THE FINAL FOR MICRO AT BING

The symbol "≻≻" indicates strict preference. The symbol "≽≽" indicates weak preference. The symbol "~" indicates indifference. Ken always chooses salad and croutons for lunch rather than sushi and bottled water. Ken's preferences would be specified as __________.

salad and croutons≻ sushi and bottled water (Chapter 3 Question 2)

Bob's initial endowment of x and y are (10, 5) and his gross demand are (16,3). Bob's net demand for x and y are: [a] and [b] respectively

A) 6 B)-2

An increase in the price of an inferior good will increase the demand for that good

false

Bundle C is strictly preferred to bundle B, and bundle B is strictly preferred to bundle A. If the utility associated with B is 53, which of the following are possible utility levels for bundle C and bundle A? (The first element in the ordered pair represents the utility for bundle A, the second element in the ordered pair represents the utility for bundle B, and the third is for bundle C.)

(44, 53, 63) (Chapter 4 Question 1)

Jimmy's utility function is U = Apple x Banana. The price of apples used to be $2 per unit and price of bananas $1 per unit. His income was $60 daily. If the price of apples increases to $3 and the price of banana stays the same. In order to be able to just afford his old bundle before prices change, Jimmy's would have to have a daily income of: ______

(MUa/MUb)=(Pa/Pb)=(B/A) B=(Pa/Pb)A PaA+(Pa/Pb)APB=I A=15 B=30 3(15)+1(30)=75

Burritos (𝑥1x1) cost $18.00 each. A cup of coffee (𝑥2x2) costs $3.00. Jerry's income is $510.00, and his preferences are represented by the utility function 𝑥0.81𝑥0.12.x10.8x20.1. Henry's income is $690.00, and his preferences are represented by the utility function 𝑥0.11𝑥0.82x10.1x20.8. Assuming that both Jerry and Henry are maximizing their utility, what is Jerry's marginal rate of substitution? Round your answers to two decimal places. What is Henry's marginal rate of substitution?

-6 -6 (Chapter 5 Question 13)

For Sharon, brownies (𝑥1x1) and cookies (𝑥2x2) are perfect substitutes, as shown in the diagram below. Sharon's income is $120. If the price of one brownie is $10 and the price of one cookie is $2, she will purchase_____ brownies and ______cookies.

0 60 (Chapter 5 Question 7)

What is the marginal rate of substitution at point A in the diagram shown above? What is the marginal rate of substitution at point B in the diagram shown above?

0 infinity (Chapter 4 Question 12)

The market for banana has a vertical supply curve at 100 banana and a linear, downward-sloping demand curve. The current market price for banana is $2 and all the bananas are sold at this price. Suppose the government imposes supplier a 50 cents tax on each banana sold. What's the total deadweight loss caused by this tax?

0 there is no DWL as there is a vertical supply curve

Suppose prices in period one (base period) are (4, 4) and the consumer chooses (2, 4). In period two (current period), prices are (4.00, 2.00) and the consumer updates her optimal consumption bundle and chooses (5.00, 6.00). The Laspeyres price index of prices in period two relative to period one is ____

0.67 (Chapter 7 Question 16)

Mary likes to watch football and volleyball. Suppose we can observe how many times she goes to see a match in a given year and the price of entry tickets for both sports. In year 𝑏b (for baseline), the price of a football match is $25 and the price of a volleyball match is $18. Mary goes to see three football matches and six volleyball matches. In year 𝑡t, the price of a football match is $20 and the price of a volleyball match is $15. Mary goes to see five football matches and seven volleyball matches. The Paasche price index for Mary's choices is The Laspeyres price index for Mary's choices is The index of the change in total expenditure is Given your previous answers, Mary is better off in year 𝑡t because

0.817 0.819 1.12 Ln<M (Chapter 7 Question 14)

The diagram below shows Steve's indifference curve for bananas and all other goods. All other goods are measured in dollars. At point A, the slope of his indifference curve is -1. If Steve is currently consuming at point A, what is the most he would be willing to pay for one more banana? $__

1 (Chapter 3 Question 13)

The diagram below shows Maria's indifference curve. Bundle 𝑥1x1 includes three units of good 1 and four units of good 2. If Maria is currently consuming at point 𝑥1x1, but would like to consume an additional unit of good 1, how many units of good 2 can she give up and still remain indifferent between the consumption bundle 𝑥1x1 and the new consumption bundle with one additional unit of good 1? Maria is currently consuming at point 𝑥1x1, with 1 unit of good 1 and 12 units of good 2. If she would like to consume an additional unit of good 1, how many units of good 2 can she give up and still remain indifferent between the consumption bundle 𝑥1x1 and the new consumption bundle with one additional unit of good 1?

1 6 (Chapter 3 Question 7)

Devon's utility function can be written as 𝑥0.751𝑥0.252x10.75x20.25, where 𝑥1x1 is the quantity of hamburgers consumed and 𝑥2x2 is the quantity of milk shakes. His income is $2,400.00. Hamburgers cost $8.00 each and the price of one milk shake is $4.00. If he is maximizing his utility, how much will Devon spend on hamburgers? $___ he price of hamburgers decreases to $7.37 each. Now, how much will Devon spend on hamburgers if he is maximizing his utility? $___

1,800 1,800 (Chapter 5 Question 11)

Mary likes to watch football and volleyball. Suppose we can observe how many times she goes to see a match in a given year and the price of entry tickets for both sports. In year 𝑏b (for baseline), the price of a football match is $25, and the price of a volleyball match is $18. Mary goes to see three football matches and six volleyball matches. In year 𝑡t, the price of a football match is $20, and the price of a volleyball match is $15. In year 𝑡t, Mary goes to see five football matches and seven volleyball matches. The Paasche quantity index for Mary's choices is ____ The Laspeyres quantity index for Mary's choices is ____ Which of the following statements is true?

1.367 1.372 Mary is better off at time 𝑡t because the Paasche quantity index is greater than 1. (Chapter 7 Question 13)

Suppose prices in period one (base period) are (2, 2) and the consumer chooses (4.00, 5.00). In period two (current period), prices are (3.00, 4.00) and the consumer updates his optimal consumption bundle and chooses (2, 2). The Paasche price index of prices in period two relative to period one is ___

1.75 (Chapter 7 Question 15)

Each week, Beth purchases 5.00 pizzas, 10.00 bottles of soda, and 4.00 donuts. These purchases completely exhaust her income. The price of donuts is $2.00 each. If Beth buys one fewer pizza, she can buy 4.00 more bottles of soda or 6.00 more donuts. The price of pizza is $ ___ Based on the same information given in Part 1, the price of a bottle of soda is $__

12.00 and 3.00 (Chapter 2 Question 6)

Susan's preferences can be represented by the utility function 𝑥0.51𝑥0.52x10.5x20.5, where 𝑥1x1 is pounds of chocolate and 𝑥2x2is pounds of bologna. The price of chocolate is $3 per pound, and the price of bologna is $4 per pound. With income of $1200, Susan currently maximizes her utility by purchasing 200.00 pounds of chocolate and 150.00 pounds of bologna. The government imposes a tax of $2 per pound on chocolate. How many pounds of chocolate will Susan purchase if she maximizes her utility with the tax in place? How much tax revenue will the government collect from her? What dollar amount of an income tax, instead of the quantity tax, would leave Susan equally well off?

120 240 270.57 (Chapter 5 Question 14)

When the government imposes an ad valorem tax on all goods at rate 𝜏τ, the price of goods increases from 𝑝p to (1+𝜏)𝑝(1+τ)p. If the consumer's budget line was 𝑝1𝑥1+𝑝2𝑥2=𝑚p1x1+p2x2=m before the tax, the budget line becomes (1+𝜏)𝑝1𝑥1+(1+𝜏)𝑝2𝑥2=𝑚(1+τ)p1x1+(1+τ)p2x2=m. This same budget equation can be rewritten as 𝑝1𝑥1+𝑝2𝑥2=𝑚(1+𝜏)p1x1+p2x2=m(1+τ), indicating that the application of an ad valorem tax is the equivalent of an income reduction. An ad valorem tax of 20% is the equivalent of an income reduction of __ %

16.67% (Chapter 2 Question 15)

Christina enjoys salads and subs for weekday lunches, and she prefers a mix of both to extreme amounts of either one. Specifically, her utility over subs and salads can be represented by the function 𝑢(𝑥1,𝑥2)=u(x1,x2)=10𝑥1𝑥2x1x2 , where 𝑥1x1 is the number of subs she eats per month and 𝑥2x2 is the number of salads. What utility would Christina receive from consuming four subs and four salads in a month? If Christina consumes 16 salads, how many subs will she consume to achieve the same utility as (4,4)? All bundles that provide the utility you found in part 1 lie on the same indifference curve. The equation for this curve can be found by simply setting the utility value equal to the function; it is the curve where u=10 𝑥1𝑥2x1x2. 𝑥2x2 = __/X1 Now graph this equation. Start by plotting the two points you have from Part 1 ((4,4) and the point with 16 salads) as well as the point (16,1). Then use the curve tool to plot the indifference curve through all three points. Suppose that Christina has one sub and 16 salads. Her friend Latoya offers to trade her two subs for 10 salads. Will Christina accept the trade? Suppose Latoya has three subs she is willing to trade. What is the maximum number of salads Christina would give up for three subs?

160 1 16/X1 look at graph yes 12 (Chapter 4 Question 5)

When prices are (8, 1), Ezra chooses the bundle (𝑥1,𝑥2) = (8, 5). When prices change to (𝑝1,𝑝2), he updates his consumption bundle to (7, 7). For his preferences to satisfy the Weak Axiom of Revealed Preference (WARP), it must be true that 𝑝1 > ___ P2

2 (Chapter 7 Question 11)

Zuniga is currently consuming 10 burritos and five bags of chips. If the price of chips falls and we assume that chips are a Giffen good, which one of the following could be Zuniga's new consumption of burritos and chips? You can assume that each of the answers below is affordable.

20 burritos and four bags of chips (Chapter 6 Question 9)

If we graph Mary Granola's indifference curves with avocados on the horizontal axis and grapefruits on the vertical axis, then whenever she has more grapefruits than avocados, the slope of her indifference curve is 22. Whenever she has more avocados than grapefruits, the slope is 21/2. Mary would be indifferent between a bundle with 22 avocados and 37 grapefruits and another bundle that has 37 avocados and

22

Jasmine is a T-ball coach with homothetic preferences. When her income was $3,500.00, she bought 24.00 balls and 36.00 bats. If her income increases to $5,250.00 and prices do not change, she will buy _____ balls and ________ bats. (Assume it's okay to buy fractional balls and bats. Round your answer to two decimal places if necessary.)

36, 54 (Chapter 6 Question 11)

Clara's utility function is U( x, Y) = ( x + 2)( Y + 1). If her marginal rate of substitution is -3 and she is consuming 12 units of good x, how many units of good Y must she be consuming?

41

At prices (𝑝1,𝑝2)=(1,4)(p1,p2)=(1,4), Bob consumes the bundle 𝑋=(3,6)X=(3,6), while at prices (𝑝′1,𝑝′2)=(2,2)(p1′,p2′)=(2,2), he chooses bundle 𝑌=(𝑦1,4)Y=(y1,4). For which values of 𝑦1y1 is the WARP violated?

5 is less than or equal to y1 which is less than or equal to 11 (Chapter 7 Question 10)

Kasey has income of $20.00. She always consumes 2 ounces of cream cheese with one bagel. If the price of cream cheese is $1.00 per ounce and the price of a bagel is $2.00, Kasey will maximize her utility by purchasing ___ bagels and ___ ounces of cream cheese.

5,10 (Chapter 5 Question 9)

Curtiss lives in a two-good world, where the only goods are cappuccinos and pistachio nuts. Answer the following questions about Curtiss's budget constraint. The price of cappuccinos is $4.00 each. The price of pistachios is $1.00 per pound. If Curtiss has income of $35.00 and purchases 7.00 cappuccinos, how many pounds of pistachios can he buy? The price of cappuccinos is $4.00 each, and pistachios are $1.00 per pound. If Curtiss buys one fewer cappuccino, how many more pounds of pistachios can he buy?

7.00 and 4.00 (Chapter 2 Question 1)

Charlie has a utility function U( xA, xB) = xAxB, the price of apples is $1, and the price of bananas is $2. If Charlie's income were $320, how many units of bananas would he consume if he chose the bundle that maximized his utility subject to his budget constraint?

80

Ambrose's utility function is = 4 x11/2 + x 2. If the price of nuts (good 1) is $1, the price of berries (good 2) is $7, and his income is $259, how many units of berries will Ambrose choose?

9

Daisy received a tape recorder as a birthday gift and is not able to return it. Her utility function is U( x, y, z) = x + z 1/2 f( y), where z is the number of tapes she buys, y is the number of tape recorders she has, and x is the amount of money she has left to spend. f( y) = 0 if y < 1 and f( y) = 24 if y is 1 or greater. The price of tapes is $4 and she can easily afford to buy dozens of tapes. How many tapes will she buy?

9

Cindy's utility function for BMWs and money is given by 19,000x + y, where x is the number of BMWs she has and y is the amount of money she has. Her income is $24,000. Her reservation price for one BMW is

A

Harry's demand function for blueberries is x = 20 − p, where p is the price and x is the quantity demanded. If the price of blueberries is 3, then what is Harry's price elasticity of demand for blueberries?

