can play football. Billy t him $1 each and Spinach ' d a serving of spinach has day on food and he always llowing is necessarily 4. Billy Bob wants to gain . consumes only milk shakes an costs $2 per serving. A milk 200 calories. Billy Bob never sp consumes at least 8,000 calories per true? Billy Bob consumes at least 9 milk shakes a. day. . d 'Billy Bob never consumes more than 6 servmgs of splnach a ay. a. b. c. Billy Bob never consumes positive amounts of both goods. d. e. Billy Bob consumes only milk shakes. None of the above. 5. Charlie's utility function is U(A, B) = AB, where A and B are the numbers of apples and bananas, respectively, that he consumes. When Charlie is consuming 15 apples and 90 bananas, if we put apples on the horizontal axis and bananas on the vertical axis, the slope of his indifference curve at his current consumption is a. 215. b. 6. c. -12. d. -l/6. e. -1/12. 6.Paul's utility function is min{x + 3y, 3x + y}. Simon's utility function is min{3x + 9y, 9x + 3y}. Paul and Simon have the same income and face the same prices. a. Paul and Simon will demand the same amount of good x. b. Paul will demand more of good y than Simon. c. Simon will demand more of good y than Paul. (1. Each will prefer the other's consumption bundle to his own. e. None of the above. 7. The prices of goods x and y are each $l. Jane has $20 to spend and is considering choosing 10 units of x and 10 units of y. Jane has nice convex preferences and more of each good is better for her. Where x is drawn on the horizontal axis and y is drawn on the vertical axis, the slope of her indifference 1. Harold lives on Doritos and seafood salads. The price of Doritos is 1 dollar per bag and the price of seafood salads is 2 dollars each. Harold allows himself to spend no more than 1 1 dollars a day on food. He also restricts his consumption to 6,500 calories per day. There are 1,500 calories in a bag of Doritos and 500 calories in a seafood salad. If he spends his entire money budget each day and consumes no more calories than his calorie limit, he can consume up to a. 3 bags of Doritos per day but no more. b. 1 bag of Doritos per day but no more. C. 4 seafood salads per day but no more. d. 4 bags of Doritos per day but no more. e . None of the above. 2. In year 1, the price of good x was $3, the price of good y was $2, and income was $90. In year 2, the price of x was $9, the price of good y was $6, and income was $90. On a graph with x on the horizontal axis and y on the vertical, the new budget line is a. flatter than the old one and lies below it. b . flatter than the old one and lies above it. C . steeper than the old one and lies below it. d. steeper than the old one and lies above it. e . None of the above. 3. Georgina thrives on two goods: pears and bananas. The cost of pears is 30 pesos each and the cost of bananas is 15 pesos each. If her income is 180 pesos, how many pears can she buy if she spends all of her income on pears? a. 9 b. 12 C. 4 d. 6 e . None of the above.curve at the bundle (10, 10) is -2 ( Do you remember what is the slope of the indifference curve ?). a. The bundle (10, 10) is the best she can afford. b. She would be better off consuming more of good x and less of good y. C. She would be better off consuming more of good y and less of good x. d . She must dislike one of the goods. e . More than one of the above is true. 8. Which of the following could possibly change a rational consumer's demand? a. Changing his utility function by cubing it b. Changing his utility function by multiplying it by 3 and subtracting 100 from it C. Increasing all prices and his income by $3 d. Multiplying all prices and income by 2.2 e . More than one of the above 9. Coke and Pepsi are perfect substitutes for Mr. Drinker and the slope of his indifference curves is - 1. One day he bought 2 cans of Coke and 20 cans of Pepsi. (The cans of both drinks are the same size.) a. Coke is less expensive than Pepsi. b . Coke is more expensive than Pepsi. C . Coke and Pepsi cost the same. Mr. Drinker prefers Pepsi to Coke. e . None of the above. 10. If a consumer maximizes her preferences subject to her budget by choosing a consumption bundle where the ratio of her marginal utilities of shelter and food, MUs/ MUF, is greater than the ratio of the prices of shelter and food, ps/pr, then she must a. be consuming food but no shelter. b. be consuming shelter but no food. C . believe that shelter is a "bad." d. be consuming both food and shelter. e . not be spending all of her income.11. Madonna buys only two goods. Her utility function is Cobb-Douglas. Her demand functions have which of the following properties? Her demand for one of the two goods does not depend on income. a. b. Her demand for neither good depends on income. c. Her demand for each of the goods depends on income and on the prices of both goods. , (1. Her demand for each of the two goods depends only on her income and on the price of that good itself. e. One of the goods is an inferior good and the other is a normal good. 12. Fred consumes pork chops and lamb chops and nothing else. When the price of pork chops rises with no change in his income or in the price of lamb chops, Fred buys fewer lamb chops and fewer pork chops. a. Pork chops are a normal good for Fred. b. Lamb chops are a normal good for Fred. 0. Pork chops are an inferior good for Fred. d. Lamb chops are an inferior good for Fred. e. Fred prefers pork chops to lamb chops. 