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1 | |
Which of the following is false about the standard rational choice model of consumer behaviour? |
| | A) | Consumers prefer a balance of goods in their basket rather than a market basket dominated by one item, and therefore have indifference curves that are convex to the origin. |
| | B) | Consumers are never satiated. They always want more rather than less, and so indifference curves located further to the northeast on a graph are preferred over those closer to the origin. |
| | C) | If you prefer an apple to an orange and an orange to a banana, then we do not have enough information to infer that you would choose an apple over a banana. |
| | D) | Consumers are able to differentiate between minutely small differences in market baskets in order to rank all possibilities as preferred or not preferred to each other. |
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2 | |
If a budget line with good Y on the vertical axis and good X on the horizontal axis is linear, with a negative slope, then we know that |
| | A) | the price of good X declines as more of the good is purchased. |
| | B) | the price of good X and the price of good Y are constant no matter what share each of the two goods occupies in the consumer''s market basket. |
| | C) | the price of good Y increases as more of it is purchased. |
| | D) | Both a and c are correct. |
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3 | |
From the graph below, answer the following three questions. Assume that the consumer''s money income (M) is $1000. Use Px as the nominal price of X and Py as the nominal price of Y. Which statement is true of the budget line shown?
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| | A) | The absolute price of good Y is $20/unit and the absolute price of good X is $10/unit. |
| | B) | Good X is twice as expensive as good Y. |
| | C) | If none of good Y is consumed, then 10 units of good X can be consumed if the price of X is $10/unit. |
| | D) | At the midpoint on the budget line only half of the budget is spent. |
| | E) | None of the statements above is true. |
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4 | |
If the price of X were cut in half, then |
| | A) | the budget line would rotate in such a way that it would become steeper, but the Y intercept would not change. |
| | B) | the budget line would become steeper, with an increased Y intercept and a reduced X intercept. |
| | C) | the budget line would become flatter, with a constant Y intercept and an increase in the X intercept. |
| | D) | the budget line would become steeper, with a constant X intercept and an increased Y intercept. |
| | E) | the budget line would move outward, parallel to the original budget line. |
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5 | |
Holding other factors unchanged, which of the following would alter the budget line and move it parallel toward the origin? |
| | A) | A decrease in income from $1000 to $500 |
| | B) | A 10% increase in the nominal price of both good X and good Y |
| | C) | A 10% decrease in the nominal price of both good X and good Y |
| | D) | An increase in income from $1000 to $1200. |
| | E) | Both a and b are correct. |
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6 | |
The slope of an indifference curve at a point gives the rate at which a person is willing to exchange good Y for good X. The slope of the budget line is the rate at which a person is able to exchange good X for good Y. |
| | A) | Both statements are true. |
| | B) | Only the first statement is true. |
| | C) | Only the second statement is true. |
| | D) | Both statements are false. |
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7 | |
The next three questions relate to the graph shown in question 3-7. Karl is willing to give up ten units of food for one unit of shelter. The price of food is $20/unit and the price of shelter is $100/unit. Karl is spending all his money and no more. From this information we can identify Karl''s place on the graph below as point _______
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| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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8 | |
From the information given in the question and the graph in question 3-7, Karl''s income is |
| | A) | $50 |
| | B) | $10 |
| | C) | $500 |
| | D) | not able to be determined. |
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9 | |
If Karl were situated at point D on the graph in question 3-7 and wanted to improve his situation, he would need to |
| | A) | consume more food and less shelter until the MRS falls substantially. |
| | B) | consume less food and more shelter until the MRS falls substantially. |
| | C) | consume less food and more shelter until the MRS rises substantially. |
| | D) | consume more food and less shelter until the MRS rises substantially |
| | E) | do something other than the options described above. |
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10 | |
A consumer''s indifference curves for goods X and Y are linear and have a steeper slope than the budget line. This means that |
| | A) | the optimal solution will involve a market basket containing only one good. |
| | B) | along any indifference curve,a reduction of X by 1 unit requires an increase in Y by a constant number of units to leave the consumer''s satisfaction unchanged. |
| | C) | the marginal rate of substitution of X for Y is everywhere greater than the ratio of the price of X to the price of Y. |
| | D) | all of the above are true. |
| | E) | none of the above are true. |
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2002 McGraw-Hill Higher Education