A

If Bernice (whose utility function is min{x, y}, where x is her consumption of earrings and yis money left for other stuff) had an income of $13 and was paying a price of $2 for earrings when the price of earrings went up to $3, then the equivalent variation of the price change was

A

In a crowded city far away, the civic authorities decided that rents were too high. The long- run supply function of two-room rental apartments was given by q = 15 + 3p and the long-run demand function was given by q = 237 − 3p, where p is the rental rate in crowns per week. The authorities made it illegal to rent an apartment for more than 30 crowns per week. To avoid a housing shortage, the authorities agreed to pay landlords enough of a subsidy to make supply equal to demand. How much would the weekly subsidy per apartment have to be to eliminate excess demand at the ceiling price?

A

In the same football conference as the university in Problem 9 is another university where the demand for football tickets at each game is 60,000 − 8,000p. If the capacity of the stadium at that university is 40,000 seats, what is the revenue-maximizing price for this university to charge per ticket?

A

In the village in if the harvest this year is 4,000 bushels of grain and the harvest next year will be 700 bushels and if rats eat 30% of any grain that is stored for a year, how many bushels of grain could the villagers consume next year if they consume 1,000 bushels of grain this year?

A

Jack earns 5 dollars per hour. He has 100 hours per week which he can use for either labor or leisure. The government institutes a plan in which each worker receives a $100 grant from the government but has to pay 50% of his or her labor income in taxes. If Jack's utility function is U(c, r) = cr, where c is dollars worth of consumption of goods and r is hours of leisure per week, how many hours per week will Jack choose to work?

A

Let i be the rate of inflation and r the nominal interest rate. (We use pi to denote the rate of inflation in the book.) The (exact) real rate of interest is given by

A

Mr. O. B. Kandle has a utility function c1c2, where c1 is his consumption in period 1 and c2is his consumption in period 2. He has no income in period 2. If he had an income of $40,000 in period 1 and the interest rate increased from 10 to 19%,

A

Patience has a utility function U(c1, c2) = c1/21 + .083c1/22, where c1 is her consumption in period 1 and c2 is her consumption in period 2. Her income in period 1 is 3 times as large as her income in period 2. At what interest rate will she choose to consume the same amount in period 1 as in period 2?

A

Suppose that King Kanuta from Problem 11 demands that each of his subjects give him 4 coconuts for every coconut that they consume. The king puts all of the coconuts that he collects in a large pile and burns them. The supply of coconuts is given by S(ps) = 100ps, where ps is the price received by suppliers. The demand for coconuts by the king's subjects is given by D(pd) = 10,400 − 100pd, where pd is the price paid by consumers. In equilibrium, the price received by suppliers will be

A

Suppose that King Kanuta, whom you met in your workbook, demands that each of his subjects give him 1 coconut for every coconut that they consume. The king puts all of the coconuts that he collects in a large pile and burns them. The supply of coconuts is given by S(ps) = 100ps, where ps is the price received by suppliers. The demand for coconuts by the king's subjects is given by D(pd) = 1,500 − 100pd, where pd is the price paid by consumers. In equilibrium, the price received by suppliers will be

A

Suppose that Mario in consumes eggplants and tomatoes in the ratio of 1 bushel of eggplants per 1 bushel of tomatoes. His garden yields 30 bushels of eggplants and 10 bushels of tomatoes. He initially faced prices of $10 per bushel for each vegetable, but the price of eggplants rose to $40 per bushel, while the price of tomatoes stayed unchanged. After the price change, he would

A

A firm produces Ping-Pong balls using two inputs. When input prices are ($15, $7) the firm uses the input bundle (17, 71). When the input prices are ($12, $24) the firm uses the bundle (77, 4). The amount of output is the same in both cases. Is this behavior consistent with WACM? a. Yes. b. No. c. It depends on the level of the fixed costs. d. We have to know the price of the output before we can test WACM. e. It depends on the ratio of variable to fixed costs.

A ws*Ls + rs*Ks is less than or equal to ws*Lt + rs*Kt And, wtLt +wtKt is less than equal to wtLs + wtKs wsLs +rsKs = [(17*15)+(71*7] = 255+497 = 752 wsLt + rsKt = [(17*12)+(71*24)] = 204+1704=1908 wtLt +wtKt = (4)(12)+(4)(24)=144 wtLs + wtKs = (4)(15)+(4)(7) = 88

Maude thinks delphiniums and hollyhocks are perfect substitutes, one for one. If delphiniums currently cost $4 per unit and hollyhocks cost $5 per unit and if the price of delphiniums rises to $7 per unit,

A the entire change in demand for delphiniums will be due to the substitution eect. this is because income does not play a role when they are perfect substitutes

Charlie's utility function is xAxB. The price of apples used to be $1 per unit, and the price of bananas $2 per unit. His income was $40 per day. If the price of apples increased to $2.25 and the price of bananas fell to $1.75, then in order to be able to just afford his old bundle, Charlie would have to have a daily income of

A (MUa/MUb)=(Pa/Pb)=(B/A) B=(Pa/Pb)A PaA(Pa/Pb)APB=I A=20 B=10 2.25(20)+1.75(10)=62.4

On a tropical island there are 100 potential boat builders, numbered 1 through 100. Each can build up to20 boats a year, but anyone who goes into the boatbuilding business has to pay a fixed cost of $19.Marginal costs differ from person to person. Where y denotes the number of boats built per year, boat builder 1 has a total cost function c(y) = 19 + y. Boat builder 2 has a total cost function c(y) = 19 + 2y, and more generally, for each i, from 1 to 100, boat builder i has a cost function c(y) = 19 + iy. If the price of boats is 25,how many boats will be built per year? a.480 b.120 c.60 d.720 e.Any number between 500 and 520 is possible.

A AC= c/y=(19 + iy)/y=19/y+i 19/y+I<=25 19/(20)+i<=25 i<=24 24*20=480

A firm has the short-run total cost function c(y) = 4y^2 + 100. At what quantity of output is short-run average cost minimized? a. 5 b. 2 c. 25 d. 0.40 e. None of the above.

A AC=c/y where y is the output produced AC= c/y= (4y^2 + 100)/y= 4y+100/y to minimize AC we take first order derivative of the AC function dAC/dy= 4 -100/y^2 4 -100/y^2=0 5=y at Y=5 we take second derivative of AC function to ascertain whether AC is minimized d(dAC/dy)= -200/y^3 -200/(5)^3= 1.6 showing that AC is minimized at Y=5

An orange grower has discovered a process for producing oranges that requires two inputs. The production function is Q = min{2x1, x2}, where x1 and x2 are the amounts of inputs 1 and 2 that he uses. The prices of these two inputs are w1 = $5 and w2 = $10, respectively. The minimum cost of producing 160 units is therefore a.$2,000. b.$2,400. c.$800. d.$8,000. e.$1,600.

A Q = min{2x1, x2} Cost is minimized when 2x1 = x2 160 = min{2x1, x2} 2x1 = 160 x1 = 80 x2 = 2x1 = 160 Total cost= w1x1+w2x2 TC = (5)(80)+(10)(160) TC= 2000

if Mr. Dent Carr's total costs were 5s^2 + 50s + 20, then if he repairs 10 cars, his average variable costs will be a.$100. b.$102. c.$150. d.$200. e.$75.

A TC=5s^2 + 50s + 20 VC= 5s^2 + 50s AVC= VC/s AVS= 5s^2 + 50s /s AVC = 5s+50 s=10 AVC= 5s+50 AVC 5(10)+50 AVC=100

A competitive firm has a long-run total cost function c(y) = 3y^2 + 675 for y > 0 and c(0) = 0. Its long-run supply function is described as a.y = p/6 if p > 90, y = 0 if p < 90. b.y = p/3 if p > 88, y = 0 if p < 88. c.y = p/3 if p > 93, y = 0 if p < 99. d.y = p/6 if p > 93, y = 0 if p < 93. e.y = p/3 if p > 95, y = 0 if p < 85.

A c(y) = 3y^2 + 675 AC=c/y=(3y^2 + 675)/y=3y+675/y 3y+675/y=0 3y=-675/y 3y^2=675 y^2=225 y=15 3(15)+675/(15)=45+45=90 MC=6y=p y=p/6 a.y = p/6 if p > 90, y = 0 if p < 90.

the production function is f(L, M) = 4L^(1/2) M^(1/2), where L is the number of units of labor and M is the number of machines used. If the cost of labor is $100 per unit and the cost of machines is $16 per unit, then the total cost of producing 7 units of output will be a.$140. b.$406. c.$112. d.$280. e.None of the above.

A cost is minimized where MRTS = W/R= 100/16 MRTS= MPL/MPM= (dQ/dL)(dQ/dM) (4(1/2)L^((1/2)-1)M^(1/2))/ (4(1/2)M^((1/2)-1)L^(1/2) = (2L^(-1/2)M^(1/2))/ (2M^(-1/2)L^(1/2) =M/L M/L = 100/16 M=100L/16 Q=4L^(1/2) M^(1/2) 7=4L^(1/2) M^(1/2) 7=4L^(1/2) (100L/16)^(1/2) L=0.7 M=100L/16 M=100(.7)/16 M=4.375 cost = wL + rM cost = (100)(.7)+(16)(4.38) cost = 140

the production function is given by f(x) = 4x^1/2. If the price of the commodity produced is $100 per unit and the cost of the input is $15 per unit, how much profit will the firm make if it maximize profits? a.$2,666.67 b.$1,331.33 c.$5,337.33 d.$2,651.67 e.$1,336.33

A the production is given as f(x)= 4x^(1/2) the price of production is $100 per unit and price of input is $15 per unit the profit function of the firm is as follows pi= TR-TC TR is the total revenue that us earned by selling q units at $100 per unit. Thus TR becomes 400q^1/2 TC is the total cost of production so TC becomes 15q to calculate the level of output at which the output is maximized, calculate the first derivative of the profit function and equate it to zero pi= 400q^1/2-15q dpi/dq=((200)/(q^1/2)) - 15 ((200)/(q^1/2)) - 15 =0 q=1600/9 thus the output level at which profit maximized is 1600/9 units substitute this value of q into the profit function pi= 400q^1/2-15q 400(1600/9)^(1/2) -15 (1600/9)= 2666.67

Given the different consumption bundles in the graph below (and assuming that we always choose a bundle that (1) maximizes our utility and (2) uses all income), which of the following are true?

A is revealed as preferred to B. A is revealed as preferred to C. A is indirectly revealed as preferred to D. B is revealed as preferred to C. (Chapter 7 Question 6)

Using the diagram below, answer the following questions. Both 𝑥1x1 and 𝑥2x2 are "goods." Which of the labeled bundles on the diagram are affordable (i.e., would not cost more than the consumer's income)? Which of the labeled bundles would be the most preferred bundle for the consumer (regardless of income)? Which labeled bundle is the most preferred bundle the consumer can afford?

A, C, E B C (Chapter 5 Question 2)

Neville from your workbook has a friend named Cedric. Cedric has the same demand function for claret as Neville, namely q = .02m − 2p, where m is income and p is price. Cedric's income is $6,000 and he initially had to pay a price of $40 per bottle of claret. The price of claret rose to $60. The substitution effect of the price change

A. reduced his demand by 24. q = .02m − 2p q = .02(6000) − 2(40) q=40 change in income = (q)(change in price) change in income = (40)(80-60) change in income = 800 new income =old income + change in income new income = 6000+800 new income =6800 substitution effect = x(p',m')-x(p, m) sub effect = (.02(6800) − 2(60))-(.02(6000) − 2(40)) sub effect = 16 -40 sub effect = -24

Referring to question 11, the substitution effect of the increase in price of apple leads to a decrease in the quantity of apple consumed by: _______(Rounded to 2 decimal places)

A1=(new income)/(original price x new price) A1=75/3(2)=12.5 A-A1=15-12.5=-2.5

Referring to question 11, the income effect of the increase in the price of apple leads to a decrease in quantity of apple consumed by: ____(rounded to 2 decimal places)

A2=(original income)/original price x new price) A2= 60/ 3(2) = 10 A2-A=10-15=-5 income effect= total effect - substitution effect income effect= -5-(-2.5)=-2.5

Demand for apartment can be described by D(p) = 1000 - 20p...The supply for apartment is represented by S(p) = 30p. What's the market equilibrium price and quantity? [a] and [b] respectively Suppose a tax of 10% is put in place, what are the buyer's and seller's price in this market after the tax? [c] and [d] respectively (rounded to 2 decimals places)

A] D=S 1000-20p=30p 1000=50p 20=p B] Q=30p Q=30(20) Q=600 C/D] D = 1000 - 20p 20p=1000-D pd=50-0.05q Qs=30p ps=Q/30 Pd=(1+t) Ps 50-0.05q=(1+0.1) (q/30) 50-0.05q=(1.10) (q/30) 50-0.05q=1.10q/30 1500-1.5q=1.10q 1500=2.6q 576.92=q sellers price= Ps=Q/30 Ps=576.92/30 Ps= 19.23 buyers price= Pd= (1.1)Ps Pd= (1.1) (19.23)=21.15

Emily's preferences can be represented by u(x,y) = x1/2 y1/2 . Emily faces prices (px,py) = (2,1) and her income is $60. (some formulas in chapter 5 might help) Her optimal consumption bundle is: [a] (write in the form of (x,y) with no space) Now the price of x increases to $3 while price of y remains the same Her new optimal consumption bundle is: [b] (write in the form of (x,y) with no space) Her Equivalent Variation is: $[c]

A] (MUa/MUb)=(Pa/Pb)=(B/A) B=(Pa/Pb)A PaA+(Pa/Pb)APB=I 2PaA=I 2(2)A=60 A=15 B=(Pa/Pb)A B=(2/1)15 B=30 B] (MUa/MUb)=(Pa/Pb)=(B/A) B=(Pa/Pb)A PaA+(Pa/Pb)APB=I 2PaA=I 2(3)A=60 A=10 B=(Pa/Pb)A B=(3/1)10 B=30 C] m= PaA+PbB m= 2(15)+1(30 m=60 m'= PaA'+PbB' m'= 2(10)+1(30) m' = 50 equivalent variation = m-m'=60-50 =10

In a two-good world, which condition(s) would prove that good 2 is inferior?

