intmicro_midterm1_practice_solutions

intmicro_midterm1_practice_solutions - MIDTERM I PRACTICE...

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MIDTERM I PRACTICE QUESTIONS Intermediate Microeconomics, Spring 2010 1. The assumption that preferences are transitive requires the consumer a) to rank any two baskets. b) to say that basket C is preferred to basket A if basket B is preferred to basket A and basket C is preferred to basket B . c) to rank a basket with more units of all goods higher than a basket with fewer units of all goods. d) to have a diminishing marginal rate of substitution. Ans: B 2. Consider the following three market baskets. Basket Good x Good y A 2 8 B 10 2 C 6 5 If Basket A and Basket B are on the same indifference curve, preferences satisfy the usual assumptions, and the indifference curves have a diminishing marginal rate of substitution, a) Basket C is preferred to Basket A b) Basket A is preferred to Basket C c) The consumer is indifferent between Basket A and Basket C d) There is not enough information to determine how the consumer would rank Basket A relative to Basket C. Ans: A (Basket C is the average of Basket A and Basket B. And diminishing MRS implies that if the consumer is indifferent between Basket A and Basket B, then they should prefer their average (basket C) to both A and B) 3. Consider the utility function U = min (5x, 7y) . The indifference curves for this utility function will be a) vertical b) horizontal c) upward sloping d) L-shaped Ans: D (Look at the graph in your book for utilities where the two goods are perfect complements) 4. Assume that two baskets A and B lie on the same indifference curve. Assume that basket A contains more of good Y than basket B but less of good X than basket B . As the consumer moves down and to the right (from basket A to basket B ) along his indifference curve, total utility a) increases. b) remains constant.
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c) decreases. d) is ambiguous. Ans: B 5. Suppose that a consumer has the utility function U = 5A + 7B . If A is measured on the horizontal axis a) The indifference curves will be L-shaped. b) The indifference curves will be horizontal. c) The indifference curves will be straight lines with slope –5/7. d) The indifference curves will be straight lines with slope –7/5. Ans: C 6. Suppose for a utility function that the marginal utility for good x is given by MU x = 5y 2 /x a) The more is better assumption is not satisfied for x in this utility function.
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intmicro_midterm1_practice_solutions - MIDTERM I PRACTICE...

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