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Unformatted text preview: Problem Set 1 ECON 303 DUE on Monday September 19 before Class Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The cross price elasticity between a pair of complementary goods will be A) positive. B) positive or zero depending upon the strength of the relationship. C) zero. D) negative. 1) 2) A simple linear demand function may be stated as Q = a- bP + cI where Q is quantity demanded, P is the product price, and I is consumer income. To compute an appropriate value for c, we can use observed values for Q and I and then set the estimated income elasticity of demand equal to: A) c(Q/I) B) Q/(cI) C) c(I/Q) D)- b(I/Q) 2) 3) An upward sloping indifference curve deFned over two goods violates which of the following assumptions from the theory of consumer behavior? A) more is preferred to less. B) preferences are complete. C) transitivity. D) all of the above E) none of the above 3) 4) Indifference curves are convex to the origin because of: A) the assumption of completeness. B) the assumption that more is preferred to less. C) the assumption of a diminishing marginal rate of substitution. D) transitivity of consumer preferences. E) none of the above 4) 5) If prices and income in a two- good society double, what will happen to the budget line? A) The intercepts of the budget line will decrease. B) The intercepts of the budget line will increase. C) The slope of the budget line may either increase or decrease. D) InsufFcient information is given to determine what effect the change will have on the budget line but we know society is worse- off. E) There will be no effect on the budget line. 5) 6) A consumer maximizes satisfaction at the point where his valuation of good X, measured as the amount of good Y he would willingly give up to obtain an additional unit of X, equals: A) one over the magnitude of the slope of the indifference curve through that point. B) the magnitude of the slope of the indifference curve through that point. C) Py/Px D) Px/Py 6) 1 7) The slope of an indifference curve reveals: A) the marginal rate of substitution of one good for another good. B) that preferences are complete. C) that preferences are transitive. D) the ratio of market prices. E) none of the above 7) 8) Marginal utility measures: A) the additional satisfaction from consuming one more unit of a good. B) the slope of the indifference curve. C) the slope of the budget line. D) the marginal rate of substitution. E) none of the above 8) 9) As we move downward along a demand curve for apples, A) the marginal utility of apples decreases. B) consumer well- being decreases. C) the marginal utility of apples increases....
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This note was uploaded on 12/16/2011 for the course ECON 303 at USC.
- Price Elasticity