As income increases, demand for good 2 decreases. As income decreases, demand for good 2 increases. (Chapter 6 Question 2)

Ella's utility function is min{5x, y}. If the price of x is $20 and the price of y is $20, how much money would she need to be able to purchase a bundle that she likes as well as the bundle (x, y) = (7, 15)?

B

Given his current income, Rico's demand for bagels is related to the price of bagels by the equation Q = 520 − 12P. Rico's income elasticity of demand for bagels is known to be equal to 0.5 at all prices and incomes. If Rico's income quadruples, his demand for bagels will be related to the price of bagels by the equation

B

If a consumer views a unit of consumption in period 1 as a perfect substitute (one for one) for a unit of consumption in period 2 and if the real interest rate is positive, the consumer will

B

If the real rate of interest is 12% and the nominal rate of interest is 31%, then the rate of inflation must be about

B

Mr. Cog in has 18 hours a day to divide between labor and leisure. If he has 13 dollars of nonlabor income per day and gets a wage rate of 17 dollars per hour when he works, his budget equation, expressing combinations of consumption and leisure that he can afford to have, can be written as

B

Peregrine consumes ($700, $880) and earns ($600, $990). If the interest rate is 0.10, the present value of his endowment is

B

Sam's utility function is U(x, y) = 2x + y, where x is the number of x's he consumes per week and y is the number of y's he consumes per week. Sam has $200 a week to spend. The price of x is $4. Sam currently doesn't consume any y. Sam has received an invitation to join a club devoted to the consumption ofy. If he joins the club, Sam can get a discount on the purchase of y. If he belonged to the club, he could buy yfor $1 a unit. How much is the most Sam would be willing to pay to join this club?

B

Suppose that Molly had an income of $500 in period 1 and an income of $880 in period 2. Suppose that her utility function were ca1c1−a2, where a = 0.60 and the interest rate were 10%. If her income in period 1 doubled and her income in period 2 stayed the same, her consumption in period 1 would

B

The demand function for fresh strawberries is q = 200 − 5p and the supply function is q = 60+ 2p. What is the equilibrium price?

B

The demand function for rental apartments is q = 960 − 7p and the supply function is q = 160+ 3p. The government makes it illegal to charge a rent higher than $35. How much excess demand will there be?

B

The demand function is described by the equation q(p) = 30 − p/3. The inverse demand function is described by the equation

B

The market for tennis shoes has a horizontal supply curve and a linear, downward-sloping demand curve. Currently the government imposes a tax of t on every pair of tennis shoes sold and does not tax other goods. The government is considering a plan to double the tax on tennis shoes, while leaving other goods untaxed. If the tax is doubled, then

B

The number of "Gore in 2004" buttons demanded on a certain university campus is given by D(p) = 100 − p, where p is the price of buttons measured in pennies. The supply function is S(p) = p. The current administration manages to enforce a price ceiling of 40A2 per button. The effect on net consumer's surplus is

B

if Abishag owned 10 quinces and 10 kumquats and if the price of kumquats is 2 times the price of quinces, how many kumquats could she afford if she spent all of her money on kumquats?

B

A firm produces one output using one input. When the cost of the input was $3 and the price of the output was $3, the firm used 6 units of input to produce 18 units of output. Later, when the cost of the input was $7 and the price of the output was $4, the firm used 5 units of input to produce 20 units of output. This behavior a. is consistent with WAPM. b. is not consistent with WAPM. c. is impossible no matter what the firm is trying to do. d. suggests the presence of increasing returns to scale. e. suggests the presence of decreasing returns to scale.

B (3)(18)-(3)(6)=36 (4)(20)-(7)(5) = 45 is not consistent with WAPM.

During the height of the pet rock craze in the 1970s, the price elasticity of demand was estimated to be 1.20. Since pet rocks have a marginal cost of zero, a profit-maximizing seller of pet rocks would a.increase prices. b.decrease prices. c.leave prices unchanged. d.need more-detailed market information before making any pricing changes. e.diversify into selling Karen Carpenter LPs.

B If the price elasticity is more than 1 it means the demand is price elastic i.e. if the price change by 100% the demand will change more than 100%. The marginal cost is already zero i.e. the monopolist will have no extra cost no matter how much they produce. So, the higher he sells the higher profit he makes. To sell more he has to reduce the price and increase the quantity. It will increase his profit. decrease price

The marginal cost curve of a firm is MC = 6y. Total variable costs to produce 10 units of output are a. $120. b. $300. c. $80. d. $400. e. $26.

B MC= 6y variable cost = integral of 6y= 3y^2 total variable cost to produce 10 unity 3y^2=3(10)^2=300

Philip owns and operates a gas station. Philip works 40 hours a week managing the station but doesn't draw a salary. He could earn $700 a week doing the same work for Terrance. The station owes the bank $100,000 and Philip has invested $100,000 of his own money. If Philip's accounting profits are $1,000 per week while the interest on his bank debt is $400 per week, the business's economic profits are a.$0 per week. b.−$100 per week. c.$600 per week. d.$300 per week. e.$1,000 per week.

B Philip is operating his own gas station he could have earned $700 a week working as gas station manager for terrance so by working his own, Philip is forgoing a salary of $700 the foregone alarm is an implicit cost for Philip economic profit = accounting profit - opportunity cost EP= 1000- (700+400) EP = -100

A firm has the production function Q = X^(1/2) X. In the short run it must use exactly 35 units of factor 2. The price of factor 1 is $105 per unit and the price of factor 2 is $3 per unit. The firm's short-run marginal cost function is a. MC(Q) = 105Q-1/2. b. MC(Q) = 6Q/35. c. MC(Q) = 105 + 105Q2. d. MC(Q) = 3Q. e. MC(Q) = 35Q-1/2.

B Q = X^(1/2) X amount of x2= 35 price of x1= 105 price of x2= 3 Q = X^(1/2) X Q = X^(1/2) 35 Q =35 X^(1/2) X^(1/2) =Q/35 x=Q^2/35^2 sc=p1x1+p2x2 sc=(105)(Q^2/35^2)+(3)(35) sc= 3Q^2/35 +105 take the derivative 6Q/35+0

The bicycle industry is made up of 100 firms with the long-run cost curve c(y) = 2 + (y^2/2) and 60 firms with the long-run cost curve c(y) = y2/10. No new firms can enter the industry. What is the long-run industry supply curve at prices greater than $2? a.y = 420p. b.y = 400p. c.y = 200p. d.y = 300p. e.y = 435p.

B TC for 100 firms: TC= 2 + (y^2/2) MC=dTC/dy MC=y 100MC=100y y=100p TC for 60 firms: TC=y^2/10. MC=dTC/dy MC= y/5 60MC=60y/5 5*60*MC=60y 300MC=60y y=300p y=y1+y2 y=100+300=400

the cheese business in Lake Fon-du-lac, Wisconsin, is a competitive industry. All cheese manufacturers have the cost function C = Q^2 + 9, while demand for cheese in the town is given by Qd = 120 − P. The long-run equilibrium number of firms in this industry is a.120. b.38. c.19. d.34. e.39.

B TC=Q^2 + 9 ATC=TC/q=(Q^2 + 9)/Q=q+9/q dTC/dq=1-9/q^2 1-9/q^2=0 1=9/q^2 q^2=0 q=3 ATC=q+9/q ATC= (3)+9/(3) ATC=6 Qd = 120 − P 120-6=114 114/3=38

At a boundary optimum, a consumer's indifference curve must be tangent to her budget line.

false

Suppose that Dent Carr's long-run total cost of repairing s cars per week is c(s) = 2s^2 + 50. If the price he receives for repairing a car is $8, then in the long run, how many cars will he fix per week if he maximize profits? a.2 b.0 c.4 d.3 e.6

B c(s) = 2s^2 + 50 DC(S)/DS=4S P=MC 8=4s s=2 profit=TR-TC =(2)(8)-(2(2^2+50)) =-92 since he is loosing profit he will exit the market making the answer 0

A competitive firm's production function is f(x1, x2) = 6x^1/2 + 8x^1/2. The price of factor 1 is $1 and the price of factor 2 is $4. The price of output is $8. What is the profit-maximizing quantity of output? a. 416 b. 208 c. 204 d. 419 e. 196

B find the profit function in terms of the two factor of production P=TR-TC P= 8(6x^1/ 1+ 8x^1/2 ) -(1x+4x) p=48x^1/2+64x^1/2-x+4x find the optimal quantity of X1 dp/dx1=0 (24/x^.5) -1 =0 x1 = 576 find the optimal quantity of X2 dp/dx2=0 32/x^1/2 -4 =0 x2 = 64 find the optimal level f output q= 6x^1/2 + 8x^1/2 q= 6(576)^1/2 + 8(64)^1/2 q= 208

the production function is given by F(L) = 6L^2/3. Suppose that the cost per unit of labor is $8 and the price of output is 4, how many units of labor will the firm hire? a.16 b.8 c.4 d.24 e.None of the above.

B production function F(L)=6L^2/3 Marginal Product of Labor = dF(L)=dL MPL = 4L^(-1/3) to obtain the number of labors hired equate MPL = W/P 4L^(-1/3) = 8/4 4L^(-1/3) = 2 L^(-1/3) = 1/2 L=8

A competitive firm is choosing an output level to maximize its profits in the short run. Which of the following is not necessarily true? (Assume that marginal cost is not constant and is well defined at all levels of output.) a.Marginal cost is at least as large as average variable cost. b.Total revenues are at least as large as total costs. c.Price is at least as large as average variable cost. d.Price equals marginal cost. e.The marginal cost curve is rising.

B the competitive firm can make losses in the short run, so that total revenues can be less than total costs. the requirement is that total revenues should at least be as large as total variable costs therefore, Total revenues are at least as large as total costs.

A firm has the production function Q = KL, where K is the amount of capital and L is the amount of labor it uses as inputs. The cost per unit of capital is a rental fee r and the cost per unit of labor is a wage w. The conditional labor demand function L(Q, w, r) is a.Qwr. b.the square root of Qr/w. c.Qw/r. d.the square root of Qw/r. e.Q/wr.

B the firm problem is to: min l,k w1x1+w2x2 stq=kl the solution myst satisfy MPl/MPk=wl/wk and q=kl from the first condition we get k/l =w/r from which we can isolate =lw/r then plugging k into the production function we find q=(lw/r)(l), and isolating l we get: (qr/lw)^(1/2)

Suppose that Dent Carr's long-run total cost of repairing s cars per week is c(s) = 3s^2 + 75. If the price he receives for repairing a car is $18, then in the long run, how many cars will he fix per week if he maximizes profits? a.3 b.0 c.6 d.4.50 e.9

B the firm produces at MC=P TC=3s^2 + 75 MC=dTC/ds=6s 6s=18 s=3 TC=3s^2 + 75 TC=3(3)^2 + 75 TC=102 TR=PQ TR=18(3)=54 profit= TR-TC profit = 54-102 profit = -48 the firm is going to leave the market and therefore the answer is 0

Mr. Dent Carr's total costs are 2s^2 + 45s + 30. If he repairs 15 cars, his average variable costs will be a.$77. b.$75. c.$150. d.$105. e.$52.50.

B total cost function=2s^2 + 45s + 30 variable cost function = 2s^2 + 45s therefore at number of cars repaired: 15 total variable cost= 2s^2 + 45s =2(15)^2 + 45(15)= 1125 average variable cost: total variable cost/y=1125/15=75

when Farmer Hoglund applies N pounds of fertilizer per acre, the marginal product of fertilizer is 1 − N/200 bushels of corn. If the price of corn is $1 per bushel and the price of fertilizer is $.40 per pound, then how many pounds of fertilizer per acre should Farmer Hoglund use in order to maximize his profits? a.64 b.120 c.248 d.240 e.200

B we know in order too maximize profit, value of Marginal product of fertilizers = marginal cost of fertilizers thus value of MP of fertilizers = price *MPL .40= 1(1-N/200) .40=1-N/200 N/200= .60 N= 120

As assistant vice president in charge of production for a computer firm, you are asked to calculate the cost of producing 170 computers. The production function is q = min{x, y} where x and y are the amounts of two factors used. The price of x is $18 and the price of y is $10. What is your answer? a. $2,580 b. $4,760 c. $8,460 d. $6,180 e. None of the above.

