Problem Set of the Day 1 PDF

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1. If total utility is rising as more salsa is consumed, we can definitely say that marginal utility is: a. rising. b. constant. c. greater than zero. d. falling. 2. Faruq spends all of his income on two goods: tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. The horizontal intercept for Faruq's budget line is equal to ________ tacos. a. 10 b. 100 c. 50 d. 5 3. Scenario: Tom's Budget Constraint Tom is trying to decide how to allocate his $50 budget for music downloads and online movie streaming when the price of a music download is $1 and the price of a movie is $5. Reference: Ref 10-6

(Scenario: Tom's Budget Constraint) Look at the scenario Tom's Budget Constraint. Which of the following combinations of music downloads and movies lies on Tom's budget line? a. 100 music downloads and 5 movies b. 50 music downloads and 0 movies c. 50 music downloads and 10 movies d. 0 music downloads and 5 movies 4. An increase in a consumer's income will do all of the following except: a. shift the budget line away from the origin. b. increase the horizontal intercept. c. increase the vertical intercept. d. change the slope of the budget line.

5. Adam has a monthly income of $20 that can be spent on books (B) and pencils (P). The price of a book is $5 and the price of a pencil is $0.50. The equation for Adam's daily budget constraint can be written as: a. 20(B) + 0.50(P) ≤ 5 b. 5(B) + 0.50(P) ≤ 20 c. 0.50(B) + 20(P) ≤ 5 d. 0.50(B) + 5(P) ≤ 20 6. The price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $5 to spend on both goods. The maximum number of boxes of popcorn that you can purchase is: a. 20. b. 5. c. 40. d. 10. 7.

Reference: Ref 10-9

(Table: Optimal Choice of Milk and Honey) Hal's total utility from consuming milk and honey is given in the table. The price of milk is $2 per litre, and the price of honey is $4 per jar. Hal's income is $16. If he spends all of his income on milk, the most he can buy is _______ litres, and his total utility will be________. a. 6; 12 b. 8; 144 c. 4; 104 d. 8; 4

8. Suzy knows she has maximized her utility, because she is on her budget constraint and: a. what she spends on cameras equals what she spends on coffee. b. her consumption of cameras equals her consumption of coffee. c. MUCameras = MUCoffee. d. MUCameras/PCameras = MUCoffee/PCoffee. 9. Tori devotes all of her income to the consumption of two goods, peanut butter and jelly. She has just discovered that at her current level of consumption the marginal utility of a jar of peanut butter is 5 and the marginal utility of a jar of jelly is 7. Which of the following statements is true? a. In order to maximize her total utility, Tori would consume more peanut butter and less jelly. b. In order to maximize her total utility, Tori would consume less of both goods. c. There is not enough information provided to justify a change in Tori's current level of consumption. d. In order to maximize her total utility, Tori would consume more of both goods.

10.

Reference: Ref 10-13

(Table: Marginal Utility per Dollar) Look at the table Marginal Utility per Dollar. If Damian has $9 to spend on potatoes and clams, then the utility-maximizing combination is ________ of clams and ________of potatoes. a. 0 kilograms; 9 kilograms b. 1 kilogram; 6 kilograms c. 2 kilograms; 3 kilograms d. 2 kilograms; 2 kilograms 11. The substitution effect always involves a change in consumption in the ________ the ________ change. a. opposite direction to; price b. same direction as; budget c. opposite direction to; budget d. same direction as; price

12. Figure and Table: An Indifference Curve Map

Reference: Ref 10-1

(Figure and Table: Indifference Curve Map) Look at the figure An Indifference Curve Map. Which of the following statements is true? a. Combination A is preferred to combination B. b. Combination B is preferred to combination D. c. Combination C is preferred to combination A. d. Combination B is preferred to combination C. 13. The slope of a(n) ________ curve shows the rate at which two goods can be exchanged ________ the consumer's ________. a. indifference; without affecting; budget b. iso-utility; without affecting; budget c. indifference; without affecting; total utility d. marginal utility; by increasing; marginal utility

14. Two points on a standard indifference curve are 8 cookies and 2 brownies, and 6 cookies and 4 brownies. Which of the following combinations of cookies and brownies could lie on this indifference curve? a. 4 cookies and 8 brownies b. 7 cookies and 6 brownies c. 4 cookies and 4 brownies d. 6 cookies and 10 brownies 15. For most goods, as we move down an indifference curve: a. the slope stays the same. b. total utility decreases. c. the slope gets flatter. d. the slope gets steeper. 16. Indifference curves that are convex to the origin imply which of the following? a. As we move down an indifference curve, the slope gets steeper. b. diminishing marginal rate of substitution c. constant prices of goods d. increasing marginal utility

17. Figure: Indifference Curves and Consumption Bundles

Reference: Ref 10-4

(Figure: Indifference Curves and Consumption Bundles) Let MUP = marginal utility of pizza, MUH = marginal utility of hot dogs, PP = price of a slice of pizza, PH = price of a hot dog. In the figure, the absolute value of the slope of an indifference curve is equal to: a. MUH/MUP. b. PP/PH. c. PH/PP. d. MUP/MUH. 18. A consumer maximizes utility, given her income, when she chooses a consumption bundle whose: a. marginal rate of substitution is highest. b. marginal utility of each good is highest. c. highest indifference curve is tangent to the budget line. d. marginal utility of each good is equal. 19. If the price of a ticket to a Calgary Flames hockey game equals $60 and the price of a snow shovel equals $40, the relative price of the hockey ticket equals: a. 6 shovels. b. 23 shovels. c. 40 shovels. d. 1.5 shovels.

