1.   Dana cannot taste any difference between Coke (c) and Pepsi (p) and so she views one bottle of each as perfect substitutes. Dana's indifference curves form...

a.   ...right angles

b.   The answer cannot be determined from the provided information

c.   ...smooth curves

d.   ...a shape not listed above

e.   ...straight lines

2.   What is the absolute value (or magnitude) of the Marginal Rate of Substitution of Coke for Pepsi?..................................

3.   Which utility functions might reflects Dana's preference?

a.   U(c,p)=c+p

b.   U(c,p)= √c+p

c.   U(c,p)=2c+2p

d.   U(c,p) = √2c+2p

e.   U(c,p)=2c+p

f.    U(c,p)=√2c+p

g.  U(c,p)=cp

h.   U(c,p)= √cp

 4.  Suppose Dana has a weekly budget of 10 dollars on Coke and Pepsi. Under what price conditions is it certain that Dana will buy only Coke?

a.   Only when the price of Pepsi is 10 or more

b.   None of the above conditions guarantee that Dana will buy only Coke

c.   Whenever the price of Coke is lower than the price of Pepsi

d.   Dana will always purchase a combination of Coke and Pepsi

e.   Only when the price of Coke is 0

5.   Mark likes to eat pizzas and watch TV. In order to buy pizzas, he is looking for a job that pays him a wage of $w per hour for L hours of labor. Since he can only work a maximum of 15 hours a day (Mark needs 9 hours of sleep to function) and he cannot watch TV while working, he needs to decide how to allocate his time between working and watching TV during the time when he is awake, which is always a tough decision. Specifically, Mark's utility from pizzas and TV is:

U(P,T)=2ln(P)+ln(T)

where P is the number of pizzas and T is the number of hours he spends on TV. (Assume both P and T are infinitely divisible.)

Suppose a pizza costs 10 dollars. What will be Mark's daily budget constraint over pizzas and TV as a function of P, T, and w?

a.   10P+15w+wT=0

b.   None of these options

c.   10P+10w=wL+5w

d.   10P+wT=15

e.   10P+15w=wT

6.  What are the magnitudes of the Marginal Rate of Substitution (MRS) and Marginal Rate of Transformation (MRT) of television for pizzas as functions of P, T, and w? (Hint: the inverse MRS and MRT are not provided as answers.)

MRSPT=

a.   2

b.   None of these options

c.   2/P/1/T

d.   2ln(P)/ln(T)

e.   1/2

7. MRTPT=

a.   10w

b.   None of these options

c.   The MRT cannot be determined from the provided information

d.   15w

e.   10/w

8.  Mark finds a job that pays him $2/hour. How many hours will he spend on watching TV in a day and how many pizzas will he eat?

P∗=

T∗=

9.  Suppose that Mark is eligible for $5 of food stamps per day. Now how many hours will he spend on watching television, and how many pizzas will he eat?

P∗=

T∗=

10. In the optimal bundle purchased by a consumer, the ratio of marginal utilities _______ equals the ratio of prices.

a.   Never

b.   Sometimes

c.   Always

11.  James previously worked as a waiter that gave him a budget of $10 per week to spend on either chocolates or ice cream, both of which cost him $2.5 each. At those prices, James ate equal amounts of chocolate bars and ice cream. James now switches his job to work at the ice cream shop, which allows him to spend $7 on chocolates and ice cream per week. But as an employee benefit, he only has to pay $1 for ice cream.

What is the effect of switching jobs on James's welfare?

a.   The effect on James's welfare cannot be determined from given information

b.   James's welfare is unaffected

c.   James's welfare is harmed

d.   James's welfare is improved

12.  Suppose we further know that James's indifference curves have no kinks.

       In this case, what is the effect of switching jobs on James's welfare?

a.   The effect on James's welfare cannot be determined from given information

b.   James's welfare is unaffected

c.   James's welfare is harmed

d.   James's welfare is improved

13. Receiving cash _______ makes someone strictly better off than receiving the same amount of money in food stamps.

a.   Never

b.   Sometimes

c.   Always

14. Kathy only eats apples and bananas for fruit. But she likes apples a lot more in the sense that she always wants to eat another apple more than a banana. This implies that Kathy will _______ eat more apples than bananas in her optimal consumption bundle.

a.   Certainly not

b.   Maybe

c.   Certainly

15.  Mike likes beer and fried chicken and views them as perfect complements: for each bottle of beer, he likes to eat 3 pieces of fried chicken. An excess beer that is not paired with 3 pieces of fried chicken gives him no utility, and an excess piece of fried chicken that is not paired with a third of a beer gives him no utility. What is Mike's utility function for beer (B) and chicken (C)?

a.   U(B,C)=min{3B,C}

b.   None of these options

c.   U(B,C)=√3B⋅C

d.   U(B,C)=3B+C

e.   U(B,C)=max{3B,C}

16. Mike has a budget of $12 to spend on beer and chicken. A bottle of beer costs $6 and a piece of chicken costs $2. What is the optimal consumption bundle?

B∗=

C∗=

17. The government imposes a 50% tax on beer due to a health campaign. What is the optimal consumption bundle now if Mike's consumption of beer and chicken can be a non-integer value?

B∗=

C∗=