B y = min(x1,x2) x1= y and x2 = y 170 = x1 and x2 = 170 Cost = (18)(170)+(10)(170) cost = 4760

Suppose that Nadine in Problem 1 has a production function 3x1 + x2. If the factor prices are $3 for factor 1 and $3 for factor 2, how much will it cost her to produce 80 units of output? a.$960 b.$80 c.$240 d.$600 e.$160

B X1 and X2 are perfect substitutes so firm will use only that input which has higher productivity ad lower price. in this case price of both inputs is the same but productivity of X1 is higher so he will produce 80 units of output using X1 y=3x1 + x2 y=3x1 80=3x1 x1= 26.66 26.66 * 3 =80

Charlie's utility function is xAxB. The price of apples used to be $1 per unit and the price of bananas was $2 per unit. His income was $40 per day. If the price of apples increased to $1.50 and the price of bananas fell to $1.75, then in order to be able to just afford his old bundle, Charlie would have to have a daily income of

B. $47.50. (MUa/MUb)=(Pa/Pb)=(B/A) B=(Pa/Pb)A PaA(Pa/Pb)APB=I 2PaA=I 2(1)A=40 A=20 B=(Pa/Pb)A B=(1/2)(20) B=10 1.50(20)+1.75(10)=47.50

Cindy consumes goods x and y. Her demand for x is given by x(px, m) = 0.05m −5.15px. Now her income is $419, the price of x is $3, and the price of y is $1. If the price of x rises to $4 and if we denote the income effect on her demand for x by DI and the substitution effect on her demand for x by DS, then

B: DI = −0.28 and DS = −4.88. x(px, m) = 0.05m −5.15px m=419 Px=3 Py=1 demand = 0.05m −5.15px demand = 0.05(419) −5.15(3) demand x= 5.5 now Px=4 demand = 0.05m −5.15px demand = 0.05(419) −5.15(4) demand x= 0.35 change in m= (x)(channe in P) change in m = 5.5(4-3)=5.5 m' = m + change in m = 419 + 5.5 = 424.5 at I=419 he spends 5.5(3)=16.5 on good X so 419-16.5= 402.5 on good Y substitution effect = x(p',m')-x(p, m) substitution effect = (0.05m' −5.15p'x)- (0.05m −5.15px) sub effect = (0.05(424.5)-5.15(4))- (5.5) sub effect = 0.625-5.5 sub effect = 4.875 income effect = x(p',m)-x(p', m') income effect = (0.05m −5.15p'x)- (0.05m' −5.15p'x) income effect= ((0.05)(419)-(5.15)(4))- ((0.05)(424.5)-(5.15)(4)) income effect = .35-.625 income effect = -.275

Nick's indifference curves are circles, all of which are centered at (12, 12). Of any two indifference circles, he would rather be on the inner one than the outer one.

d. Nick prefers (8, 8) to (17, 21).

Charlie consumes apples and bananas. His utility function is U(XA, XB) = xAx2B. The price of apples is $1 the price of bananas is $2, and his income is $30 per week. If the price of bananas falls to $1

B: the substitution effect of the fall in banana prices reduces his apple consumption, but the income effect increases his apple consumption by the same amount.

At the initial prices, Teodoro is a net seller of apples and a net buyer of bananas. If the price of apples decreases and the price of bananas does not change,

C

Holly consumes x and y. The price of x is 4 and the price of y is 4. Holly's only source of income is her endowment of 6 units of x and 6 units of y which she can buy or sell at the going prices. She plans to consume 7 units of x and 5 units of y. If the prices change to $7 for x and $7 for y,

C

If Peregrine consumes (1, 500, 1, 080) and earns (1, 000, 1, 680) and if the interest rate is 20%, the present value of his endowment is

C

If the demand function for tickets to a play is q = 7,500 − 75p, at what price will total revenue be maximized?

C

Nick insists on consuming 3 times as much of y as he consumes of x (so he always has y =3x). He will consume these goods in no other ratio. The price of x is 2 times the price of y. Nick has an endowment of 20 x's and 75 y's which he can trade at the going prices. He has no other source of income. What is Nick's gross demand for x?

C

When the price of bananas is 50 cents a pound, the total demand is 100 pounds. If the price elasticity of demand for bananas is −2, what quantity would be demanded if the price rose to 60 cents a pound?

C

Goods 1 and 2 are perfect complements, and a consumer always consumes them in the ratio of 2 units of good 2 per unit of good 1. If a consumer has an income of $720 and if the price of good 2 changes from $8 to $9, while the price of good 1 stays at $1, then the income effect of the price change

C As with change in price of both the goods, it will lead to change in the quantity demanded by the consumer will also change thus, the income effect of the price change Willa count for the entire change in the demand

A firm has a long-run cost function, C(q) = 8q^2 + 288. In the long run, this firm will supply a positive amount of output, as long as the price is greater than a.$200. b.$192. c.$96. d.$48. e.$101.

C C(q) = 8q^2 + 288 AC=c/q=(8q^2 + 288)/q=8q+288/q take the derivative 8-288/q^2 8-288/q^2=0 8=288/q^2 8q^2=288 q^2=36 q=6 AC=8q+288/q AC= 8(6)+288/(6) AC= 96

In the reclining chair industry (which is perfectly competitive), two different technologies of production exist. These technologies exhibit the following total cost functions: C1(Q) = 1,000 + 600Q − 40Q2 + Q3 C2(Q) = 200 + 145Q− 10Q2 + Q3 Due to foreign competition, the market price of reclining chairs has fallen to $190. In the short run, firms using technology 1 a. and firms using technology 2 will remain in business. b.will remain in business and firms using technology 2 will shut down. c.will shut down and firms using technology 2 will remain in business. d.and firms using technology 2 will shut down. e.More information is needed to make a judgment.

C C1(Q) = 1,000 + 600Q − 40Q2 + Q3 C2(Q) = 200 + 145Q− 10Q2 + Q3 the variable costs will be as follows VC1(Q)=600Q − 40Q2 + Q3 VC2(Q)= 145Q− 10Q2 + Q3 AVC1(Q)=VC1/Q=600 − 40Q + Q2 AVC2(Q)= VC2/Q=145− 10Q + Q2 d(AVC1)/dQ= − 40 + 2Q q=20 d(AVC2)/dQ= − 10 + 2Q q=5 C1(20) = 1,000 + 600(20) − 40(20)2 + (20)3=5000 C2(5) = 200 + 145Q− 10Q2 + Q3= 800 revenue 1= pq revenue 1=(190)(5000)=950,000 revenue 2= pq revenue 2=(190)(800)=152,000 lower revenue than minimum AVC means that at any point below minimum of AVC the firm will shut down

the production function is f(x1, x2) = x1^(1/2)x2^(1/2). If the price of factor 1 is $4 and the price of factor 2 is $6, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits? a.x1 = x2. b.x1 = 0.67x2. c.x1 = 1.50x2. d.We can't tell without knowing the price of output. e.x1 = 6x2.

C f(x1, x2) = (x1x2)^(1/2) MRS = (MU x1)/(MU x2)= (x2/x1) MRS= Px1/ Px2 (X2/X1) = 4/6 (X2/X1) = 2/3 x1= 3/2X2 = 1.5X2

A competitive firm uses a single input x to produce its output y. The firm's production function is given by y = x^3/2 for quantities of x between 0 and 4. For quantities of a greater than 4, the firm's output is y = 4 + x. If the price of the output y is $1 and the price of the input x is $3, how much x should the firm use to maximize its profit? a. 16/9 b. 4 c. 0 d. 4/9 e. 9/2

C firms production function is y = x^3/2. 0<x<4 y=4+x. x>4 Py= 1 Px=3 pi = Py-cx = (1)(x^3/2) - 3x dpi/dx= 3/2X^(1/2)-3 3/2X^(1/2)-3 =0 x=4 profit = (1)(x^3/2) - 3x profit = (1)(4^3/2) - 3(4) profit =-4 the firm should not produce anything as they will be loosing money

Neville has a friend named Marmaduke. Marmaduke has the same demand function for claret as Neville, namely q = .02m − 2p, where m is income and p is price. Marmaduke's income is $8,000 and he initially had to pay a price of $40 per bottle of claret. The price of claret rose to $80. The substitution effect of the price change

C q=.02m-2p q=.02(8000)-2(40) q=80 m'-m=x(p'-p) m'-m=80(80-40) m'-8000=80(80-40) m'-8000=80(40) m'-8000=3200 m'=11,200 substitution effect = x(p',m')-x(p, m) substation effect =(.02(11,200)-2(80)) - (.02(8000)-2(40)) substitution effect = .02(3,2000)-80 substitution effect = -16

A firm has a short-run cost function c(y) = 3y + 11 for y > 0 and c(0) = 8. The firm's quasi-fixed costs are a. $8. b. $11. c. $3. d. $7. e. They are not possible to determine from this information.

C quasi fixed cost = C(y=0)-c(0) quasi fixed cost= (3(0)+11)-8=3

A profit-maximizing competitive firm uses just one input, x. Its production function is q = 4x^1/2. The price of output is $28 and the factor price is $7. The amount of the factor that the firm demands is a. 8. b. 16. c. 64. d. 60. e. None of the above.

C the firm will demand at MRPL = wages production function: q = 4x^1/2 MPL = dq/dx= 2x^(-1/2) MRP=MPL*P MRP = 2x^(-1/2) *28 MRP = 56x^(-.5) 56x^(-.5) =7 x=64

Which types of preferences will always result in an interior optimum for utility maximization (assuming income is greater than $0)?

Cobb-Douglas, Perfect Complements (Chapter 5 Question 3)

If Abishag owns 16 quinces and 15 kumquats and if the price of kumquats is 4 times the price of quinces, how many kumquats can she afford if she buys as many kumquats as she can?

D

Irene earns 8 dollars an hour. She has no nonlabor income. She has 30 hours a week available for either labor or leisure. Her utility function is U(c, r) = cr2, where c is dollars worth of goods and r is hours of leisure. How many hours per week will she work?

D

Mr. Cog in has 18 hours per day to divide between labor and leisure. If he has a nonlabor income of 44 dollars per day and a wage rate of 14 dollars per hour, he will choose a combination of labor and leisure that allows him to spend

D

Mr. O. B. Kandle will live for only two periods. In the first period he will earn $100,000. In the second period he will retire and live on his savings. Mr. Kandle has a Cobb-Douglas utility function U(c1, c2) = c21c2, where c1 is his period 1 consumption and c2 is his period 2 consumption. The real interest rate isr.

D

Sir Plus has a demand function for mead that is given by the equation D(p) = 100 − p. If the price of mead is $85, how much is Sir Plus's net consumer's surplus?

D

The inverse demand function for grapefruit is defined by the equation p = 282 − 9q, where q is the number of units sold. The inverse supply function is defined by p = 7 + 2q. A tax of $22 is imposed on suppliers for each unit of grapefruit that they sell. When the tax is imposed, the quantity of grapefruit sold falls to

D

suppose every Buick owner's demand for gasoline is 20 − 5p for p less than or equal to 4 and 0 for p > 4. Every Dodge owner's demand is 15 − 3p for p less than or equal to 5 and 0 for p > 5. Suppose that Gas Pump, South Dakota, has 100 Buick owners and 250 Dodge owners. If the price of gasoline is $4, what is the total amount of gasoline demanded in Gas Pump?

D

A competitive firm uses two inputs, x and y. Total output is the square root of x times the square root of y. The price of x is $17 and the price of y is $11. The company minimizes its costs per unit of output and spends $517 on x. How much does it spend on y? a. $766 b. $480 c. $655 d. $517 e. None of the above.

D Q = x^1/2y^1/2 For profit maximization: MPx/MPy = Px/Py Px = 17 and Py = 11 MPx = dQ/dx = .5(y^(1/2)/x^(1/2)) MPy = .5(x^(1/2)/y^(1/2)) y/x = 17/11 x=517/17=30.41 y=17/11*30.41=47 amount spent on y = 47*11=517

Which of the situations shown in the figures below violate the WARP? (The bundle chosen at a given budget set is drawn with the same color as the budget set.)

D (Chapter 7 Question 8)

An industry has 100 firms. These firms have identical production functions. In the short run, each firm has fixed costs of $200. There are two variable factors in the short run and output is given by y = (min{x1, 3x2})1/2. The cost of factor 1 is $5 per unit and the cost of factor 2 is $4 per unit. In the short run, the industry supply curve is given by a.Q = 100p/10. b.the part of the line Q = 50(min{5, 12}) for which pQ > 200/Q. c.Q = 575p1/2. d.Q = 100p/12.67. e.None of the above.

D 100 firms y = (min{x1, 3x2})1/2 FC=200 x=5 w=4 k=y^2, 4L=y^2, L=y^2/(4) TC= wL+xk+FC TC= (4)(y^2/(4))+(5)(y^2)+200 TC= 6y^2+200 MC=dTC/dy=12y p=12y y=p/12 100(p/12)

Refer to the following indifference curve diagrams to answer the questions below. Which indifference curve has a diminishing marginal rate of substitution (MRS)? Which indifference curve has an MRS of 0 and infinity? Which indifference curve has a constant MRS? Which indifference curve has an MRS equal to 0 (everywhere)?

D A both B and C C (Chapter 3 Question 14)

The snow removal business in East Icicle, Minnesota,is a competitive industry. All snowplow operators have the cost function C = Q^2 + 4, where Q is the number of driveways cleared. Demand for snow removal in the town is given by Qd = 120 − P. The long-run equilibrium number of firms in this industry is a.120. b.29. c.56. d.58. e.59.

