310-1 Spring 2011 PS4--Practice Questions

310-1 Spring 2011 PS4--Practice Questions - Economics 310-1...

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Practice Exam 1 Questions Problem Set 4 1. Michelle consumes chocolate (C) and strawberries (S). The price of chocolate is $5 and the price of strawberries is $2. At her current bundle, she is on her budget line and her MRS is 2. (Think of a diagram with C on the horizontal axis and S on the vertical axis.) A. Michelle is consuming her optimal bundle. B. Michelle should consume more S, less C. C. Michelle should consume more C, less S. D. Michelle should consume more S, more C. E. Michelle should consume less S, less C. 2. A tax that had been in place on green tea is reduced. At the same time, a lump sum is levied to make up for the lost tax revenue. Consider a consumer who pays a lump sum tax that allows him, if he behaves optimally, to attain just the level of utility he had initially (but no more) before either of these changes. This consumer A. will buy more green tea after these changes than before. B. will buy less green tea after these changes than before. C. will actually be made better-off by these changes. D. will actually be made worse-off by these changes. E. A and C. F. B and D. G. None of the above. 3. Amelia consumes two goods, X, an inferior good, and Y, a normal good. Suppose that the price of X falls by 25%, the price of Y falls by 25%, and income also falls by 25%. A. Amelia will buy less X and more Y after the changes than before. B. Amelia will buy more X and less Y after the changes than before. C. Amelia’s optimal bundle will not change. D. Amelia will buy less X and less Y after the changes than before. E. More information is needed to be able to say how the optimal bundle will change. 4. Boyd buys only two goods and has a positive marginal utility for both goods. His indifference curves A. must be negatively sloped. B. must be positively sloped. C. must be convex to the origin. D. must be concave to the origin. E. None of the above. 5. Kristina buys books and coffee out of her income. When her income increases by 10% and the prices of books and coffee both rise by 25%, A. the slope of the budget line is unchanged and the budget line shifts in toward the origin. B. the slope of the budget line is unchanged and the budget line shifts away from the origin. C. her budget line’s location is unchanged. D. the budget line rotates and has different intercepts than the old budget line. E. None of the above. 6. Neal rents paddle boats for use in the lakefront lagoon. He estimates that the student demand for the boats will be Q = 10 – P while that for other Evanston residents will be Q = 20 – P. The total market demand will be A. a straight line with slope = -2. B. a straight line with slope = -1. C. a kinked line with the kink at P = 20. D. a kinked line with the kink at P = 10.
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This note was uploaded on 10/05/2011 for the course ECON 310-1 taught by Professor Schulz during the Spring '08 term at Northwestern.

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310-1 Spring 2011 PS4--Practice Questions - Economics 310-1...

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