Question 1

Suppose a consumer's indifference curves cross. Which assumption is most likely violated?

Accepted Answer

The assumption of transitivity.

Question 2

If preferences satisfy completeness, transitivity, more is better, and diminishing marginal rate of substitution, what is the typical shape of indifference curves?

Accepted Answer

Downward sloping parallel thin curves that bow in towards the origin.

Question 3

A consumer has a utility function $$U(x, y) = 4x + 2y. $$Which basket maximizes her utility?

Accepted Answer

2 units of x and 1 unit of y.

Question 4

If indifference curves are L-shaped and the kinks follow the line $$y = 2x$$, what does this imply about the relationship between goods X and Y?

Accepted Answer

1 unit of good X can perfectly complement 2 units of good Y.

Question 5

Suppose the price of good x doubles and the price of good y triples, while income is held constant. What happens to the budget line?

Accepted Answer

The intercepts of the budget line will decrease.

Question 6

If a consumer's marginal utility from Pepsi is 4 and from hamburgers is 6, with prices $$P_{Pepsi} = 1$$ and $$P_{Hamburger} = 2$$, what should the consumer do to maximize utility?

Accepted Answer

Increase Pepsi consumption and reduce hamburger consumption.

Question 7

If both prices and income in a two-good society double, what happens to the budget line?

Accepted Answer

The budget line does not change.

Question 8

Given the utility function $$U(x, y) = x y$$, what is the equation of the indifference curve passing through $$(2, 1)$$?

Accepted Answer

$$y = 8/x$$

Question 9

If a consumer's utility function is $$u(F, C) = F + 4C$$ and she reduces her clothing consumption by 2 units, how much must she increase food consumption to maintain the same utility?

Accepted Answer

8 units

Question 10

If the marginal utility of good x is $$MU_x = 8xy^2$ and of good y is MU_y$$ = $$12x^2y$, what is the value of $$MRS(x, y)$$ when x = 2$ and y = 1$?

Accepted Answer

2/3

Question 11

If indifference curves are downward sloping straight lines with a slope of $$-0.5$$, what does this imply about the relationship between goods X and Y?

Accepted Answer

2 units of good X can perfectly substitute 1 unit of good Y.

Question 12

If a consumer's indifference curves are right angles and the corners fall on the 45-degree line, what is her optimal choice if the price of hot dogs is $$5$$ per package, buns are $$3$$ per package, and her budget is $$48$$?

Accepted Answer

6 packages of hot dogs and 6 packages of buns

Question 13

If a consumer's utility function is $$U(x, y) = 2x + y$$, wealth is $$12$$, price of X is $$2$$, and price of Y is $$1$$, what is the optimal consumption?

Accepted Answer

There are multiple optimal market baskets.

Question 14

If Good X and Good Y are perfect substitutes and the slope of indifference curves is always $$-1$$, and the price of the two goods are not equal, what will the consumer do?

Accepted Answer

Only consume the good with the lower price.

Question 15

Jane’s marginal utility of consuming good x is $$MU_x = 2xy^3$ and that of y is MU_y$$ = $$3x^2y^2$. If she has income W = 1000$, p_x = 50$, and p_y = 25$, what is her utility maximization market basket given that the solution is interior?

Accepted Answer

x = 8 and y = 24

Microeconomic Theory Homework Guidance: Consumer Preferences & Indifference Curves

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