D C = Q2 + 4 AC=C/Q=Q2 + 4/Q=Q+4/Q d(AC)/Dq=1-4/Q^2 1-4/Q^2=0 1=4/Q^2 Q^2=4 Q=2 minimum AC= Q+4/Q= 2+4/2=4 Qd= 120 − P=120-4=116 Qd=xQ 116=x(2) x=58

A firm has the long-run cost function C(Q) = 4Q^2 + 64. In the long run, it will supply a positive amount of output, so long as the price is greater than a. $64. b.$72. c.$16. d.$32. e.$37.

D C(Q) = 4Q^2 + 64 ATC=C/q ATC=(4Q^2 + 64)Q=4Q+64/Q take first derivative 4-64/Q^2 4-64/Q^2=0 4Q^2=64 Q=4 ATC=4Q+64/Q ATC=4(4)+64/(4) ATC=16+16 ATC=32

A firm has the long-run cost function C(q) = 3q^2 + 27.In the long run, it will supply a positive amount of output, so long as the price is greater than a.$36. b.$44. c.$9. d.$18. e.$23.

D C(q) = 3q^2 + 27 AC=c/q=(3q^2 + 27)/q= 3q+27/q dAC/dq=3-27/q^2 3-27/q^2=0 3=27/q^2 3q^2=27 q^2=9 q=3 ATC=3q+27/q ATC= 3(3)+27/(3) ATC=18

The following relationship must hold between the average total cost (ATC) curve and the marginal cost curve (MC): a. If MC is rising, ATC must be rising. b. If MC is rising, ATC must be greater than MC. c. If MC is rising, ATC must be less than MC. d. If ATC is rising, MC must be greater than ATC. e. If ATC is rising, MC must be less than ATC.

D If ATC is rising, MC must be greater than ATC.

A profit-maximizing firm continues to operate even though it is losing money. It sells its product at a price of $100. a.Average total cost is less than $100. b.Average fixed cost is less than $100. c.Marginal cost is increasing. d.Average variable cost is less than $100. e.Marginal cost is decreasing.

D If the firm is incurring loss and even it is operating , then the firm market price is Below ATC and above AVC d.Average variable cost is less than $100.

If output is produced according to Q = 4L + 6K, the price of K is $24, and the price of L is $20, then the cost-minimizing combination of K and L capable of producing 72 units of output is a.L = 9 and K = 6. b.L = 20 and K = 24. c.L = 18 and K = 12. d.L = 0 and K = 12. e.L = 18 and K = 0.

D at equilibrium the slope of the isoquant is equal to the price ratio of the inputs: MPl/MPk=w/k assuming w=20 and k=24 w/k = 20/24=5/6 the equation of the isoquant is: Q = 4L + 6K MPl=4 MPk=6 MPl/MPk=4/6 MPl/MPk<w/k 4/6<5/6 Q = 4L + 6K 72= 4L + 6K k=12 L=0

The production function is f (L, M) = 5L^1/2 M^1/2, where L is the number of units of labor and M is the number of machines. If the amounts of both factors can be varied and if the cost of labor is $9 per unit and the cost of using machines is $64 per machine, then the total cost of producing 12 units of output is a.$438. b.$108. c.$576. d.$115.20. e.$57.60.

D f (L, M) = 5L^1/2 M^1/2 MPL/MPM = cost of labor / cost of machine df(L,M)/dl=mpl = 2.5m^1/2. /l^1/2 df(L,M)/dm=mpm = 2.5L^1/2. /m^1/2 MPL/MPM = (2.5m^1/2. /l^1/2 ) / (2.5L^1/2. /m^1/2 ) =m/l=mpl/mpm m/l=9/64 m=9/64l f (L, M) = 5L^1/2 M^1/2 12= 5L^1/2 (9/64l)^1/2 L=6.4 m=9/64l m=(9/64)(6.4) m=0.9 total cost = (labor) (cost of labor) + (machine)(cost of machine) TC= (6.4)(9)+(.9)(64) TC=115.20

A competitive firm produces output using three fixed factors and one variable factor. The firm's short-run production function is q = 305x − 2x^2, where x is the amount of variable factor used. The price of the output is $2 per unit and the price of the variable factor is $10 per unit. In the short run, how many units of x should the firm use? a.37 b.150 c.21 d.75 e.None of the above.

D firm's short run production function is q= 305X - 2x^2 x= variable factor firms profit function is given by pi = pq-10x pi= 2(305X - 2x^2) -10x pi= 2(305X - 2x^2) -10x pi = 610x - 4x^2-10x pi = 600x - 4x^2 dpi/dx= 600-8x 600-8x=0 600=8x x=75

A competitive firm produces its output according to the production function y = min{x3, 1000}. Let p be the price of output, and let the price of input x be $1. The profit maximizing output for this firm is a.1,000 if p > 1 and 0 otherwise. b.10 for all p. c.1,000 for all p. d.0 if p < 1/100 and 1,000 otherwise. e.None of the above.

D profit = px^3-x where x^3<= 1000, which means x<=10 profit = p(10)^3-10 profit = 1000p-10 1000p-10=0 p=1/100 if p=1/101 (which is <1/100) profit <0

suppose that a new alloy is invented which uses copper and zinc in fixed proportions where 1 unit of output requires 3 units of copper and 3 units of zinc for each unit of alloy produced. If no other inputs are needed, the price of copper is $3, and the price of zinc is $3, what is the average cost per unit when 4,000 units of the alloy are produced? a.$9.50 b.$1,000 c.$1 d.$18 e.$9,500

D total cost of 1 unit of New alloy = (price of copper)(units of copper) + (price of zinc)(units of zinc) total cost of 1 unit of New alloy = (3)(3) + (3)(3)=18 total unit produced = 4000 total cost = 18(4000) = 72000 average cost = total cost / units produced AC= 72000/4000=18

A firm has fixed costs of $4,000. Its short-run production function is y = 4x^1/2, where x is the amount of variable factor it uses. The price of the variable factor is $4,000 per unit. Where y is the amount of output, the short-run total cost function is a. 4,000/y + 4,000. b. 8,000y. c. 4,000 + 4,000y. d. 4,000 + 250y2. e. 4,000 + 0.25y2.

D total cost= fixed cost +variable cost y = 4x^1/2 x=.0625y since 1 unit of the variable factor costs 4000, then x units cost 4000x dollars 4000x = 4000 (.0625y) =250y VC= 250y fixed cost = 4000 total cost= fixed cost +variable cost TC= 4000+ 250y

The diagram below shows various bundles of good 1 and good 2. John's indifference curve passes through points A and B. His preferences for good 1 and good 2 are strictly nonconvex. Which of the points labeled C through J could be on John's indifference curve with A and B?

D, E, H (Chapter 3 Question 16)

The diagram below shows the budget line and consumption choices for Darrin, Gene, and Katelyn. An increase in the price of salads would cause everyone to decrease their salad consumption except

Darrin (Chapter 2 Question 8)

A peck is 1/4 of a bushel. If the price elasticity of demand for oats is −0.60 when oats are measured in bushels, then when oats are measured in pecks, the price elasticity of demand for oats will be

E

Dudley has a utility function U(C, R) = C − (12 − R)2, where R is leisure and C is consump- tion per day. He has 16 hours per day to divide between work and leisure. If Dudley has a nonlabor income of $15 per day and is paid a wage of $8 per hour, how many hours of leisure will he choose per day?

E

The inverse demand function for grapes is described by the equation p = 518 − 5q, where p is the price in dollars per crate and q is the number of crates of grapes demanded per week. When p = $38 per crate, what is the price elasticity of demand for grapes?

E

the demand function for drangles is given by D(p) = (p + 1)−2. If the price of drangles is $11, then the price elasticity of demand is

E

Suppose that in the short run, the firm in Problem 3 which has production function F(L, M) = 4L^(1/2)M^(1/2) must use 4 machines. If the cost of labor is $10 per unit and the cost of machines is $6 per unit, the short-run total cost of producing 64 units of output is a. $512. b. $384. c. $640. d. $1,328. e. $664.

E Q=4L^(1/2)M^(1/2) Q=64 M=4 64=4L^(1/2)(4)^(1/2) L=64 total cost = Lw+Kr total cost = (64)(10)+(6)(4) total cost = 664

Florence's Restaurant estimates that its total costs of providing Q meals per month is given by TC = 8,000 + 5Q. If Florence charges $9 per meal, what is its break even level of output? a.4,000 meals b.571.43 meals c.888.89 meals d.1,600 meals e.2,000 meals

E TC = 8,000 + 5Q total fixed cost =8000 variable cost per unit =5 break even sales point =TFC/(p-v) p=unit sale price=9 v= unit variable cost= 5 break even sales point =8000/(9-5) break even sales point =2000

If the short-run marginal costs of producing a good are $20 for the first 400 units and $30 for each additional unit beyond 400, then in the short run, if the market price of output is $24, a profit-maximizing firm will a. not produce at all, since marginal costs are increasing. b. produce as much output as possible since there are constant returns to scale. c. produce up to the point where average costs equal $24. d. produce a level of output where marginal revenue equals marginal costs. e. produce exactly 400 units.

E the firm maximizes profit when price = marginal cost then at the market price of 24, the firm will produce exactly 400 units

When the price of x rises, Marvin responds by changing his demand for x. The substitution effect is the part of this change that represents his change in demand a. holding the prices of substitutes constant. b. if he is allowed to substitute as much x for y as he wishes. c. if his money income is held constant when the price of x changes. d. if the prices of all other goods are held constant. e. None of the above

E. None of the above.

Isabel currently has 6 graham crackers and 2 smoothies. Determine whether the bundles shown below would be equally preferred, more preferred, or less preferred than what Isabel currently has.

Equally preferred: (6 graham crackers, 3 smoothies ) (9 graham crackers, 2 smoothies ) More Preferred: (9 graham crackers, 3 smoothies ) Less Preferred: (9 graham crackers, 1 smoothie ) (3 graham crackers, 2 smoothies ) (Chapter 3 Question 11)

A firm with the cost function c(y) = 20y2 + 500 has a U-shaped cost curve.

F

The marginal cost curve passes through the minimum point of the average fixed cost curve.

F

The total cost function c(w1, w2, y) expresses the cost per unit of output as a function of input prices and output.

F

If the value of the marginal product of factor x increases as the quantity of x increases and the value of the marginal product of x is equal to the wage rate, then the profit-maximizing amount of x is being used.

F Let us consider X as labour. A firm will hire labours only until the marginal product of x equals the wage rate. Beyond which the firm May incur losses. It is also given that, the value of marginal product of factor X increases as the quantity of X increases. But we know that firm will not earn profits if it hires more labour (X) as marginal revenue will start to fall when wages rise. Hence the firm is not using the profit maximizing amount of X.

The area under the marginal cost curve measures total fixed costs.

F The area under the marginal cost measures the variable cost

Two firms have the same technology and must pay the same wages for labor. They have identical factories, but firm 1 paid a higher price for its factory than firm 2 did. If they are both profit maximizers and have upward-sloping marginal cost curves, then we would expect firm 1 to have a higher output than firm 2.

F When firm is in profit maximising equilibrium, price marginal product of labor is equal to wage rate.If firm 1 has higher price but wages are same then its output will be less than firm 2.

Price equals marginal cost is a sufficient condition for profit maximization.

F profit maximizing condition is where MR=MC

If the production function is f (x1, x2) = min{x1, x2}, then the cost function is c(w1, w2, y) = min{w1, w2}y.

F when the production function is of perfect complaint inputs than the cost function is linear here x1=x2=y, where y =f(x1, x2) now c= w1x1+w2x2 so c= y(w1+x1)

Maria gets ($100, $120) for current period and the next period respectively. If the interest rate is 8%, what is the future value of her endowment in the next period? ______

FV = m(1+r) FV = 100 (1+0.08) FV = 100(1.08) FV= 108 FV+Current =108+120=228

Friedrich has income of €300. He spends his income on clothing and food. A recession caused his income to fall by 10%, but the prices of clothing and food have also fallen by 10%. Which of the following statements is true?

Friedrich's budget set will be unchanged (Chapter 2 Question 11)

The diagram above shows Gisela's indifference curves for housing and all other goods. Which of the following statements regarding Gisela's preferences and utility function is true?

Gisela's preferences are quasilinear. (Chapter 4 Question 9)

Without knowing information on price and income levels, assume that you first optimize at point A. After a change in the market conditions, you re-optimize at point B. And again at point C. And finally, after market conditions change for a third time, you settle on optimizing at point D. Which of the following statements is true?

Good 2 is normal and good 1 transitions from a normal good to an inferior good. (Chapter 6 Question 4)

Which of the following statements are true?

If the SARP is satisfied, then the WARP is satisfied too. If the WARP is violated, then the SARP is violated too. (Chapter 7 Question 17)

Tammie has income of $150. The price of hats is $7 each, the price of gloves is $6, and the price of scarves is $5. The quantity of items in each bundle can be represented by the set (𝑥1x1, 𝑥2x2, 𝑥3x3), where 𝑥1x1 is the quantity of hats, 𝑥2x2 is the quantity of gloves, and 𝑥3x3 is the quantity of scarves. Sort the bundles below into those that are in the budget set and those that are not.