20. The relative price rule says that at the optimal consumption bundle the marginal rate of substitution between two goods must be equal to their relative price. This is equivalent to saying that: a. the MRS is not equal to the ratio of marginal utilities. b. the marginal utility per dollar is the same for both goods. c. goods should be consumed in the same ratio as their relative price. d. the marginal utility of each good consumed must be the same. 21. Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples in place of oranges is 2, the price of an apple is $0.50, and the price of an orange is $0.50. Joseph: a. should consume more apples and fewer oranges to maximize total utility. b. is maximizing total utility. c. may or may not be maximizing total utility. d. should consume fewer apples and more oranges to maximize total utility. 22. If Coke and Pepsi are perfect substitutes for Lynn, her indifference curves are: a. right angles. b. vertical lines. c. downward-sloping straight lines. d. concave from the origin. 23. Mario sees popcorn and pretzels as perfect substitutes. He is always willing to substitute 3 cups of popcorn for 1 cup of pretzels. If the price of a cup of popcorn is $3 and the price of a cup of pretzels is $1, Mario will eat: a. only popcorn. b. mostly pretzels. c. only pretzels. d. The answer is impossible to determine. 24. Mr. Black always consumes coffee and cream in fixed proportions: 8 ounces of coffee to 1 ounce of cream. This implies that for Mr. Black: a. the indifference curves for coffee and cream are tangent. b. coffee and cream are perfect complements. c. coffee and cream are perfect substitutes. d.

8 ounces of coffee and 2 ounces of cream yield more utility than 8 ounces of coffee and 1 ounce of cream.

25. Figure: A Changing Budget Constraint for Strawberries and Shortcake

Reference: Ref 10-10

(Figure: A Changing Budget Constraint for Strawberries and Shortcake) Look at the figure A Changing Budget Constraint for Strawberries and Shortcake. Seb's original budget line is given by BL1 and his original indifference curve is given by I1. Which of the following would have caused his budget line to move to BL2? a. The price of strawberries increased. b. The price of shortcake increased. c. Seb's income decreased. d. The price of strawberries decreased. 26. Suppose potatoes are an inferior good and the price of potatoes decreases. Then: a. the income effect will cause an increase in the consumption of potatoes. b.

the substitution effect will cause a decrease in the consumption of potatoes and the income effect will cause a decrease in the consumption of potatoes.

c. the substitution effect will cause a decrease in the consumption of potatoes. d. the income effect will cause a decrease in the consumption of potatoes. 27. Suppose ramen is a Giffen good and the price of ramen decreases. Then the: a. income effect will cause a decrease in the consumption of ramen. b. substitution effect will cause a decrease in the consumption of ramen. c. demand curve for ramen will still be downward-sloping. d. income effect will reinforce the substitution effect, and the consumption of ramen will decrease.

28. A demand curve is generated from indifference curves by changing: a. the price of both goods simultaneously. b. the price of one good. c. income. d. utility. 29. Figure: Income and Substitution Effects

Reference: Ref 10-11

(Figure: Income and Substitution Effects) Look at the figure Income and Substitution Effects. Carlos is originally consuming his optimal consumption bundle at point A in the figure when the price of gasoline falls. As Carlos moves to his new optimal consumption bundle, we observe that gasoline: a. is not an ordinary good. b. and good L are complements. c. is an inferior good. d. is a normal good.

30. Figure: Income and Substitution Effects

Reference: Ref 10-11

(Figure: Income and Substitution Effects) Look at the figure Income and Substitution Effects. Carlos is originally consuming his optimal consumption bundle at point A in the figure when the price of gasoline falls. The dashed line tangent to I1 shows a hypothetical budget line reflecting: a.

the new relative prices of gasoline in terms of cell phone minutes and a change in income to keep Carlos on the original indifference curve.

b. the income and substitution effects. the new relative prices of gasoline in terms of cell phone minutes and a change in income to allow c. Carlos to reach an indifference curve higher than I . 1 d. the original income, original price of cell phone minutes, and the new price of gasoline.

31. Figure: Income and Substitution Effects

Reference: Ref 10-11

(Figure: Income and Substitution Effects) Look at the figure Income and Substitution Effects. Carlos is originally consuming his optimal consumption bundle at point A in the figure when the price of gasoline falls. The movement from K1 to K2 reflects: a. the income effect of the price decrease of gasoline. b. the substitution effect of the price decrease of gasoline. c. the total change in quantity demanded due to the decrease in the price of gasoline. d.

the income effect of the price decrease of gasoline and the substitution effect of the price decrease of gasoline.

32. Figure: Income and Substitution Effects

Reference: Ref 10-11

(Figure: Income and Substitution Effects) Look at the figure Income and Substitution Effects. Carlos is originally consuming his optimal consumption bundle at point A in the figure when the price of gasoline falls. The movement from K2 to K3 reflects: a.

the income effect of the price decrease of gasoline and the substitution effect of the price decrease of gasoline.

b. the total change in quantity demanded due to the decrease in the price of gasoline. c. the substitution effect of the price decrease of gasoline. d. the income effect of the price decrease of gasoline....