IME-A5-ANS - CHAPTER 4 | Utility TRUE-FALSE Difficulty: 2...

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CHAPTER 4 | Utility TRUE-FALSE 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 downward-sloping, 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 Cobb-Douglas 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
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This note was uploaded on 05/05/2010 for the course ECONMOICS ECON 203 taught by Professor Josephpetry during the Spring '10 term at University of Illinois, Urbana Champaign.

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IME-A5-ANS - CHAPTER 4 | Utility TRUE-FALSE Difficulty: 2...

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