Economic
1) Suppose that a consumer’s preferences are well behaved in that properties 4-1 to 4-4 are satisfied and the initial equilibrium consumption bundle consists of 100 units of X and 50 units of Y. If PX decreases such that the new equilibrium consumption bundle is 150 units of X and 75 units of Y, then goods X and Y are:(5pts)
complements.
substitutes.
inferior goods.
unrelated.
2)Suppose a manager views both quantity and profit as “goods.” Such a manager will then have an indifference curve that:(5pts)
is tangent to the profit curve somewhere between quantities of 0 and 2.5.
is tangent to the profit curve somewhere between quantities of 2.5 and 5.
intersects the profit curve at a quantity exactly equal to 2.5.
intersects the profit curve at a quantity exactly equal to 5.
3) Suppose a manager’s preferences depend only on profit. Such a manager will then have an indifference curve that:(5pts)
is tangent to the profit curve somewhere between quantities of 0 and 2.5.
is tangent to the profit curve somewhere between quantities of 2.5 and 5.
is tangent to the profit curve at a quantity exactly equal to 2.5.
intersects the profit curve at a quantity exactly equal to 5.
4) Suppose that a consumer’s preferences are well behaved in that properties 4-1 to 4-4 are satisfied and the initial equilibrium consumption bundle consists of 10 units of X and 25 units of Y. If PYincreases such that the new equilibrium consumption bundle is 15 units of X and 10 units of Y, then goods X and Y are: (5pts)
complements.
substitutes.
normal goods.
unrelated.
5)Suppose we are given that the value of a particular utility function is a constant. That is, U(X,Y) = c. Then, the total derivative of this relation is:
Click here
to see the possible answers if the choices are not visible below. (5pts)
Image gallery (click for full size)
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6)Suppose the following Lagrangian is formed to maximize a consumer’s utility subject to her budget constraint:
The first-order conditions for this problem imply:
(5pts)
MRS = 10.
PX/PY= 10.
All of the statements associated with this question are correct.
7)Suppose a consumer has M = $200 to spend on two goods, X and Y. If the per-unit prices of X and Y are respectively given by PX= $2 and PY= $4, then utility maximization subject to a budget constraint can be found from which of the following Lagrangians?
(5pts)
8)What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, Y = 5, and M = 400?
(5pts)
80
20
40
30
9) What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, Y = 0, and M = 400?
(5pts)
0
20
40
30
10)What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, X = 20, and M = 400?
(5pts)
10
20
5
0
11)What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, X = 0, and M = 400?
(5pts)
10
20
5
0
12)A price increase causes a consumer’s “real” income to:
(5pts)
increase.
decrease.
remain unchanged.
decrease or increase depending on the size of the price change.
13)If the price of good X increases, what will happen to the budget line?
(5pts)
It will have a parallel shift inward.
It will have a parallel shift outward.
It will become steeper.
It will become flatter.
14)The income effect isolates the change in the consumption of a good caused by the change in:(5pts)
“real” income.
the relative prices of two goods.
consumer preferences.
None of the statements is correct.
15)If the price of a good Y falls, then the marginal rate of substitution between X and Y:
(5pts)
increases.
decreases.
remains the same.
depends on whether X and Y are normal or inferior goods, and we cannot tell without that information.
16)Suppose the utility function for a firm manager is U = + bQ, where Q is output, is profit, and b is a negative constant. How would the firm’s output compare with what it would be if the manager’s objective was to maximize profit?
(5pts)
It would be greater than the profit-maximizing output.
It would be less than the profit-maximizing output.
It would be the same as the profit-maximizing output.
None of the statements is correct.
17) If the slope of the budget line is steeper than the slope of the indifference curve, and X is on the horizontal axis: (5pts)
the consumer is willing to give up more of good X to get an additional unit of good Y than is necessary under the current market prices.
MRS > PX/PY.
MRS = -PX/PY.
the consumer is willing to give up more of good Y to get an additional unit of good X than is necessary under the current market prices.
18) If the price of a good falls, then the equilibrium consumption of that good:(5pts)
increases if it is an inferior good.
decreases if it is a normal good.
remains the same.
None of the statements is correct.
19) Kate’s money income is $350, the price of X is $4, and the price of Y is $6. Given these prices and income, Kate buys 50 units of X and 25 units of Y. Call this combination of X and Y bundle J. At bundle J, Kate’s MRS is 3. At bundle J, if Kate increases consumption of Y by 1 unit, how many units of X can she give up and still reach the same level of utility? (5pts)
1
1/3
3
2/3
20)Ann’s money income is $250, the price of X is $3, and the price of Y is $2. Given these prices and income, Ann buys 60 units of X and 35 units of Y. Call this combination of X and Y bundle J. At bundle J Ann’s MRS is 2. Given these prices and income, what is Ann’s equilibrium consumption of X?
(5pts)
X < 60 X = 60 X > 60
None of the statements is correct. 1) Suppose that a consumer’s preferences are well behaved in that properties 4-1 to 4-4 are
satisfied and the initial equilibrium consumption bundle consists of 100 units of X and 50 units
of Y. If PX decreases such that the new equilibrium consumption bundle is 150 units of X and
75 units of Y, then goods X and Y are:(5pts)
complements.
substitutes.
inferior goods.
unrelated.
2)Suppose a manager views both quantity and profit as “goods.” Such a manager will then
have an indifference curve that:(5pts)
is tangent to the profit curve somewhere between quantities of 0 and 2.5.
is tangent to the profit curve somewhere between quantities of 2.5 and 5.
intersects the profit curve at a quantity exactly equal to 2.5.
intersects the profit curve at a quantity exactly equal to 5.
