17/10/2020 Quiz 2

Quiz 2
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4. Section *

5. Suppose that MUx = 10 and MUy = 20. Further suppose that the 2 points
consumer’s budget constraint can be expressed as 20x + 10y = 400. For
this consumer, the optimal amount of good X to buy would be *

Mark only one oval.

10

20

40

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6. Suppose that a consumer considers coffee and tea to be perfect 2 points

substitutes, but he requires two cups of tea to give up one cup of coffee.
This consumer’s budget constraint can be written as 3C + T = 10. What
should the consumer buy? *

Mark only one oval.

2 cups of tea and no coffee.

10 cups of tea and no coffee

3 cups of coffee and no tea.

4 cups of coffee and no tea.

5 cups of coffee and 5 cups of tea

7. Imagine an indifference curve graph with units of clothing on the y-axis 2 points
and visits to the neighborhood pizza joint for dinner on the x-axis. If the
indifference curves for this individual are negatively sloped but close to
horizontal, it means *

Mark only one oval.

the marginal utility from another pizza dinner is high relative to the marginal utility of
clothing.

the marginal utility from another pizza dinner is low relative to the marginal utility of
clothing

this person doesn’t like pizza at all.

this person can spend a lot of money on clothes at times.

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8. Suppose at a price of Rs 9, 48 people buy a snack from a street vendor. At a 2 points

price of Rs 12, the vendor can now sell to 42 people only. Then if the
demand curve for this good is Q = a - bP find the values of a and b. *

Mark only one oval.

a=48, b=12

a=48, b=9

a=66, b=2

a=42, b=3

a=42, b=2

a=66, b=3

9. The utility that Ann receives by consuming food F and clothing C is given 2 points
by U(F, C) = FC + F. Food costs $1 a unit, and clothing costs $2 a unit. Ann’s
income is $22. What are Ann's optimal choices of food and clothing? *

Mark only one oval.

C= 12, F=5

C=5, F=12

C=22, F=0

F=22, C=0

True or False Questions

10. Law of diminishing marginal utility states that as consumption of one good 1 point

rises (holding all other goods' consumption fixed), the marginal utility from
consumption of the good declines. So for U(x,y), holding y fixed, as you
increase x, MUx will fall. This violates one particular assumption of
preference. *

Mark only one oval.

True

False

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11. Income elasticity of demand is less than 1 for inferior goods. * 1 point

Mark only one oval.

True

False

12. Income elasticity of demand is less than 1 for luxury goods * 1 point

Mark only one oval.

True

False

13. Income elasticity of demand is less than 1 for some normal goods. * 1 point

Mark only one oval.

True

False

14. Cross price elasticity of demand for pencils and pens has been estimated 1 point

to be -0.25 for individuals in Syldavia. This must mean that for Syldavians,
pencils and pens are: *

Mark only one oval.

Substitutes

Complements

15. The absolute value of the ratio of marginal utilities of x and y is 1 at a given 2 points
point on xy-plane. This implies that x and y are perfect substitutes. *

Mark only one oval.

True

False

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16. Price elasticity of demand for an ordinary (not Giffen) good is less than 1. * 1 point

Mark only one oval.

True

False

17. If two goods are perfect substitutes, then the optimal choice for the 1 point
consumer is always to have a market basket with zero units of one
commodity and spending all the money on the other commodity, i.e., a
bundle that lies on the x or the y axis. *

Mark only one oval.

True

False

18. If basket A contains 7 video games and 8 movie tickets and basket B 1 point
contains 8 video games and 8 movie tickets, then basket A should always
be preferred to basket B irrespective of consumer's tastes and
preferences. *

Mark only one oval.

True

False

The Final Lap

19. The consumer's optimal choice must always be where: * 1 point

Mark only one oval.

MRS is equal to the price ratio

MRS > price ratio

MRS < price ratio

Cannot be determined

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20. If A is at least as good as B then it must imply that A is preferred to B. * 1 point

Mark only one oval.

Yes

No

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21. Harry has $5,000 to spend on advertising a new kind of dehydrated sushi. 8 points
Market research shows that the people most likely to buy this new product
are recent recipients of M.B.A. degrees and lawyers who own hot tubs. Harry
is considering advertising in two publications, a boring business magazine and
a trendy consumer publication for people who wish they lived in California.
Ads in the boring business magazine cost $500 each and ads in the consumer
magazine cost $250 each. Each ad in the business magazine will be read by
1,000 recent M.B.A.'s and 300 lawyers with hot tubs. Each ad in the consumer
publication will be read by 300 recent M.B.A.'s and 250 lawyers who own hot
tubs. Nobody reads more than one ad, and nobody who reads one magazine
reads the other. *

Mark only one oval per row.

3000 4000 5000 6000 7000 8000 9000 10000

If Harry
spends his
entire
advertising
budget on
the
business
publication,
then his ad
will be read
by how
many
MBAs?

If Harry
spends his
entire
advertising
budget on
the
business
publication,
then his ad
will be read
by how
many
lawyers?

If Harry
spends his
entire
advertising
budget on
the
https://docs.google.com/forms/d/1TKlvN6okR9XgCG3bK_Smunf08CSwJ1tAzKkP54NufcE/edit 7/8
17/10/2020 Quiz 2

consumer
publication,
then his ad
will be read
by how
many
MBAs?

If Harry
spends his
entire
advertising
budget on
the
consumer
publication,
then his ad
will be read
by how
many
lawyers?

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