econ 323 homework 2

suppose that the marginal utility of good y = 2x^2 and the marginal utility of good x = 4xy. what is the slope of the indifference curve when y = 7 and x = 2? assume that good x is on the horizontal axis and good y is on the vertical axis a. -7 b. 0.143 c. -14 d. -0.143

a. -7 MRSxy = MUx/MUy MRSxy = 4xy/2x^2 MRSxy = 2y/x MRSxy = 2 * 7/2 = 14/2 = 7

when the price of football tickets increases, the income effect decreases the number of tickets bought from: a. 4 to 3 b. 6 to 3 c. 6 to 4 d. 20 to 8

a. 4 to 3 as the price of football tickets increases, the number of tickets decreases from 4 to 3

cher's marginal rate of substitution of necklaces (n) for earrings (e) is 5 (MRSen = 5). this information implies that: a. cher is willing to trade away 5 necklaces for one more pair of earrings, holding her utility constant b. cher will more to a higher indifference curve if she trades away 5 necklaces for one more pair of earrings c. cher should own 5 times as many necklaces as pairs of earrings d. the slope of the indifference curve is 5 and thus upward sloping

a. cher is willing to trade away 5 necklaces for one more pair of earrings, holding her utility constant MRSen tells us that cher will give up 5 necklaces for obtaining one more pair of earrings, keeping utility unchanged

based on the consumer's indifference curves and budget constraints, which of the following demand curves reflects the consumer's demand for water park tickets? assume the consumer has income of $100. a. demand curve a b. demand curve b c. demand curve c d. demand curve d

a. demand curve a u1 q = 3 and p = 100/4 = 25 u2 q = 6 and p = 100/10 = 10 u3 q = 10 and p = 100/20 = 5

the income effect of a price change predicts that a __________ in a good's price will __________ consumer purchasing power, leading to a(n) __________ in consumption of __________ goods. a. fall; increase; increase; normal b. fall; decrease; decrease; normal c. rise; increase; increase; inferior d. rise; increase; decrease; inferior

a. fall; increase; increase; normal a decrease in the price of a good allows a consumer to purchase more of a good due to increased purchasing power

monroe consumes crab cakes and tuna. monroe's utility increases with the consumption of crab cakes, but his utility neither increases nor decreases with the consumption of tuna. assuming tuna is on the x-axis and crab is on the y-axis, what do monroe's indifference curves look like? a. horizontal lines b. vertical lines c. upward-sloping lines from the origin d. downward-sloping lines

a. horizontal lines monroe is neurtal toward tuna. she prefers to have more crab than less, but the amount of tuna does not affect her utility. if tuna is on the x-axis and crab cakes are on the y-axis, the indifference curves will be horizontal straight lines.

suppose that good x and good y are substitutes and good x and good z are complements. when the price of a good y __________ or the price of good z __________, the demand for good x shifts outward. a. increases; decreases b. increases; increases c. decreases; decreases d. decreases; increases

a. increases; decreases since x and y are substitutes, an increase in the price of y will increase the demand for good x, shifting its demand curve out. since x and z are complements, a decrease in the price of good z will increase its demand as well as the demand for good x, shifting its demand curve out.

which of the following statements is false? a. utility is the difference between the consumer's assets and her liabilities b. one person's utility cannot be compared to another person's utility c. utility function gives the relationship between a consumer's well-being and the quantities of goods consumed d. inputs into a utility function may include wool socks, dvd rentals, roller coaster rides, asparagus, and sunday church services

a. utility is the difference between the consumer's assets and their liabilities

there are 10 consumers in the market, each with the following demand curve: Q = 100 - 0.5P. in a graph of the market demand curve, its slope (deltaP/deltaQ) would equal: a. -0.50 b. -0.20 c. -1.50 d. -2.25

b. -0.20 market demand = 10(individual demand) Qm = 10 (100 - 0.5P) Qm = 1000 - 5p solve for p 5P = 1000 -Q P = 200 - (1/5)Q slope = -(1/5) = -0.20

suppose MUx = y and MUy = x. the prices of good x and good y are $5 and $4, respectively. how many units of good x does the consumer buy if she has $410 of income? a. 15 b. 41 c. 25 d. 33

b. 41 MUx/MUy = Px/Py y/x = 5/4 --> y = 5x/4 budget constraint: i = PxX + PyY 410 = 5x +4y substitute y = 5x/4 410 = 5x + 4(5x/4) 410 = 5x + 5x 410 = 10x --> x = 41

