Question 1

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 2

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 3

What is the difference between ordinal and cardinal measurement?

Accepted Answer

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

Question 4

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 5

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 fewer units of the good that has experienced a price increase, resulting in a reduction of their purchasing power.

Question 6

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) of F for S is the amount of food that a consumer must give up to obtain an additional unit of shelter. If there is no change in the prices of F and S, then the MRT will remain the same regardless of the increase in income. This is because the prices of F and S are not affecting the trade-off between the two goods, so the consumer will continue to make choices based on their preferences and the relative values of the goods to them.

Question 7

Quotas,such as limiting the amount of residential water use during a drought,restricts an individual's preference set and
A) reduces utility because an individual cannot consume as much as they would without the quota.
B) increases utility because quotas restrict output and raise profits for the water company.
C) reduces utility because an individual is forced to substitute to other goods.
D) does not affect overall utility.

Accepted Answer

Quotas restrict an individual's preference set by limiting their consumption options, which can reduce overall utility because they are forced to consume less than they would without the quota in place.

Question 8

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) -P_x/P_y. D) All of the above.

Accepted Answer

The marginal rate of transformation (MRT) is the slope of the production possibility frontier, which is analogous to the slope of the budget constraint in consumer theory. It represents the rate at which one good must be sacrificed to produce more of another, similar to how a consumer must give up some of one good to obtain more of another. The MRT is also represented by the negative ratio of the prices of the two goods, -P_x/P_y.

Question 9

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 10

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

The answer of If both prices decreases by 50%,
A) budget...

Question 11

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

When the consumer's income increases while the prices of both goods remain unchanged, the budget line shifts outward without a change in slope. This is because the consumer can now afford more of both goods at the same prices as before, so the budget constraint has been relaxed.

Question 12

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 constraint becomes tighter, meaning that her opportunity set becomes smaller as she has to spend more money on pizzas, leaving her with less money to spend on other goods such as burritos. Therefore, the correct answer is B - her opportunity set becomes smaller.

Question 13

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 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 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 15

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 16

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

When both the prices of both goods and income increase by the same percentage, the relative prices of the two goods (i.e., the slope of the budget line) remain the same. Therefore, there is no change in the budget line.

Question 17

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 18

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

To determine which bundles are in Joe's opportunity set, we need to check if the total cost of each bundle (2F + 100S) is less than or equal to Joe's income of $500.

Let's check each bundle:

A) 50 units of food, 5 units of shelter
2(50) + 100(5) = $1,100
This bundle is not in Joe's opportunity set because it costs more than his income.

B) 200 units of food, 2 units of shelter
2(200) + 100(2) = $600
This bundle is in Joe's opportunity set because it costs less than his income.

C) 100 units of food, 1 unit of shelter
2(100) + 100(1) = $300
This bundle is in Joe's opportunity set because it costs less than his income.

D) 150 units of food, 3 units of shelter
2(150) + 100(3) = $600
This bundle is in Joe's opportunity set because it costs less than his income.

Now we need to determine the best choice for Joe. This will depend on his preferences, which we do not have information about. However, we can determine the bundle that gives him the most utility (satisfaction) based on the prices and his income.

In this case, we know that Joe can afford any of the bundles in his opportunity set, so we want to find the bundle with the highest total utility (TU) based on the formula:

TU = 100F + 20S

Using this formula, we can calculate the total utility for each bundle:

A) TU = 100(50) + 20(5) = 5,200
B) TU = 100(200) + 20(2) = 20,200
C) TU = 100(100) + 20(1) = 10,020
D) TU = 100(150) + 20(3) = 15,420

Based on the total utility calculations, we can see that bundle B gives Joe the highest satisfaction (TU = 20,200), so it would be the best choice for him if he prefers more food and less shelter. However, without more information about Joe's preferences, we cannot make a definitive determination of the best choice.

Question 19

If a consumer's budget line for food (F)and shelter (S)is represented as F = 250 - 5S,we know that
A) the consumer's income is 250.
B) the price of shelter is 5.
C) the price of shelter is 5 times the price of food.
D) All of the above.

Accepted Answer

The answer of If a consumer's budget line for food...

Question 20

The intuition behind the budget constraint is that
A) more options are preferred to less.
B) money is the root of all happiness.
C) information is power.
D) scarcity is avoidable with prosperity.

Accepted Answer

The budget constraint reflects the trade-offs a consumer faces among different goods given their limited income, implying that with finite resources, individuals must make choices, thus more options within those constraints are generally preferred.

Quiz 4: Consumer Choice

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?

If both prices increases by 50%,

What is the difference between ordinal and cardinal measurement?

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

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 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

Quotas,such as limiting the amount of residential water use during a drought,restricts an individual's preference set and

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?

If both prices decreases by 50%,

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

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

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 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?

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

If the prices of both goods and income increase by the same percentage,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,and the price of shelter (S) is $100.Which of the following bundles is in Joe's opportunity set?

If a consumer's budget line for food (F) and shelter (S) is represented as F = 250 - 5S,we know that

The intuition behind the budget constraint is that

Quiz 4: Consumer Choice

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?

If both prices increases by 50%,

What is the difference between ordinal and cardinal measurement?

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

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 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

Quotas,such as limiting the amount of residential water use during a drought,restricts an individual's preference set and

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?

If both prices decreases by 50%,

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

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

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 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?

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

If the prices of both goods and income increase by the same percentage,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,and the price of shelter (S) is $100.Which of the following bundles is in Joe's opportunity set?

If a consumer's budget line for food (F) and shelter (S) is represented as F = 250 - 5S,we know that

The intuition behind the budget constraint is that

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.