CHAPTER 4  Utility
TRUEFALSE
Difficulty: 2
Correct Answer: False
1.
With quasilinear preferences, the slope of indifference
curves is constant along all rays through the origin.
Difficulty: 2
Correct Answer: False
2.
Wanda Lott has the utility function
U
(
x
,
y
) = max{
x
,
y
}.
Wanda’s preferences are convex.
Difficulty: 1
Correct Answer: True
3.
If someone has a utility function
U
= 2 min{
x
,
y
}, then
x
and
y
are perfect complements for that person.
Difficulty: 1
Correct Answer: False
4.
Maximilian consumes two goods,
x
and
y
. His utility
function is
U
(
x
,
y
) = max{
x
,
y
}. Therefore
x
and
y
are perfect
substitutes for Max.
Difficulty: 3
Correct Answer: False
5.
A person with the utility function
U
(
x
,
y
) =
y
+ x
2
has
convex preferences.
Difficulty: 3
Correct Answer: True
6.
Mr. Surly consumes only two goods and hates them both. His
utility function is
U
(
x
,
y
) = max{
x
,
y
}. Mr. Surly has (
weakly
) convex
preferences.
Difficulty: 2
Correct Answer: True
7.
Angela’s utility function is
U
(
x
1
, x
2
) = (
x
1
+
x
2
)
3
. Her
indifference curves are downwardsloping, parallel straight lines.
Difficulty: 2
Correct Answer: True
8.
Henrietta’s utility function is
U
(
x
1
,
x
2
) =
x
1
x
2
. She has
diminishing marginal rate of substitution between goods 1 and 2.
Difficulty: 2
Correct Answer: False
9.
Alice’s utility function is
U
(
x
,
y
) =
x
2
y
. Steve’s utility
function is
U
(
x
,
y
) =
x
2
y
+ 2
x
. Alice and Steve have the same
preferences since Steve’s utility function is a monotonic
transformation of Alice’s.
Difficulty: 3
Correct Answer: False
10.
Jean’s utility function is
U
(
x
,
y
) =
x
+
y
2

y
. If we draw
her indifference curves with
x
on the horizontal axis and
y
on the
vertical axis, then these indifference curves are everywhere downward
sloping and get flatter as one moves from left to right.
Difficulty: 1
Correct Answer: True
11.
The utility function
U
(
x
1
,
x
2
) = 2 ln
x
1
+ 3 ln
x
2
represents
CobbDouglas preferences.
Difficulty: 1
Correct Answer: False
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12.
Fiery Demon is a rotgut whisky made in Kentucky. Smoothy is
an unblended malt whisky imported from Scotland. Ed regards these
brands as perfect substitutes. When he goes into a bar, he sometimes
buys only Fiery Demon. Other times he buys only Smoothy. This shows
that Ed has unstable preferences.
Difficulty: 1
Correct Answer: False
13.
Mark strictly prefers consumption bundle
A
to consumption
bundle
B
and weakly prefers bundle
B
to bundle
A
. These preferences can
be represented by a utility function.
Difficulty: 3
Correct Answer: True
14.
A consumer has preferences represented by the utility
function
U
(
x
1
,
x
2
) = 10(
x
2
1
+ 2
x
1
x
2
+
x
2
2
)  50. For this consumer, goods 1
and 2 are perfect substitutes.
Difficulty: 1
Correct Answer: True
15.
A person with utility function
U
(
x
,
y
) = 5 +
y
2
+ 2
x
has
nonconvex preferences.
Difficulty: 2
Correct Answer: False
16.
A person with the utility function
U
(
x
,
y
) = 10 +
y
2
+
x
has
convex preferences.
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 Spring '10
 JOSEPHPETRY
 Utility

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