Part 1: Multiple Choice Questions You have the following demand schedule for slices of pizza. Use the table for questions 1-2 Number of slices of pizza consumed Your valuation of each slice 1 2 3 4 $4 $3 $2.50 $2 1. If a slice of pizza costs $2, how many slices of pizza would you buy? a. 1
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- Would you expect marginal utility to rise or fall with additional consumption of a good? Why?8. XE Composite good E GH Figure 5-1 JN Food Figure 5-1 shows the preferences of a consumer for food and other goods. He is initially in equilibrium at point A where the budget line MN is tangent to the indifference curve. From the initial point of equilibrium, an excise subsidy will move the consumer to point ________What is consumer surplus? Consumer surplus is the OA. price; its marginal benefit B. price; its value of a good in excess of OC. marginal benefit; the price paid for it D. value; its marginal benefit Question 1 of 27 > summed over the quantity bought. Suppose that the price of a cashmere sweater is $100 and Jean's marginal benefit from a cashmere sweater is $300. If Jean buys 1 cashmere sweater, what is her consumer surplus? Jean's consumer surplus is $
- 1. (a) Which causes a shortage of a good--- a price ceiling or a price floor? Justify your answer with a graph. (b) What is a budget constraint? A consumer has an income of $3000. Soda costs $3 per liter and cheese costs $6 per pound. Draw the consumer's budget constraint with soda on the vertical axis. What is the slope of this budget constraint?17) A ssume a consumer has $40 to spend and for both products the marginal utilities are shown in the following table: Quantity MU MU 1 35 80 2 20 40 3 12 18 Assume that each product sells for $10 per unit. a) How many units of each product will the consumer purchase? b) Assume the price of product B rises to $20 per unit. How will this consumer allocate her budget now? c) If the prices of both products rise to $20 per unit, what will be the budget allocation?12. What are the mathematical steps in deriving demand and indirect utility?
- 6. When a good is normal:(a) An increase in income raises consumption at each price, so the demand curve shifts tothe left(b) An increase in income raises consumption at each price, so the demand curve shifts tothe right(c) A decrease in income lowers consumption at each price, so the demand curve shifts tothe right(d) An increase in income lowers consumption at each price, so the demand curve shiftsto the left.Units of the Good 0 1 5678AWN2 3 4 Total Utility Total Utility of X of Y 0 0 620 1740 1120 3030 1500 3960 1820 4710 2080 5280 2300 5730 2460 6060 2580 6300 For the next 3 questions, assume that an individual consumes two goods X and Y. The total utility (assumed measurable) of each good is independent of the rate of consumption of other goods. The prices of X and Y are, respectively, $20 and $30. If the consumer buys the fourth unit of X the Marginal Utility per Dollar Spent on X is 16 I If the consumer has $210 to spend on X and Y, the utility-maximizing bundle is The minimum budget necessary to move to a higher equilibrium consumption of X and Y is $ unit(s) of X and unit(s) of Y.5. Which of the following will have an inward parallel shift of the budget constraint?A. Increase in income.B. Increase in the price of one good.C. Decrease in the price of one good.D. Decrease in income.6. The percentage change in the quantity demanded of one good, divided by the percentage change inprice of another good, is called:A. Price elasticity of demandB. Cross elasticity of supplyC. Cross elasticity of demandD. Income elasticity of demand 7. Which of the following statements about a normal good is false:A. Its income elasticity must be greater than 1.B. Its cross elasticity of demand can be positive.C. Its income elasticity can be 0.5D. Its cross elasticity of demand can be negative.
- 5. Study Questions and Problems #5 C Suppose you consume 3 pounds of beef and 5 pounds of pork per month. The price of beef is $1.50 per pound, and pork is $3.00 per pound. C de SE in O T 0 Assuming you have studied economics and achieved consumer equilibrium, the ratio of your marginal utility of beef to your marginal utility of pork is E a a 0 W Onl C O UPRE CHERSTE 3 2005-2 I C 31000 F 20 CASE 2042 slidery $1995 STATEGiven: Assume a consumer is attempting to maximize utility subject to the budget constraint by choosing units of consumption between two goods: good 1 and good 2. Utility maximizing choices are provided in the following table for a baseline scenario and new scenario. Item Baseline New Price of Good 1 $10 $10 Price of Good 2 $10 $6 Income $20,000 $20,000 Units Consumed, Good 1 1000 1250 Units Consumed, Good 2 1000 1250 Utility 4000 5000 Using the table, how did the new event affect good 2? It caused demand for good 2 to decrease. O It caused demand for good 2 to incrcase. OIt caused quantity demanded for good 2 to increase. O It caused no change in quantity demanded for good 2. It cause quantity demanded for good 2 to decrease. It caused no change in demand for good 2.5. Which of the following will have an inward parallel shift of the budget constraint? A. Increase in income. B. Increase in the price of one good. C. Decrease in the price of one good. D. Decrease in income. 6. The percentage change in the quantity demanded of one good, divided by the percentage change in price of another good, is called: A. Price elasticity of demand B. Cross elasticity of supply C. Cross elasticity of demand D. Income elasticity of demand 7. Which of the following statements about a normal good is false: A. Its income elasticity must be greater than 1. B. Its cross elasticity of demand can be positive. C. Its income elasticity can be 0.5 D. Its cross elasticity of demand can be negative.