3) Suppose a manager’s preferences depend only on profit. Such a manager will then have an
indifference curve that:(5pts)
is tangent to the profit curve somewhere between quantities of 0 and 2.5.
is tangent to the profit curve somewhere between quantities of 2.5 and 5.
is tangent to the profit curve at a quantity exactly equal to 2.5.
intersects the profit curve at a quantity exactly equal to 5.
4) Suppose that a consumer’s preferences are well behaved in that properties 4-1 to 4-4 are
satisfied and the initial equilibrium consumption bundle consists of 10 units of X and 25 units
of Y. If PY increases such that the new equilibrium consumption bundle is 15 units of X and 10
units of Y, then goods X and Y are: (5pts)
complements.
substitutes.
normal goods.
unrelated.
5)Suppose we are given that the value of a particular utility function is a constant. That is,
U(X,Y) = c. Then, the total derivative of this relation is:
Click here to see the possible answers if the choices are not visible below. (5pts)
Image gallery (click for full size)
Image gallery (click for full size)
Image gallery (click for full size)
Image gallery (click for full size)
6)Suppose the following Lagrangian is formed to maximize a consumer’s utility subject to her
budget constraint:
The first-order conditions for this problem imply:
(5pts)
MRS = 10.
PX/PY = 10.
All of the statements associated with this question are correct.
https://mycc.cambridgecollege.edu/ICS/icsfs/mm/m3q1_-_question_5.pdf?target=6464c188-d2ea-4c66-a905-a57ff99dcf6c
https://mycc.cambridgecollege.edu/ICS/icsfs/equation_1.png?target=f0bedb44-9187-4fca-b083-4b0be47aee1f
https://mycc.cambridgecollege.edu/ICS/icsfs/equation_2.png?target=9c202b99-8ff5-49be-a89a-9893371efc8c
https://mycc.cambridgecollege.edu/ICS/icsfs/equation_3.png?target=e12052ff-2fd9-4597-889f-03f023d96f9c
https://mycc.cambridgecollege.edu/ICS/icsfs/equation_4.png?target=015a9779-b6b2-455b-88dd-1d3d64d441cb
7)Suppose a consumer has M = $200 to spend on two goods, X and Y. If the per-unit prices of
X and Y are respectively given by PX = $2 and PY = $4, then utility maximization subject to a
budget constraint can be found from which of the following Lagrangians?
(5pts)
8)What is the maximum amount of good X that can be purchased if X and Y are the only two
goods available for purchase and Px = $10, Py = $20, Y = 5, and M = 400?
(5pts)
80
20
40
30
9) What is the maximum amount of good X that can be purchased if X and Y are the only two
goods available for purchase and Px = $10, Py = $20, Y = 0, and M = 400?
(5pts)
0
20
40
30
10)What is the maximum amount of good Y that can be purchased if X and Y are the only two
goods available for purchase and Px = $10, Py = $20, X = 20, and M = 400?
(5pts)
10
20
5
0
11)What is the maximum amount of good Y that can be purchased if X and Y are the only two
goods available for purchase and Px = $10, Py = $20, X = 0, and M = 400?
(5pts)
10
20
5
0
12)A price increase causes a consumer’s “real” income to:
(5pts)
increase.
decrease.
remain unchanged.
decrease or increase depending on the size of the price change.
13)If the price of good X increases, what will happen to the budget line?
(5pts)
It will have a parallel shift inward.
It will have a parallel shift outward.
It will become steeper.
It will become flatter.
14)The income effect isolates the change in the consumption of a good caused by the change
in:(5pts)
“real” income.
the relative prices of two goods.
consumer preferences.
None of the statements is correct.
15)If the price of a good Y falls, then the marginal rate of substitution between X and Y:
(5pts)
increases.
decreases.
remains the same.
depends on whether X and Y are normal or inferior goods, and we cannot tell without that
information.
16)Suppose the utility function for a firm manager is U = + bQ, where Q is output, is
profit, and b is a negative constant. How would the firm’s output compare with what it would
be if the manager’s objective was to maximize profit?
(5pts)
It would be greater than the profit-maximizing output.
It would be less than the profit-maximizing output.
It would be the same as the profit-maximizing output.
None of the statements is correct.
17) If the slope of the budget line is steeper than the slope of the indifference curve, and X is
on the horizontal axis: (5pts)
the consumer is willing to give up more of good X to get an additional unit of good Y
than is necessary under the current market prices.
MRS > PX/PY.
MRS = -PX/PY.
the consumer is willing to give up more of good Y to get an additional unit of good X
than is necessary under the current market prices.
18) If the price of a good falls, then the equilibrium consumption of that good:(5pts)
increases if it is an inferior good.
decreases if it is a normal good.
remains the same.
None of the statements is correct.
19) Kate’s money income is $350, the price of X is $4, and the price of Y is $6. Given these
prices and income, Kate buys 50 units of X and 25 units of Y. Call this combination of X and Y
bundle J. At bundle J, Kate’s MRS is 3. At bundle J, if Kate increases consumption of Y by 1
unit, how many units of X can she give up and still reach the same level of utility? (5pts)
1
1/3
3
2/3
20)Ann’s money income is $250, the price of X is $3, and the price of Y is $2. Given these
prices and income, Ann buys 60 units of X and 35 units of Y. Call this combination of X and Y
bundle J. At bundle J Ann’s MRS is 2. Given these prices and income, what is Ann’s equilibrium
consumption of X?
(5pts)
X < 60 X = 60 X > 60
None of the statements is correct.
