritos.If the price of a pizza increases,Lisa's opportunity set

If the price of one good increases while the price of the other good and the consumer's income remain unchanged,what will happen to the budget line?

If the prices of both goods and income increase by the same percentage,what will happen to the budget line?

The marginal rate of transformation of y for x represents

Joe's income is $500,the price of food (F) is $2 per unit,and the price of shelter (S) is $100.Which of the following represents his budget constraint?

Joe's budget constraint equals 500 = 2F + 100S,where $500 is Joe's income,$2 is the price of food (F) and $100 is the price of shelter (S) .How much food can Joe buy if he buys one unit of shelter?

The absolute value of the slope of an indifference curve equals the ratio of the marginal utilities of the two goods involved.

If the utility function (U) between bananas (B) and jam (J) can be represented as U = 3ln(B) +4ln(J) the marginal utility of jam equals

If the utility function (U) between bananas (B) and jam (J) can be represented as U(B,J) = 3ln(B) +4ln(J) ,what is the marginal rate of substitution (MRS) between bananas and jam?

Joe's income is $500,the price of food (F) is $2 per unit,and the price of shelter (S) is $100.Which of the following represents his budget constraint?

If both prices decreases by 50%,

Suppose Joe's utility for lobster (L)and soda (S)can be represented as U = L^0.5 S^0.5.Draw the indifference curve that yields a utility level of 9.Calculate the MUL,MUS,and MRS of L for S on that indifference curve when S = 3.

Individuals derive utility from picnics,p,and kayak trips,k.Assuming that an individual's utility is U(p,k) = k^0.5p^0.5and income is $100,what is the marginal rate of substitution (MRS) between picnics and kayak trips?