QUESTION 7 There are two goods, apples and bananas. The price of apples is PA = $2, and the price of bananas is PB = $3. A consumer has $120 to spend, and his utility function is -3/2 U(A, B) =2A2B3. -2/3 With apples on the x axis, the slope of the budget line is At A=2, B=1, the marginal utility of A is and the marginal utility of B is At the optimal bundle, the consumer buys apples and bananas. QUESTION 8 V 9X = 4Y YA 4X = 9Y X = Y IC XY = 1 X* = 0 X* = 135 X* = 85 X X* = 60 X* = 121 Jimmy can consume goods X and Y. The graph above represents one of his indifference curves (IC). All other ICs are like the one in the graph. Which equation represents Jimmy's optimal mix of X and Y? Suppose that Jimmy's income is I=$1,995 and prices are Px=13 and Py=9. His optimal choice is to consume V *Select Answer* QUESTION 9 0 O.5 Let qa be the quantity of apples and qo the quantity of oranges. A consumer's utility is described by the function 3/5 U(qA.90)= 3qA + 590 1 5/3 For this consumer, the marginal utilities are MUA= and MUO= 2 Moreover, the marginal rate of substitution is MRSA,O= 3 4 PA 5 If this consumer is currently consuming 2 apples and 4 oranges, then we know Po QUESTION 10 V prefers Tim consumes pizza (P) and soda (S). Consider the following 4 possible market bundles: A: P=0.5 S=3 doesn't prefer B: P=1 S=2 is indifferent between C: P=1.5 S=1 prefers B to D D: P=2 S=3 can't afford D If Tim's indifference curves are convex and an indifference curve goes through A and C, then Tim B to A and C. prefers D to B is indifferent between B and D Comparing B and D, it must be the case that Tim Tim might purchase B instead of D because he V QUESTION 11 9 10 Consider the following intertemporal consumption problem with one good and two periods. The quantity of the good consumed in period 1 and period 2 are 11 q1 and q2. The price of each unit of the good is $1 in both periods. The consumer's income is 1 1=10 in the first period and 12=12 in the second period. The consumer can borrow or save money at the interest rate of 50%, that is, r=0.50. The consumer's utility function is u(q1.92)= 9192 borrow $1 save $1 The optimal choice of q1 is and the consumer will borrow $2 save $0