13. Cecil consumes x1 and x2 in xed proportions. He consumes A units of good 1 with B units of good 2. To solve for his demand functions for goods 1 and 2, a. set MUl/MUz = pl/pz and solve for x1. b. solve the following two equations in two unknowns: Axl = sz and P1X 1 + [72962 = m. c. solve the following two equations in two unknowns: Bxl = sz and mm + pzxz = m. (1. you only need to use the equation given by his budget line. 6. use the fact that he spends all of his income on good 1 so long as it is the cheaper good. 14. Goods 1 and 2 are perfect complements and a consumer always consumes them in the ratio of 2 units of good 2 to 1 unit of good 1. If a consumer has an income of $120 and if the price of good 2 changes from $3 to $4, while the price of goodl stays at $1, then the income effect of the price change a. is 4 times as strong as the substitution effect. does not change the demand for good 1. IS exactly twice as strong as the substitution effect. accounts for the entire change in demand. 18 3 times as strong as the substitution effect. {DP-.057 15. Maude thinks delphiniums and hollyhocks are perfect substitutes, one for one. If delphiniums currently cost $2 per unit and hollyhocks cost $3 per unit and 1f the price of delphiniums rises to $7 per unit, a. there will be no change in the demand for hollyhocks. b. the income effect of the change in demand for delphiniums will be bigger than the substitution effect. c. 1/5 of the change will be due to the income effect. (1. the entire change in demand for delphiniums will be due to the substitution effect. 6. 4/5 of the change will be due to the income effect. 16. Will is paid $10 an hour for the rst 40 hours per week that he works. He can also work as many hours overtime as he wishes to. He is paid $15 an hour for every hour that he works beyond 40 hours a week. Leisure is a normal good for Will and he is currently working some overtime. If his hourly wage for the rst 40 hours per week that he works rises to $12 and his wages for overtime remain at $15 per hour, he will choose to work a. fewer hours per week. b. more hours per week. 0. the same number of hours per week. d. more hours per week if and only if his income exceeds his labor income. e. more hours per day if and only if he works less than 20 hours overtime per week. 17. Albert consumes only tangerines and bananas. His only source of income is an initial endowment of 30 units of tangerines and 10 units of bananas. Albert insists on consuming tangerines and bananas in xed proportions, 1 unit of tangerines per 1 unit of bananas. He initially faces a price of $10 per unit for each fruit. The price of tangerines rose to $30 per unit while the price of bananas stayed unchanged. After the price change, he would a. increase his consumption of tangerines by exactly 5 units. 18. Charlie consumes apples and bananas; his utility function is U(a, b) = ab. Charlie's fruit farm yielded 5 apples and 10 bananas. In addition, Charlie has $10 that he was given by a secret admirer. Charlie can buy or sell apples at $2 each and he can buy or sell bananas at $1 each. Charlie will consume more apples and more bananas than he grows. more apples and fewer bananas than he grows. fewer apples and more bananas than he grows. fewer apples and more bananas than he grows. exactly as many apples as he grows and more bananas than he grows. 9999's 19. Goods 1 and 2 are perfect complements and a consumer always consumes them in the ratio of 2 units of good 2 to 1 unit of good 1. If a consumer has an income of $120 and if the price of good 2 changes from $3 to $4, while the price of good 1 stays at $1, then the income effect of the price change is 4 times as strong as the substitution effect. does not change the demand for good 1. is exactly twice as strong as the substitution effect. accounts for the entire change in demand. is 3 times as strong as the substitution effect. 99.0.62 20. The absolute value of Mar's MRS at his current consumption bundle is greater than 3. (That is, MU l/MU2 > 3). Mars has convex preferences and is currently consuming positive amounts of both goods. a. Taking away some of good 1 and giving Mars 3 units of good 2 for each unit of good 1 taken away will necessarily make him worse off. b. Taking away some of good 1 and giving Mars 3 units of good 2 for each unit of good 1 taken away will necessarily make him better off. c. Giving Mars some of good 1 and taking away 3 units of good 2 for each unit of good 1 he is given will necessarily make him worse off. d. Giving Mars some of good 1 and taking away 3 units of good 2 for each unit of good 1 he is given will necessarily make him better off. e. More than one of the above is true