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 MUp = g^0.5, and the marginal utility of gum is MUg = 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

b. 4; 4 MRS = MUg/MUp MRS = 0.5G^-0.5P/G^0.5 MRS = 0.5P/G = slope of the indifference curve slope of the budget line = p1/p2 = 0.5/1 = 1/2 the optimal bundle is obtained when the slope of indifference is equal to slope of budget line 0.5p/g = 1/2 the budget line is 0.5g + p = $6, substitute p with previous equation 0.5g + g = $6 1.5g = 6 g = 4 g = p = 4

julie spends all of her income on gasoline and pizza. gasoline costs $4 per gallon and pizza costs $2 per slice. when julie's income is $50 per week, she purchases 5 gallons of gasoline and 15 slices of pizza. when her income rises to $80 per week, she buys 15 gallons of gasoline and 10 slices of pizza. which of the following statements is true? a. both gasoline and pizza are normal goods b. gasoline is a luxury good c. pizza is a luxury good d. both gasoline and pizza are inferior goods

b. gasoline is a luxury good demand for gasoline increases when income increases, making it a luxury good

a consumer's bundle includes the inferior good x and the normal good y. according to the income effect, a(n) __________ in the price of good x or a(n) __________ in the price of good y will cause the consumer to buy more of good x. a. increase; decrease b. increase; increase c. decrease; increase d. decrease; decrease

b. increase; increase the consumer will buy more of good x as its price increases because as Px increases, real income will fall. being an inferior good, a fall in income will allow him to buy more of x. because y is a normal good, an increase in the price of good y will decrease the real income, which will cause them to consume more of good x.

hamburger meat is a(n) __________ good and canned tuna is a(n) __________ good. a. normal; normal b. inferior; normal c. inferior; inferior d. normal; inferior

b. inferior; normal as income increased, more tuna was purchased, making it a normal good, and less hamburger was purchased, making it an inferior good.

the three-legged ork, a space creature from the universe warhammer, wears 1 right shoe and 2 left shoes. his indifference curves are presented in figure 4.12. based on the shape of the ork's indifference curves, right and left shoes are: a. perfect substitutes b. perfect complements c. consumed in changing proportions d. neither perfect substitutes nor perfect complements

b. perfect complements the ork wears shoes in a fixed proportion (one right shoe to 2 left shoes). therefore, left and right shoes are perfect complements for the ork.

which assumption(s) allow(s) us to draw indifference curves? a. cardinal measurement and cardinal ranking b. rankability and completeness c. that the more we have of a good, the less we are willing to give up to get even more of it d. free disposal and more is better

b. rankability and completeness c and d are true about consumer preferences, but they don't allow us to draw indifference curves

for budget constraint 2, suppose that the price of good y is $90 per unit. what is the price of good x? a. $92 b. $88 c. $81 d. $102.24

c. $81 y = 18 * 90 = 1620 x = 1620/20 = $81

what is the marginal rate of substitution between points a and b? a. 4 b. 6 c. 2 d. 8

c. 2 the graph shows that in exchange for one more wool sweater, they are willing to give up 2 winter coats

when the price of football tickets increases, the substitution effects decreases the number of tickets bought from: a. 4 to 3 b. 6 to 3 c. 6 to 4 d. 20 to 8

c. 6 to 4 substitution effect is movement from point a on u1 to another dot on u1 at which the line is tangent to BC2. therefore, the substitution effect decreases the number of tickets bought from 6 to 4.

