midterm2

midterm2 - 1 Multiple Choice (40 points) Write down on your...

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Unformatted text preview: 1 Multiple Choice (40 points) Write down on your answer sheet your answer for each question. There is only one correct answer for each question. Each question is worth two points. For questions 1-3, assume there are two goods, apples and bananas. For all answers, positive means greater than or equal to zero, while negative means less than or equal to zero. If the price of apples increases: 1. The substitution effect for bananas is: A. positive B. negative. C. positive if apples and bananas are substitutes, negative if apples and bananas are complements. D. positive if bananas are a normal good, negative if ba- nanas are an inferior good. E. negative if bananas are a normal good, positive if ba- nanas are an inferior good. 2. The income effect for bananas is: A. positive B. negative. C. positive if apples and bananas are substitutes, negative if apples and bananas are complements. D. positive if bananas are a normal good, negative if ba- nanas are an inferior good. E. negative if bananas are a normal good, positive if ba- nanas are an inferior good. 1 3. The total effect for bananas is: A. positive B. negative. C. positive if apples and bananas are substitutes, negative if apples and bananas are complements. D. positive if bananas are a normal good, negative if ba- nanas are an inferior good. E. negative if bananas are a normal good, positive if ba- nanas are an inferior good. 4. The extra utility gained from consuming an extra unit of a good measures: A. total utility. B. average utility. C. marginal utility. D. total satisfaction. E. diminishing utility. 5. For two goods, A and B, the rational spending rule is expressed as: A. MU A = MU B . B. P A = P B . C. MU A P B = MU B P A . D. MU A MU B = P B P A . E. MU A P A = MU B P B . 2 For questions 6-7, suppose that Amy spends all of her income on books and clothes. Books cost $5 per book and clothes cost $15 per item. She has $150 in income. Suppose Amy has indifference curves with diminishing MRS....
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midterm2 - 1 Multiple Choice (40 points) Write down on your...

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