# PS_CH03 - Ec on 2296 Prac tic e Questions Chapter 3 1 Matc...

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Econ 2296 Practice Questions Chapter 3 - 1) 2) Match the following descriptions of preferences to the indifference curve diagrams that follow. ________ Ann does not care whether she has more diet soft drinks or fewer diet soft drinks. ________ Peter is very picky about his buttered popcorn. He tops every quart of popped corn with exactly one quarter cup of melted butter. ________ Amy likes M&M's, plain and peanut. For Amy, the marginal rate of substitution between plain and peanut M&M's does not vary with the quantities of plain and peanut M&M's she consumes. ________ George dislikes broccoli and would be willing to pay something to not have to eat it. ________ Natalya likes rap and rock music. Natalya's preferences exhibit a diminishing marginal rate of substitution between the two types of music. ________ Matthew knows his limit. He likes beer up to a point, but if he drinks too much he gets sick. Consider Gary's utility function: U(X,Y) 5 XY, where X and Y are two goods. If the individual consumed 10 units of X and received 250 units of utility, how many units of Y must the individual consume? Would a market basket of X 15 and Y 3 be preferred to the above combination? Explain. 1 = = =

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3) 4) 5) Draw a set of indifference curves for the following pairs of goods: a. Hamburgers and carrots for a vegetarian who neither likes nor dislikes meat. (Vegetarians do not eat meat.) b. Peanut butter and jelly for an individual that will not eat peanut butter sandwiches or jelly sandwiches, but loves peanut butter and jelly sandwiches made with two parts peanut butter and one part jelly. c. Tickets for Knott's Berry Farm (KBF) and Universal Studios (US) for a tourist that believes that KBF and US are perfect substitutes. d. Ice cream and pie if these are goods that you like, but if you consume enough of either, you get sick of them. If you are sick of a good, consuming more of it lowers your utility. Suppose that the government subsidizes housing expenditures of low income families by providing a dollar for dollar subsidy to a family's housing expenditure. The Cunninghams qualify for this subsidy and spend a total of \$500 per month on housing: they spend \$250 of their own and receive a government subsidy of \$250. Recently, a new policy has been proposed that would provide each low
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