Econ 321
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1.
In year 1, the price of good
x
was $3, the price of good
y
was $2, and income was $90. In year 2, the price of
x
was $9, the price of good
y
was $6, and income was $90. On a graph with
x
on the horizontal axis and y on
the vertical, the new budget line is
a.
flatter than the old one and lies below it.
b.
flatter than the old one and lies above it.
c.
steeper than the old one and lies below it.
d.
steeper than the old one and lies above it.
e.
None of the above.
____
2.
While traveling abroad, Tammy spent all of the money in her purse to buy 5 plates of spaghetti and 6 oysters.
Spaghetti costs 8 units of the local currency per plate and she had 82 units of currency in her purse. If
s
denotes the number of plates of spaghetti and
o
denotes the number of oysters purchased, the set of
commodity bundles that she could just afford with the money in her purse is described by the equation
a.
8
s
+ 6
o
= 82.
b.
6
s
+ 8
o
= 82.
c.
8
s
+ 7
o
= 82.
d.
5
s
+ 6
o
= 82.
e.
There is not enough information to determine the answer.
____
3.
Deadly Serious, II, studying for his M.B.A., consumes only two goods, Wheaties and pens. Each pen costs $1.
Each box of Wheaties costs $2 but has a free pen inside. Pens can be discarded at no cost. If we draw
Serious’s budget set with pens plotted on the horizontal axis, then his budget set will be bounded by two line
segments with slopes
a.
zero and –1.
b.
zero and–2.
c.
zero and –0.5.
d.
zero and infinity.
e.
zero and +2.
____
4.
Thomas consumes coffee (
C
) and doughnuts (
D
). His budget line was described by the equation
D
= 20 – 2
C
.
At a later time, his budget line could be described by the equation
D
= 10 –
C
. The change between the earlier
budget line and the later could be explained by the fact that
a.
the price of coffee and Thomas’s income both increased.
b.
the price of coffee increased and Thomas’s income decreased.
c.
the price of coffee decreased and Thomas’s income increased.
d.
the price of coffee and Thomas’s income both decreased.
e.
Thomas’s utility for doughnuts decreased.
____
5.
If two goods are both desirable and preferences are convex, then
a.
there must be a kink in the indifference curves.
b.
indifference curves must be straight lines.
c.
if two bundles are indifferent, then an average of the two bundles is worse than either one.
d.
the marginal rate of substitution is constant along indifference curves.
e.
None of the above.
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7.
Ike’s utility function is
U
(
x
,
y
) = 25
xy
. He has 12 units of good
x
and 8 units of good
y
. Ben’s utility function
for the same two goods is
U
(
x
,
y
) = 4
x
+ 4
y
. Ben has 9 units of
x
and 13 units of
y
.
a.
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 Spring '11
 MURRAY
 Supply And Demand, Utility, Mr. O. B. Kandle

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