Cash may be preferred to food stamps because additional cash A) rotates the budget constraint. B) shifts out the budget constraint at every point. C) provides a smaller opportunity set. D) allows the purchase of more food. ANSWER B
Date: September 9th, 2020
People derive utility in their lives from consuming goods (all other goods), g, and clean air (measured as the number of particulates removed per m3), a, as measured with the utility function U(g,a) = g0.6a0.4. The price index of consumer goods equals $20 per day. Income equals $1000. What is likely to happen to the […]
Date: September 9th, 2020
Those who criticize individuals who choose to drive a relatively inefficient sport utility vehicle (SUV) might mistakenly A) assume everyone faces the same relative prices. B) assume everyone has the same preference set. C) assume everyone has the same budget constraint. D) All of the above. ANSWER D
Date: September 9th, 2020
Robinson Crusoe is stranded on an island. He finds that coconuts are freely available (zero harvest cost), but fish are difficult to harvest and require a lot of energy. As a result, harvesting fish has a high price. If coconuts and fish are imperfect substitutes, what is Robinson Crusoe likely to consume? A) He will […]
Date: September 9th, 2020
The consumer is in equilibrium when A) MRT = MRS. B) Px/Py=MUx/MUy C) the budget line is tangent to the indifference curve at the bundle chosen. D) All of the above. ANSWER D
Date: September 9th, 2020
The intuition behind the budget constraint is that A) more options are preferred to less. B) money is the root of all happiness. C) information is power. D) scarcity is avoidable with prosperity. ANSWER A
Date: September 9th, 2020
If both prices increases by 50%, A) budget constraint will be unchanged. B) slope of the budget constraint stay the same. C) slope of the budget constraint will decrease. D) budget constraint will shift outward in a parallel fashion. ANSWER B
Date: September 9th, 2020
Quotas, such as limiting the amount of residential water use during a drought, restricts an individual’s preference set and A) reduces utility because an individual cannot consume as much as they would without the quota. B) increases utility because quotas restrict output and raise profits for the water company. C) reduces utility because an individual […]
Date: September 9th, 2020
By selecting a bundle where MRS = MRT, the consumer is A) achieving a corner solution. B) reaching the highest possible indifference curve she can afford. C) not behaving in an optimal way. D) All of the above. ANSWER B
Date: September 9th, 2020
Johnny has allocated $30 toward coffee and tea and feels that coffee and tea are perfect substitutes. Due to differences in caffeine levels, his MRS of tea for coffee equals 2. If coffee and tea sell for the same price, Johnny will A) spend all $30 on tea. B) spend all $30 on coffee. C) […]
Date: September 9th, 2020