In budget set: (8, 7, 6) (8, 8, 8) (5, 9, 10) (10, 10, 4) Not in budget set: (10, 10, 5) (11, 9, 4) (3, 15, 10) (Chapter 2 Question 7)

Both Ellory and Horace have one box of popcorn (𝑃)(P), one box of candy (𝐶)(C), and one movie ticket (𝑀)(M). Ellory's preferences are accurately captured by the utility function 𝑢=𝑃12𝐶12𝑀12u=P12C12M12. Horace's preferences are accurately represented by the utility function 𝑢=2𝑃34𝐶34𝑀34u=2P34C34M34. Based on this information, which of the following statements is correct?

It is not possible to make meaningful comparisons of Ellory's and Horace's happiness based on their respective utility functions. (Chapter 4 Question 2)

Sarah consumes avocado and egg in a fixed ratio of 1 avocado to 2 eggs. His initial endowment for avocado and egg are (10 ,50). Initially, prices of avocado and egg are $4 and $1 per unit respectively. However later the price of an avocado remains at $4 while the price of an egg increases to $3. After the price change, Sarah would consume: ____ avocado

M=(10)(4)=(50)(1)=90 x(4)+2x(1)=90 4x+2x=90 6x=90 x=15 15 avocados are consumed and 30 eggs are consumed initially M'= (10)(4)+(50)(3) M'=190 4x+2x(3)=190 10x=190 x=19

Consider the below diagram. Assuming points Y and Z identify optimal points of consumption for different levels of income and prices, is this consumer's behavior consistent with the Weak Axiom of Revealed Preference (WARP)? From the prior part, if the WARP was indeed violated, drag point Y to a point along the budget constraint that would be consistent with WARP. If WARP was not violated, then take point Y and drag it to the origin (0,0).

No, because point Z is revealed as preferred to point Y and point Y is revealed as preferred to point Z. look at graph (Chapter 7 Question 18)

For Violeta, 1 unit consumption in period 1 is a perfect substitute for 1 unit of consumption in period 2 and vice versa. If the real interest rate is 0, Violeta will:

None of the above

Mario and Sam are the only two consumers in the market for Pineapples. Mario demand function is given by Q = 30 - 10P while Sam's demand function is given by Q = 30 - 5P . Which of the following functions describes the total market demand curve when P is between 3 and 4:

P = 6 - 0.2Q

Suppose X is a normal good. If price of X increases, which of the following scenario will lead to an increase in total revenue for X:

Price elasticity of demand for X < 1

Assume you're in the market for a new Wintendo Nii gaming system. Which of the following events would shift your demand for the Nii gaming system?

Prices for Nicrosoft's Ybox gaming system decrease. A new study comes out touting the health benefits of playing simulated sports video games. Middle East turmoil causes a disruption in the global oil supply, decreasing the value of your stock portfolio. (Chapter 6 Question 15)

The admissions office at State University is looking for students who are smart, hardworking, and dedicated to the community. When ranking potential students, they determine that if potential student A is better than potential student B in two out of the three characteristics, A will be ranked higher. Similarly, if B is better than A on at least two out of the three characteristics, then B will be ranked higher. Otherwise, the admissions office remains indifferent. • Sally Smartypants is very smart, quite lazy, and has average dedication to the community. • Dedicated DeAndre is fairly smart, extremely hardworking, and not at all dedicated to the community. • Happy Harry is not smart, has an average work ethic, and is extraordinarily dedicated to the community. Whom does the admissions office prefer between Sally Smartypants and Dedicated DeAndre? Whom does the admissions office prefer between Dedicated DeAndre and Happy Harry? Whom does the admissions office prefer between Sally Smartypants and Happy Harry? Are the preferences of the admissions office transitive? In an attempt to improve the student body, the admissions office decides to adjust its ranking criteria. Under the new criteria, student A is ranked higher than student B only if A is smarter, more hardworking, and more dedicated to the community. If students A and B are equally smart, hardworking, and dedicated to the community, then the admissions office is indifferent between them. In all other cases, the office simply states that A and B are not comparable. Are the new preferences over students complete, reflexive, or transitive?

Sally Smartypants Dedicated DeAndre Happy Harry no They are reflexive, They are transitive. (Chapter 3 Question 4)

It is possible to have an industry in which all firms make zero economic profits in long-run equilibrium.

T When there is economic profit there is entry of new firms and when there is loss there is exit of firms.Firms in a perfectly competitive industry will earn zero economic profit in the long run if price is less than cost and many firms will leave the industry.

The cost function C(y) = 10 + 3y has marginal cost less than average cost for all levels of output.

T c(y)=10+3y MC=3 AC=TC/y=(10+3y)/(y)=10/y+3 AC>MC for all values of y

If there are increasing returns to scale, then average costs are a decreasing function of output.

T if the production function has decreasing returns to scale then the average cost of production increases if the production function has increasing returns to scale then average cost of production decreases so average decrease in case of increasing returns to scale so this statement is true

The short-run industry supply curve can be found by horizontally summing the short-run supply curves of all the individual firms in the industry.

T the industry supply curve is a sum of 3each quantity supplied of the individual firms at each price and the quantity is non the horizontal axis so the sum is a horizontal sum of individual firms for the industry

If a profit-maximizing competitive firm has constant returns to scale, then its long-run profits must be zero.

T?

Nicole spends all her income on books and pencils. If the prices of books and pencils double, which statements are true about her budget line?

The budget line makes a parallel shift inward. The vertical and horizontal intercepts both decrease by 50%. (Chapter 2 Question 13)

The following graph shows the choices made by an individual at three different prices. Which of the following statements are correct?

The choices violate the WARP. The choices violate the SARP. (Chapter 7 Question 19)

Joe Bob has a cousin Don who consumes goods 1 and 2. Don thinks that 3 units of good 1 is always a perfect substitute for 2 units of good 2. Which of the following utility functions is the only one that would not represent Don's preferences?

U( x 1, x 2) = min {2 x 1, 3 x 2 }.

Where x is the quantity of good X demanded, the inverse demand function for X a. expresses 1/x as a function of prices and income. b. expresses the demand for x as a function of 1/px and income, where px is the price of x. c. expresses the demand for x as a function of 1/px and 1/m, where m is income. d. specifies 1/x as a function of 1/px and 1/m, where m is income. e. None of the above.

e. None of the above.

Will's utility function can be written as u = 6G + M, where G represents pairs of gloves and Mrepresents pairs of mittens. Based on Will's utility function, which of the following statements are true?

Will is willing to trade 6 pairs of mittens for 1 pair of gloves. For Will, gloves and mittens are perfect substitutes. (Chapter 4 Question 6)

The graph below shows three consumer's choices at three different prices. Which of the following statements are correct?

X is directly revealed preferred to Y. X is indirectly revealed preferred to Z. Y is directly revealed preferred to Z. (Chapter 7 Question 7)

There are many examples of goods that go together in a particular proportion, such as left and right shoes, or hats with scarves. The utility function that represents preferences for such goods takes a form such as 𝑢(𝑥1,𝑥2)=min{8𝑥1,24𝑥2}u(x1,x2)=min{8x1,24x2}. Demand based on this function cannot be found using the normal method of setting the MRS equal to the price ratio. However, with inspection, it quickly becomes clear that the optimal bundle with such a function must occur where the two terms inside the min function are equal. Otherwise, one constrains the other. It is possible to solve for demand functions using this information. Find the demand functions for 𝑥1x1 and 𝑥2x2 based on the given utility function for any prices 𝑝1p1 and 𝑝2p2 and any income 𝑚m. Demand for 𝑥1x1 is given by __________. Demand for 𝑥2x2 is given by __________. Are 𝑥1x1 and 𝑥2x2 normal goods? Based on the demand function for 𝑥1x1 from Part 1, what is the relationship between goods 1 and 2?

X1 = 3m/3P1+P2 X2= m/3p1/P2 Both are normal goods. They are complements because 𝑥1 is inversely related to 𝑝2. (Chapter 6 Question 14)

Consider the following diagram, which shows an indifference curve and eight additional bundles of good 1 and good 2, labeled 𝑥1x1 through 𝑥9x9. The set of bundles weakly preferred to 𝑥1x1 includes the following: The set of bundles strictly preferred to 𝑥1x1 includes the following:

X1, X2, X3, X5, X6, X7, X8, X9 X2, X5, X6, X7, X8, X9 (Chapter 3 Question 5)

An army officer is charged with managing the food budget efficiently and appropriately. The officer is aware that there are two main suppliers that produce meals ready to eat (MREs) for soldiers in war zones. One supplier specializes in Mexican-themed MREs that feature hot sauce and corn, while the other specializies in Italian-inspired MREs that contain spaghetti and sauce. The main difference, however, is that the Mexican-themed MREs offer twice as many calories, designed either for sharing or to account for two meals when time to eat is limited. The officer thinks both options are equally valid; his preferences over MREs can be represented by 𝑢(𝑥1,𝑥2)=12𝑥1+6𝑥2u(x1,x2)=12x1+6x2, where 𝑥1x1 is Mexican-style MREs and 𝑥2x2 represents Italian-style MREs. The current price of 𝑥1x1 is $27, and the price of 𝑥2x2 is $9. Find demand for 𝑥1 and 𝑥2 at the current prices for any level of income 𝑚. Demand for 𝑥1x1 is given by __________. Demand for 𝑥2x2 is given by __________. Are 𝑥1x1 and 𝑥2x2 normal goods? If the demand function for a good has an inverse relationship with the price of another good, those goods are complements. If there is a direct relationship between the demand for one good and the price of another, those goods are substitutes. In this problem, what is the relationship between goods 1 and 2?

X1=0 X2=m/P2 At current prices, 𝑥2x2 is normal while 𝑥1x1 is not. However, if the price ratio were to drop below 2, 𝑥1x1 would be normal while 𝑥2x2 would not. While their demand functions do not contain the prices of the other good, they are contingent on the price ratio. If the price ratio crosses a threshold, demand for one good can go to zero. This is the special case of perfect substitutes. (Chapter 6 Question 16)

Suppose we've observed several consumption bundles chosen at different prices and calculated the cost of each in Table 1. Recall that the diagonal terms in this table measure how much money the consumer spends at each choice. The other entries in each row measure how much the consumer would have spent if she had purchased a different bundle. Are there any bundles that are indirectly revealed as preferred to another bundle? According to the above data, do the consumer's preferences satisfy the Strong Axiom of Revealed Preference (SARP)?

Yes, bundle 3 is indirectly revealed as preferred to bundle 2. No, because there is at least one instance where bundle x is (directly or indirectly) revealed as preferred to bundle y and bundle y is (directly or indirectly) revealed as preferred to bundle x. (Chapter 7 Question 12)

Consider three goods 𝑥x, 𝑦y, and 𝑧z with corresponding prices 𝑝𝑥px, 𝑝𝑦py, and 𝑝𝑧pz. If a consumer has income m, her budget equation can be written as 𝑝𝑥𝑥+𝑝𝑦𝑦+𝑝𝑧𝑧=𝑚pxx+pyy+pzz=m. Can we graph this budget set? Suppose that 𝑝𝑥px= 6, 𝑝𝑦py= 3, 𝑝𝑧pz = 6, and 𝑚m = 340. If 𝑧 is fixed at a quantity of 3, simplify and complete the budget equation below: __X+__Y=__

Yes. Three-dimensional graphs are possible but challenging to graph by hand and may be less intuitive to use than two-dimensional graphs. 6X+3Y=322 (Chapter 2 Question 12)

In the graph below, you initially maximize utility at point A relative to the B1 budget constraint. Your income changes, which puts you on a new budget constraint (B2). If good 1 is normal and good 2 is inferior, then point _____ is the new optimal bundle of consumption.

