Question 1

Suppose a consumer has a utility function $$U(x, y) = x + 2y. $$What information is necessary to calculate the agent’s optimal consumption of Good X?

Accepted Answer

Price of Good X, price of Good Y, and income

Question 2

Refer to the second image. When the price of Good X changes, the line tracing utility maximization market baskets is called the:

Accepted Answer

Price-consumption curve

Question 3

Refer to the third image. The horizontal dotted line represents which curve?

Accepted Answer

Income-consumption curve

Question 4

Refer to the fourth image. What is the consumer’s willingness to pay for the 100th pizza?

Accepted Answer

$20

Question 5

Refer to the fifth image. From B to D, when the price of food decreases, what happens to the individual demand curve for food?

Accepted Answer

It becomes downward-sloping

Question 6

Jane’s Engel curve for the consumption of food shows:

Accepted Answer

Jane’s consumption of food as a function of income, all else constant

Question 7

Which of the following is true regarding utility along a price-consumption curve?

Accepted Answer

It changes from point to point

Question 8

An individual demand curve can be derived from the ________ curve.

Accepted Answer

Price-consumption curve

Question 9

The Engel curve bends backward. What does this imply about the good?

Accepted Answer

The good is a normal good at low income and an inferior good at high income

Question 10

Jane has utility function $$U(x, y) = x^4$ y^5$. The marginal utility of Good X is MU_X(x$$, y) = $$4x^3$$ $$y^5$$ and the marginal utility of Good Y is $$MU_Y(x, y) = 5x^4$ y^4$. The price of X is P_X$, the price of Y is P_Y$, and Jane’s income is I$. What is the function of her demand curve of Good X when I = 100$ and P_Y = 5$?

Accepted Answer

$$Q_X(P_X) = 400/(9P_X)$$

Question 11

Suppose Good X and Good Y are perfect complements and the kinks of indifference curves fall on the line $$y = 3x. $$The price of Good X is $$P_X = 20$$, price of Good Y is $$P_Y = 10$$, and income is $$I. $$What is the Engel curve of Good X?

Accepted Answer

$$Q_X(I) = I/50$$

Question 12

If an increase in the price of one good leads to an increase in the quantity demanded of another, the two goods are:

Accepted Answer

Substitutes

Question 13

Suppose the price elasticity for the demand of cable services is $$-2.3. $$What does this mean?

Accepted Answer

Demand will fall approximately by 2.3% if price increases by 1%

Question 14

Suppose the market demand for Good X is $$Q(P) = 100 - 10P. $$What is the price elasticity of demand when $$P = 2$$?

Accepted Answer

$$-0.25$$

Question 15

Assume that rice is a Giffen good. If the price of rice falls, then the substitution effect results in the person buying ___ of the good and the income effect results in the person buying ___ of the good. Overall, the person will buy ___ of the good.

Accepted Answer

More; less; less

Question 16

Which of the following is true concerning the substitution effect of a decrease in price?

Accepted Answer

It always will lead to an increase in consumption

Question 17

A change in consumption of a good resulting from an increase in purchasing power, with relative prices held constant, is referred to as:

Accepted Answer

The income effect

Question 18

The difference between what a consumer is willing to pay for a unit of a good and what must be paid when actually buying it is called:

Accepted Answer

Consumer surplus

Question 19

A local retailer has decided to carry a well-known brand of shampoo. The marketing department tells them that the quarterly demand by an average man is $$Q_m = 3 - 0.25P$$ and the quarterly demand by an average woman is $$Q_w = 4 - 0.5P. $$The market consists of 10,000 men and 10,000 women. How many bottles of shampoo can they expect to sell if they charge $6 per bottle?

Accepted Answer

25,000

Microeconomics Study Guidance: Utility, Demand, and Consumer Choice

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