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 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 y

c. a decrease in income and an increase in the price of good x relative to that of good y there is an inward shift of the budget constraint, indicating a decrease in income. however, the shift is not parallel because the price of good x has increased relative to the price of good y

which of the following statements is false? a. indifference curve u2 provides a higher level of utility than indifference curve u1 b. bundle c is preferred to bundle d c. bundle a is preferred to bundle c d. the consumer is indifferent between bundle a and bundle d

c. bundle a is preferred to bundle c bundle c is on a higher indifference curve than bundle a, and therefore it is preferable to bundle a

the market for macaroni and cheese has only two consumers, david and wallace. market demand for macaroni and cheese will tend to be more elastic if: a. david and wallace consider macaroni and cheese to be a necessity good rather than a luxury good b. david and wallace consider macaroni and cheese to be an inferior good rather than a normal good c. david and wallace consider macaroni and cheese to be a normal good rather than an inferior good d. david and wallace consider macaroni and cheese to be an economic "bad"

c. david and wallace consider macaroni and cheese to be a normal good rather than an inferior good demand tends to be more elastic when there are greater a greater number of substitutes in the market and the greater the proportion of income is spent on the good. thus, market demand for macaroni and cheese will tend to be more elastic if david and wallace consider macaroni and cheese as a normal good instead of an inferior good.

beth has $200 of income to spend on e-books (e), priced at $10 per book, and zumba (z) classes, priced at $8 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

c. e = 10 and z = 13 this consumption bundle is infeasible because its total ($204) lies outside the budget constraint

the utility function u = y/x violates the assumption(s) of: a. rankability b. completeness c. more is better d. rankability and completeness

c. more is better the utility function measures the satisfaction level derived by the consumers from consuming certain goods and services. u = y/x means that the increased consumption of y decreases utility of consumer, this violates the assumption that more of any good is better when consumed

randy likes baseball more than football, football more than basketball, and basketball more than baseball. which assumption about consumer preferences does this violate? a. completeness and rankability b. more is better c. transitivity d. the more a consumer has of a particular good, the less she is willing to give up of something else to get even more of that good

c. transitivity transitivity is violated because if basketball is preferred to football, then football cannot be preferred to basketball.

what type of good is good x 1. a normal good 2. an inferior good 3. a giffen good a. 1 and 3 b. 3 c. 2 and 3 d. 2

d. 2 an inferior good has the positive substitution effect and negative income effect. a decrease in price increasing the quantity but the income effect is negative so it is and not a giffen good.

suppose the market for a good is composed of 1000 identical consumers.. the market's demand curve is given by Qm = 150,000 - 25P. what is the equation for an individual consumer's demand curve a. Q = 150,000,000 - 25,000P b. Q = 6,000,000 - 40P c. Q = 6 - 4P d. Q = 150 - 0.025P

d. Q = 150 - 0.025P divide the whole Qm equation by 1000

there are 100 consumers in the market for good x, each with a demand curve given by Q = 2/P. what is the market demand curve for good x? a. Qm = 0.5P b. Qm = 200 - 200P c. Qm = 1/50P d. Qm = 200/P

d. Qm = 200/P multiply Qm by 100

brenda's utility function for regular-flavored toothpaste (r) and mint-flavored toothpaste (m) is given by u = 2r +4m. which of the following statements is true? a. MRSmr = 2m/r b. brenda's indifference curves are vertical c. brenda's indifference curves are horizontal d. brenda is willing to give up 2 tubes of regular-flavored toothpaste for one tube of mint-flavored toothpaste

d. brenda is willing to give up 2 tubes of regular-flavored toothpaste for one tube of mint-flavored toothpaste r and m are perfect substitutes are downward sloping straight lines MRSmr = MUm/MUr = 4/2 = 2 she is willing to give up 2 tubes of r to get one more tube of m

the price of good y __________, increasing the consumption of both good y and good x, which are ___________. a. increased; complements b. decreased; substitutes c. increased; substitutes d. decreased; complements

d. decreased; complements the drop in the price of good y relative to the price of good x caused an increase in the consumption of both goods x and y

the curve that goes through the points a, b, c, and d is called the: a. income elasticity curve b. optimal consumption path c. engel curve d. income expansion path

d. income expansion path the line follows the bundles as the budget constraint increases

for sara, ramen noodles are a normal good, however sean considers ramen noodles to be inferior. if sara and sean have the same amount of income: a. sean's income effect will be stronger than sara's income effect b. sean's substitution effect will be stronger than sara's substitution effect c. sean's demand for ramen noodles will be more price elastic than sara's d. sean's demand for ramen noodles will be less price elastic than sara's

d. sean's demand for ramen noodles will be less price elastic than sara's because sean sees ramen as an inferior good, the substitution effect and income effect work in opposite directions. therefore, the price elasticity of an inferior good is less relative to the price elasticity of a normal good