Z (Chapter 6 Question 3)

The budget line is represented by the equation 𝑝1𝑥1+𝑝2𝑥2=𝑚p1x1+p2x2=m, where: 𝑥1x1 is the quantity of good 1, which is plotted on the horizontal axis; 𝑝1p1 is the price of good 𝑥1x1; 𝑥2x2 is the quantity of good 2, which is plotted on the vertical axis; 𝑝2p2 is the price of good 𝑥2x2; and 𝑚m is income. Which of the following occurrences would cause a budget line to become flatter?

a per-unit tax on 𝑥2x2 an increase in 𝑝2p2 a decrease in 𝑝1p1 (Chapter 2 Question 14)

According to the supply and demand theory, doesn't matter whether the sales tax is collected from the sellers or collected from the consumer, the burden of the tax is heavier for consumers if demand is more elastic than supply

false

Ambrose has an indifference curve with equation x 2 = 20 - 4 x 11/2. When Ambrose is consuming the bundle (4, 16), his marginal rate of substitution is 25/4.

false

On the planet Homogenia every consumer who has ever lived consumes only two goods, x and y, and has the utility function U( x, y) = xy. The currency in Homogenia is the fragel. In this country in 1900, the price of good 1 was 1 fragel and the price of good 2 was 2 fragels. Per capita income was 108 fragels in 1990. In 2000, the price of good 1 was 3 fragels and the price of good 2 was 4 fragels and per capita income increased to 120 a. The quantity of x that's consumed in 1990 and 2000 are: [a] and [b] respectively b. The quantity of y that's consumed in 1990 and 2000 are: [c] and [d] respectively c. The Laspeyres quantity index for the quantity level in 2000 relative to the price level in 1900 is [e] (rounded to 2 decimals) d. The Paasche quantity index for the quantity level in 2000 relative to the price level in 1900 is [f] (rounded to 2 decimals) e. The Laspeyres price index for the price level in 2000 relative to the price level in 1900 is [g] (rounded to 2 decimals) f. The Paasche price index for the price level in 2000 relative to the price level in 1900 is [h] (rounded to 2 decimals)

a/b. utility function: U(x,y)=xy budget constraint: per capita income (M)= price of good x(px)*quantity of x consumed (x) +price of good y(py)*quantity of y consumed (y) M=PxX+PyY under the marshallian Lagrangian method: (where R= langrangian variable) L=U(X,Y)+R*(M-PxX-PyY) L=XY+R*(M-PxX-PyY) dL/dR = Lr = M-PxX-PyY = 0 dL/dX = Lx = Y -RPx = 0 Hence Y = RPx dL/dY = Ly = X -RPy = 0 Hence X = RPy Dividing those equations we get: Y/X = Px/Py Hence PyY = PxX Hence using this relation in the budget constraint we get: M = PyY + PxX = PyY + PyY = 2PyY Hence Y = M/2Py X = M/2Px In 1990, Px = 1, Py = 2, M = 108 Y = M/2Py=108/2(2)=27 X = M/2Px=108/2(1)=54 Hence Y = 27, X = 54 In 2000, Px = 3, Py = 4, M = 120 Hence Y = M/2Py=120/2(4)=15 X = M/2Px=120/2(3)=20 Hence Y = 15, X = 20 C. QL = (15*2 + 20*1) / (27*2 + 54*1) = 50/108 = 0.46296 = 0.46 (Rounded to two decimal places) d. QP = (15*4 + 20*3) / (27*4 + 54*3) = 120/270 = 0.44444 = 0.44 (Rounded to two decimal places) e. PL = (27*4 + 54*3) / (27*2 + 54*1) = 270 / 108 = 2.5 f. PP = (15*4 + 20*3) / (15*2 + 20*1) = 120/50 = 2.4

In addition to finding the optimal bundles given prices and income, utility maximization can be used to find individual demand functions at any prices and income. Setting up the problem and solving it are the same, except that the prices of each good and the income will be left in variable form (economists call these parameters or exogenous variables). Perfect substitutes almost always have boundary solutions, which are found in a different way than interior optima. The demand functions from perfect substitutes are contingent; specifically, they depend on the slopes of the indifference curves and the budget line. Consider a utility function 𝑢(𝑥1,𝑥2)=𝑎𝑥1+𝑏𝑥2u(x1,x2)=ax1+bx2 and a general-form budget line 𝑝1𝑥1+𝑝2𝑥2=𝑚p1x1+p2x2=m. If the absolute value of the slope of the indifference curve, 𝑎/𝑏a/b, is greater than the absolute value of the slope of the budget line, 𝑝1𝑝2p1p2, the consumer will find it optimal to consume In such a case, demand for good 1 is 𝑥∗1(𝑝1,𝑝2,𝑚)= and demand for good 2 is 𝑥∗2(𝑝1,𝑝2,𝑚)x2∗(p1,p2,m) = If the reverse were true, 𝑎𝑏<𝑝1𝑝2ab<p1p2, demand for good 1 would be 𝑥∗1(𝑝1,𝑝2,𝑚)=x1∗(p1,p2,m)= and demand for good 2 would be 𝑥∗2(𝑝1,𝑝2,𝑚)=x2∗(p1,p2,m)=

all of good 1 she can afford and none of good 2. m/p1 0 0 m/p2 (Chapter 5 Question 5)

Colette consumes goods x and y. Her indifference curves are described by the formula y = k/( x + 7). Higher values of k correspond to better indifference curves.

b. Colette prefers bundle (12, 16) to bundle (16, 12).

Good 𝑥x is a mystery good. Demand for good 𝑥x is given by the following function:𝑥=18𝑚−3𝑝𝑦+36𝑝𝑥 Which of the following goods might be good x? Which of the following might be good y?

basic meals prepared at home meals at nice restaurants (Chapter 6 Question 7)

Which of the following utility functions represent preferences of a consumer who does not have homothetic preferences?

c. U(x, y) = x + y^5.

Chris's utility function is U = Apple x Banana. If the price of apple decreases and at the same time Chris's income also changes in a way that his old consumption bundle is still on his new budget line, then Chris will still consume the old consumption bundle

false

If all prices are doubled and money income is left the same, the budget set does not change because relative prices do not change.

false

If good 1 is on the horizontal axis and good 2 is on the vertical axis, then an increase in the price of good 1 will not change the horizontal intercept of the budget line.

false

If preferences are transitive, more is always preferred to less.

false

If the nominal interest rate remains constant but the inflation rate doubles, then the real interest rate must be halved.

false

Josephine buys 3 quarts of milk and 2 pounds of butter when milk sells for $2 a quart and butter sells for $1 a pound. Wilma buys 2 quarts of milk and 3 pounds of butter at the same prices. Josephine's marginal rate of substitution between milk and butter is greater than Wilma's.

false

Maximilian consumes two goods, x and y. His utility function is U( x, y) = max { x, y }. Therefore x and y are perfect substitutes for Max.

false

The Laspeyres price index differs from the Paasche price index because the Laspeyres index holds prices constant and varies quantities while the Paasche price index holds quantities constant and varies prices.

false

Wanda Lott has the utility function U( x, y) = max { x, y }. Wanda's preferences are convex.

false

You receive $20 every year for forever, starting right now at current period. The interest rate is and forever will be 10%. The present value of this income stream is $200

false

Consider a consumer with a utility function of 𝑢(𝑥1,𝑥2)=2𝑥1+𝑥2u(x1,x2)=2x1+x2 defined over the quantities of two goods (𝑥1x1 is the quantity of good 1 and 𝑥2x2 is the quantity of good 2). The prices of these goods are 𝑝1p1 (for good 1) and 𝑝2p2 (for good 2). If the prices of the two goods are equal (i.e., 𝑝1=𝑝2p1=p2), then the consumer will spend her entire income on _________ and her income-offer curve will be ___________ Finally, the Engel curve for good 1 will be (assume the horizontal axis represents the amount of good 1 and the vertical axis represents the amount of good 2)

good 1, a horizontal a line through the origin with a slope of p1 (Chapter 6 Question 6)

There are 4 people in the market for Pineapple Pizza. The reservation prices for these 4 people are ($15, $12, $10, $6) respectively. Assume the price of a Pineapple Pizza is $8. The gross consumer's surplus in this market is: $[a] The net consumer's surplus in this market is: $[b]

gross consumer surplus = 15 + 12 + 10 =37 Net surplus =(15-8) + (12-8) + (10-8 =7 + 4 + 2=13

Peter is very particular about how he dresses. He likes nice suits and nice shoes, but only if they match perfectly. He wants as many matching combinations as possible, but he is not made happier at all by either extra shoes that match no suit or extra suits that match no shoes. Let 𝑥x represent pairs of shoes and 𝑦y represent suits. On the graph below, use the straight-line tool to plot indifference curves for Peter if he has three matching sets and five matching sets, respectively.

look at graph (Chapter 3 Question 10)

When riding his bicycle, Jeremy always consumes bottles of water and granola bars in fixed proportions. His utility function is 𝑢=min{𝑊,12𝐺}u=min{W,12G}, where 𝑊W is the number of bottles of water and 𝐺G is the number of granola bars. Based on Jeremy's utility function, use the line tool to draw the indifference curves where 𝑢=1u=1and 𝑢=2u=2. Note that you will need to use two line segments for each indifference curve and extend the line segments to the border of the graphing region.

look at graph (Chapter 4 Question 8)

Jeanine has $20 in her pocket and faces prices (𝑝1,𝑝2)(p1,p2) = (4, 2) for apples and oranges, respectively. Consider two possible consumption bundles, point A = (2, 5) and point B = (3, 4). Use the straight line tool to graph Jeanine's budget constraint and then use the point plotting tool to plot these two potential consumption bundles. Assume that Jeanine spends all of her income when maximizing utility. What can we say about Jeanine's preferences between points A and B?

look at graph She prefers point B, even though point A is affordable. (Chapter 7 Question 3)

Susan likes to attend live sporting events. Specifically, she likes both football games and basketball games, and she has convex preferences over both. The graph below shows Susan's indifference curve that goes through the bundle (3,3), which represents Susan's attendance at three football games and three basketball games last year. She would prefer attending four of each, and she is indifferent between (4,4), (1,16), and (16,1). Using the point tool, plot those bundles, and then use the curved-line tool to graph Susan's indifference curve through them. Using the indifference curves on the graph in Part 1, evaluate the following statements as true or false. (2,8) is weakly preferred to (4,4). (1,16) is strictly preferred to (4,4). (16,1) is at least as good as (3,3). (3,3)~(1,9) (9,1)~(2,8)

look at graph true false true true false (Chapter 3 Question 6)

Label the slope and intercept terms on the budget diagram, in terms of 𝑝1p1, 𝑝2p2, and 𝑚m, where 𝑝1p1 is the price of 𝑥1x1, 𝑝2p2 is the price of 𝑥2x2, and 𝑚m is income.

look at graph (Chapter 2 Question 2)

Consider the budgeting decisions of a consumer who spends money on gasoline and other goods. The consumer has income of $250. The price of gasoline is $2.50 per gallon. If the other good is a composite good, use the line tool to draw the budget line for this consumer.

look at graph (Chapter 2 Question 4)

Mike's income is $240. If the price of a shirt is $15 and pants cost $30 each, use the line tool to draw Mike's budget line. Mike's income increases to $300. The price of a shirt drops to $10 and the price of pants decreases to $25. Redraw Mike's budget line.

look at graphs (Chapter 2 Question 9)

Place the indifference curve diagrams in the appropriate category.

look at graphs (Chapter 3 Question 12)

It's time to practice graphing budget lines. Suppose 𝑝1=2p1=2, 𝑝2=3p2=3, and 𝑚=30m=30. Use the line tool to graph the budget line. Suppose 𝑝1=2p1=2, 𝑝2=2p2=2, and 𝑚=40m=40. Use the line tool to graph the budget line. Suppose 𝑝1=2p1=2, 𝑝2=0p2=0, and 𝑚=10m=10. Use the line tool to graph the budget line. Now suppose 2𝑝1=𝑝22p1=p2 and 𝑚=8𝑝2m=8p2. Use the line tool to graph the budget line.

look at graphs (Chapter 2 Question 3)

The utility-maximizing bundle of 𝑥1x1 and 𝑥2x2 may, in some instances, be found at a point of tangency between the budget line and an indifference curve. In other instances, the utility-maximizing bundle will be found at a corner point—that is, where the quantity consumed of one good is zero. For which types of indifference curves shown below will the utility-maximizing bundle definitely be found at a corner point?

look at graphs (A, B) (Chapter 5 Question 10)

Eddie has a new hybrid car that can use either gasoline or electricity. Eddie doesn't care which source of energy he uses; he cares only about how many miles he is able to drive. Let x represent miles driven using gasoline and y represent miles driven using electricity. On the graph below, use the straight-line tool to draw indifference curves for Eddie when he drives 200 miles in a month and 300 miles in a month. What is Eddie's marginal rate of substitution (MRS) between miles driven with gasoline and miles driven with electricity?

look at the graph -1 (Chapter 3 Question 9)

In addition to finding the optimal bundles given prices and income, utility maximization can be used to find individual demand functions at any prices and income. Setting up the problem and solving it are the same, except that the prices of each good and the income will be left in variable form (economists call these parameters or exogenous variables). Consider a utility function that represents preferences over perfect complements: 𝑢(𝑥1,𝑥2)=min{50𝑥1,25𝑥2}u(x1,x2)=min{50x1,25x2}. What are the demand functions 𝑥∗1(𝑝1,𝑝2,𝑚)x1∗(p1,p2,m) and 𝑥∗2(𝑝1,𝑝2,𝑚)x2∗(p1,p2,m)? 𝑥∗1(𝑝1,𝑝2,𝑚)= 𝑥∗2(𝑝1,𝑝2,𝑚)=x2∗(p1,p2,m)=

m/p1+2p2 2m/p1+2p2 (Chapter 5 Question 6)

Tammie strictly prefers bundle A, which is 4 bottles of water and 3 hamburgers, to bundle B, which is 4 bottles of water and 2 hamburgers. She strictly prefers bundle B to bundle C, which is 3 bottles of water and 1 hamburgers. If 𝑥1x1 is the quantity of bottles of water and 𝑥2x2 is the quantity of hamburgers, which of the following utility functions would NOT represent Tammie's preferences?

min{x1,x2} (Chapter 4 Question 3)

The diagram below shows a budget set, bounded by the budget line. What property of well-behaved consumer preferences ensures that the utility-maximizing bundle will lie on the budget line, rather than on an interior point of the budget set?

monotonicity (Chapter 5 Question 1)

Preferences are said to be monotonic if

more is always preferred to less.

