If a consumer’s budget line for food (F) and shelter (S) is represented as F = 250 – 5S, we know that A) the consumer’s income is 250. B) the price of shelter is 5. C) the price of shelter is 5 times the price of food. D) All of the above. ANSWER C […]
Suppose a taco costs $4 and a burrito costs $2. Moreover, this Mexican restaurant has a special deal. After you’ve bought 6 burritos, you can buy each extra burrito for $1.50. Assume that tacos are on the vertical axis and burritos on the horizontal axis. What is the marginal rate of transformation (MRT) when 8 […]
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
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
Individuals derive utility from picnics, p, and kayak trips, k. Assuming that an individual’s utility is U(p,k) = k0.5p0.5 and income is $100, what is the marginal rate of substitution (MRS) between picnics and kayak trips? A) MRS = 1. B) MRS = -1. C) MRS = -1/2 D) There is no substitution because picnics […]
The marginal rate of transformation of y for x represents A) the slope of the budget constraint. B) the rate at which the consumer must give up y to get one more x. C) – / . D) All of the above. ANSWER D
If the consumer’s income increases while the prices of both goods remain unchanged, what will happen to the budget line? A) The budget line rotates inward from the intercept on the horizontal axis. B) The budget line rotates outward from the intercept on the vertical axis. C) The budget line shifts inward without a change […]
The absolute value of the slope of an indifference curve equals the ratio of the marginal utilities of the two goods involved. Indicate whether the statement is true or false ANSWER True . The MRS can be represented as the ratio of both those quantities.
Clifford lives by the motto “Eat drink and be merry today, for tomorrow doesn’t matter.” If today’s consumption is represented by “x” and tomorrow’s consumption is represented by “y”, then which of the following best represents Clifford’s utility function? A) U = x – y B) U = x/y C) U = x D) U […]
If the utility function (U) between bananas (B) and jam (J) can be represented as U(B,J) = 3ln(B)+4ln(J), what is the marginal rate of substitution (MRS) between bananas and jam? A) 4B. B) -3J/(4B). C) 4/(3J). D) 3B/J. ANSWER B