ECO 315 Exam 2

Erica and Stephanie decide to go into business together as economic consultants. Erica believes they have a 50-50 chance of earning $200,000 a year, and that if if they don't, they'll earn $0. Stephanie believes they have a 75% chance of earning $100,000 and a 25% chance of earning $10,000. The expected value of the understanding

According to Erica, is $100,000

an individual consumes only two goods, X and Y. Which of the following expressions represents the utility maximizing market basket?

MRSxy= Px/Py

which of the following functions is least likely to represent a real demand curve?

Q = 120 + 3P - 2I

Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food falls relative to that of clothing, the budget line will:

become flatter

The difference between what a consumer is willing to pay for a unit of a good and what must be paid when actually buying it is called

consumer surplus

The weighted average of all possible outcomes of a project, with the probabilities of the outcomes used as weights, is known as the

expected value

the income consumption curve

illustrates the utility-maximizing combinations of goods associated with every income level

the endpoints (horizontal and vertical intercepts) of the budget line

represent the quantity of each good that could be purchased if all of the budget were allocated to that good

Marginal utility measures

the additional satisfaction from consuming one more unit of a good

if the quantity of good A (QA) is plotted along the horizontal axis, the quantity of good B (QB) is plotted along the vertical axis, the price of good A is PA, the price of good B is PB and the consumer's income is I, then the slope of the consumer's budget constraint is ____

-PA/PB

the income-consumption curve for Herman between Qa and Qb is given as: Qa = Qb. His budget constraint is given as 120=Qa+4Qb how much Qa will Herman consume to maximize utility?

24

When the income-consumption curve has a positive slope throughout its entire length, we can conclude that

both goods are inferior