Suppose that, at prices (𝑝1,𝑝2)=(4,3)(p1,p2)=(4,3) , Alice chooses to consume the bundle(𝑥1,𝑥2)=(3,4)(x1,x2)=(3,4) . Is the bundle directly revealed preferred to the bundle(𝑦1,𝑦2)=(4,3)(y1,y2)=(4,3) ?

no (Chapter 7 Question 2)

Robert loves reading and normally buys both (paper) books and ebooks. We observe him making the following choices: When the price of books and ebooks is (𝑝𝑋𝑏,𝑝𝑋𝑒)=(7,4)(pbX,peX)=(7,4), Robert buys the bundle 𝑋=(2,4)X=(2,4) (the first number refers to the number of books, the second to the number of ebooks bought). When (𝑝𝑌𝑏,𝑝𝑌𝑒)=(4,6)(pbY,peY)=(4,6), he buys 𝑌=(2,2)Y=(2,2). Finally, when (𝑝𝑍𝑏,𝑝𝑍𝑒)=(8,5)(pbZ,peZ)=(8,5), he buys 𝑍=(1,3)Z=(1,3). Is bundle X indirectly revealed preferred to bundle Z?

no (Chapter 7 Question 5)

Anne likes to go to the cinema and to the theatre. When the prices of a cinema ticket and of a theatre ticket are (10,15), Anne goes to both the cinema and the theatre twice a month. The cinema where she normally goes introduces a special offer: all tickets will cost $7 for a month. At the same time, the local theatre decides to increase the price of a ticket to $18. At these new prices, Anne goes to the cinema three times and to the theatre only once. Do her choices violate the WARP?

no (Chapter 7 Question 9)

Juliana's optimal consumption of movie tickets is given by the function 𝑥∗1=3𝑚5𝑝1x1∗=3m5p1, where 𝑚m is her income and 𝑝1p1 is the price of a movie ticket. According to Juliana's preferences, movie tickets are a(n) ___ good Assuming her income (𝑚=m=500.00) increases by $100.00 and the price of a movie ticket is 𝑝1=p1= 2, by how many units does her consumption of movie tickets change?

normal good 30 (Chapter 6 Question 1)

Sort the following statements to match them with their respective terms:

normal: An increase in income results in an increase in the quantity of good A. inferior: A decrease in income results in an increase in the quantity of good A. complete: An increase in the price of good A results in a decrease in the quantity of good B. giffen: An increase in the price of good A results in an increase in the quantity of good A. substitut: A decrease in the price of good A results in a decrease in the quantity of good B. (Chapter 6 Question 12)

Hans has $27 which he decides to spend on x and y. Commodity x costs $16 per unit and commodity y costs $10 per unit. He has the utility function U( x, y) = 5 x 2 + 2 y 2 and he can purchase fractional units of x and y. Hans will choose

only b

A consumer is choosing a bundle of two different goods, good 1 (𝑥1x1) and good 2 (𝑥2x2). Her utility function is given by 𝑢(𝑥1,𝑥2)=min[𝑥1,2𝑥2]u(x1,x2)=min[x1,2x2] and the prices of the two goods are 𝑝1p1 for good 1 and 𝑝2p2 for good 2. The consumer has income of 𝑚m to spend on these two goods. Based on the utility function, the consumer views goods 1 and 2 as Suppose that the price of good 1 is 𝑝1=$2p1=$2 and the price of good 2 is 𝑝2=$6p2=$6 and that the consumer has $100 to spend on the two goods. How many units of good 1 will she buy in her optimal bundle? How many units of good 2 will she buy in her optimal bundle?

perfect complements 20 10 (Chapter 5 Question 8)

Jorge consumes two goods, energy bars and bottled water. His demand for energy bars is given by 𝑥𝑏𝑎𝑟𝑠=𝑚5𝑝𝑏𝑎𝑟𝑠+𝑝𝑤𝑎𝑡𝑒𝑟xbars=m5pbars+pwater, where 𝑚m is Jorge's income, 𝑝𝑏𝑎𝑟𝑠pbars and 𝑝𝑤𝑎𝑡𝑒𝑟pwater are the prices of energy bars and bottled water, respectively, and 𝑥𝑏𝑎𝑟𝑠xbars is the number of energy bars. Given the form of Jorge's demand function, we can conclude that energy bars and bottled water are ________ to him. Suppose the price of a bottle of water is $4 and that Jorge has $100 to spend on these two goods. This means that his demand function for energy bars is and his inverse demand function is

perfect complements Xbars = 100/ 5Pbars +4 Pbars = 100-4Xbars/ 5Xbars (Chapter 6 Question 13)

Rob is always willing to trade one Reese's Piece for one M&M. For Rob, Reese's Pieces and M&M's are __ Use the line tool to draw an indifference curve based on Rob's preferences that passes through the point shown on the diagram below.

perfect substitutes look at graph (Chapter 3 Question 8)

The consumer is indifferent to the bundles at points A and B. We know that the consumer has strictly convex preferences. Based on this information, we can conclude that the consumer ___

pont C is tricot preferred to Point A and B (Chapter 3 Question 15)

The table below shows a consumer's yearly consumption schedule for both ramen and steak for yearly incomes between $10,000 and $100,000. According to this information, the Engel curve for ramen has what type of slope?

positive slope for low incomes, negative slope for high incomes (Chapter 6 Question 5)

Mapping the relationship between income and quantity demanded for a good, Engel curves have a ________ slope for normal goods and a ___________ slope for inferior goods.

positive, negative (Chapter 6 Question 8)

The demand function for a high school football match ticket is q = 30 - 5p, at what price will the total revenue be maximized?

q = 30 - 5p TR= PxQ 20 = 30 - 5(2) TR=40 15 = 30 - 5(3) TR=45 10 = 30 - 5(4). TR= 40 5 = 30 - 5(5). TR=25

The demand function is given by the equation: q(p) = 100 - 0.8p. The inverse demand function then is described by:

q(p) = 100 - 0.8p 0.8p=100-Q P=125-1.25Q p(q) = 125 - 1.25q

A consumer faces a trade-off between working (L) and leisure (R). Assume she consumes apple only. She initially earns an hourly wage of $10 and the price of an apple is $1 per unit. She later got a promotion and her hourly wage increases to $18. However the price of an apple now increases to $1.5. Her real wage is changed (either increase or decrease) by: _____

real wage = wage/price Real wage original = original wage/original price real wage original = 10/1=10 real wage new = new wage/new price real wage new = 18/1.5=12 real wage change = real wage new -real wage original real wage change = 12-10=2

Suppose the market demand is given by the equation: qd = 100 - 10p and the market supply is given by the equation: qs= 10 + 5p. Suppose the government imposes a price ceiling on this good at a price of $8. What would be the change in equilibrium quantity demanded in this market after the price ceiling is in place? ____

set Qd=Qs you get 6 that is less than 8 so no change ??

Consider a budget line with daffodils on the horizontal axis (x1) and begonias on the vertical axis (x2). The town, seeking to encourage neighborhood beautification projects, offers a subsidy of $2 subsidy per begonia. The slope of the budget line will

steepen (Chapter 2 Question 10)

Joaquim always chooses pizza and soda for lunch, rather than ramen noodles and biscuits. Joaquim ___ Lenore, when confronted with the choice of pizza and soda or ramen noodles and biscuits, sometimes chooses pizza and soda and sometimes chooses ramen noodles and biscuits. Which of the following statements could be true?

strictly prefers pizza and soda over ramen Lenore weakly prefers pizza and soda to ramen noodles and biscuits. Lenore is indifferent between pizza and soda and ramen noodles and biscuits. Lenore weakly prefers ramen noodles and biscuits to pizza and soda. (Chapter 3 Question 1)

if the only information we had about Goldie were that she chooses the bundle (6, 6) when prices are (6, 7) and she chooses the bundle (10, 0) when prices are (2, 5), then we could conclude that

the bundle (6, 6) is revealed preferred to (10, 0) but there is no evidence that she violates WARP.

Renaldo prefers apples to parsnips and okra to apples. And, given a choice between parsnips and okra, he will always choose parsnips. Renaldo's preferences violate the assumption of __

transitivity (Chapter 3 Question 3)

A consumer is endowed with a positive amount of two goods. She has to sell some of one goods to consume more of the other. Assuming she has no other sources of income, her endowment point will be on her budget line.

true

A consumer's surplus is the difference between his reservation price and the actual price he paid for the good

true

If the real interest rate is > 0, then you are able to sacrifice less than 1 unit of current consumption for 1 unit of future consumption

true

If two goods are substitutes, then an increase in the price of one of them will increase the demand for the other.

true

In a scenario where two goods (a and b) are perfect complements, if the price of good adecreases, then the change in demand for good a is entirely due to the income effect.

true

The Laspeyres index of prices in period 2 relative to period 1 tells us the ratio of the cost of buying the period 1 bundle at period 2 prices to the cost of buying the period 1 bundle at period 1 prices.

true

The strong axiom of revealed preference requires that if a consumer chooses x when he can afford y and chooses y when he can afford z, then he will not choose z when he can afford x.

true

The utility function U( x 1, x 2) = 2ln x 1 + 3ln x 2 represents Cobb-Douglas preferences.

true

Tom is allowed to work 5 hours a day at his main job at a factory. To earn extra income, he takes a second job at a fast food restaurant. Even though is second job offers a lower wage, he can work as many hours as he would like. If there is an increase in the wage rate for his factory job, Tom will reduce the number of hours he works at the fast food place, assuming leisure is a normal good.

true

Marissa always consumes 4 Oreos with 3 ounces of milk. She has no use for Oreos or milk if they are not consumed in this proportion. If Oreos are represented as 𝑅R and an ounce of milk is represented as 𝑀M, which of the following utility functions would accurately represent her preferences?

u = min {3R, 4M} (Chapter 4 Question 7)

Recall that homothetic preferences map into income offer curves that are straight lines through the origin. Which of the following functions satisfy the condition of homothetic preferences?

u=x1^6x2^2 u=7x1+4x2 u=min(5x1, 10x2) (Chapter 6 Question 10)

In what situations will the tangency condition be sufficient for utility maximization? The tangency condition means the budget line is tangent to the indifference curve. A condition is sufficient if that condition by itself ensures that utility is being maximized.

when preferences are convex (Chapter 5 Question 4)

if you have an income of $30 to spend, if commodity 1 costs $5 per unit, and if commodity 2 costs $10 per unit, then the equation for your budget line can be written

x 1 + 2 x 2 = 6.

Suppose that, at prices (𝑝1,𝑝2)=(2,3)(p1,p2)=(2,3) , Mary chooses to consume the bundle (𝑥1,𝑥2)=(3,4)(x1,x2)=(3,4) . Is the bundle directly revealed preferred to the bundle (𝑦1,𝑦2)=(4,3)(y1,y2)=(4,3) ?

yes (Chapter 7 Question 1)

The graph below shows indifference curves for perfect substitutes, which have the general-form utility function 𝑢(𝑥,𝑦)=𝑎𝑥+𝑏𝑦u(x,y)=ax+by. If an individual has the preferences represented by the indifference curves above and can afford at least one of each good, will she ever choose to consume zero of one good? The graph below shows indifference curves for perfect complements, which have the general-form utility function 𝑢(𝑥,𝑦)=min{𝑎𝑥,𝑏𝑦}u(x,y)=min{ax,by}. If an individual has the preferences represented by the indifference curves above and can afford at least one of each good, will he ever choose to consume zero of one good? The graph below shows indifference curves for Cobb-Douglas preferences, which have the general-form utility function 𝑢(𝑥,𝑦)=𝑥𝑎𝑦𝑏u(x,y)=xayb. If an individual has the preferences represented by the indifference curves above and can afford at least one of each good, will she ever choose to consume zero of one good? The graph below shows indifference curves for quasilinear preferences, of which one common general form is 𝑢(𝑥,𝑦)=𝑎𝑥‾‾√+𝑏𝑦u(x,y)=ax+by. If an individual has the preferences represented by the indifference curves above and can afford at least one of each good, will he ever choose to consume zero of one good?

yes no no yes (Chapter 4 Question 11)

Recall that the Laspeyres price index (P.I.) uses the old bundle as weights and the Paasche price index uses the new bundle as weights. If the prices of all goods double and your income triples,

your income increase has exceeded the increase in the Laspeyres P.I. and has also exceeded the increase in the Paasche P.I.

Tricia is always willing to trade 5 red pencils for 1 blue pencil. If we represent red pencils as 𝑅 and blue pencils as 𝐵, we can write Tricia's utility function as 𝑢 = __________.

𝑅+5 𝐵 (Chapter 4 Question 4)

At some given prices, we observe the consumer buying bundle 𝑋 in the graph below. Suppose that preferences are strictly convex, so that for each budget set, there is a unique demanded bundle. Which of the following statements is correct?

𝑋 is directly revealed as preferred to 𝑌. (Chapter 7 Question4)

Start with the Cobb-Douglas utility function 𝑢=𝑥15.0𝑥25.0u=x15.0x25.0. If we apply the monotonic transformation 𝑧=𝑢110z=u110, the resulting utility function is 𝑧=__________.

𝑥10.5𝑥20.5x10.5x20.5 (Chapter 4 Question 10)

The table below shows Kristy's purchases of truffles (𝑥1x1) and pears (𝑥2x2) at varying levels of income. Assuming that Kristy is maximizing her utility, which utility function best represents her preferences?

𝑥1^0.80𝑥2^0.20 (Chapter 5 Question 12)

Recall that the equation for a line can be written as 𝑦=𝑚𝑥+𝑏y=mx+b, where 𝑚m is the slope of the line and 𝑏b is the vertical intercept. When working with good 𝑥1x1 on the horizontal axis and good 𝑥2x2 on the vertical axis, the equation would be written as 𝑥2=𝑚𝑥1+𝑏x2=mx1+b. Jordan has income of $460.00, the price of 𝑥1x1 is $5, and the price of 𝑥2x2 is $4. Her budget line will be written as:

𝑥2=−1.25𝑥1+115.00x2=−1.25x1+115.00 (Chapter 2 Question 5)