question
If prices are P1= 3 and P2= 2 and the consumer has M= 75, which bundle (x1,x2) is NOT affordable?
(4,5)
(15,16)
(12,13)
(20,5)
(4,5)
(15,16)
(12,13)
(20,5)
answer
(15,16)
question
When parameters like income (M) and price (P1 and P2) change, the budget line usually changes as well. If a consumer's income increases while prices remain unchanged, this will
Shift the budget line out (up and to the right)
Rotate the budget line counterclockwise
Have no effect on the budget line
Shift the budget line in (down and to the left)
Shift the budget line out (up and to the right)
Rotate the budget line counterclockwise
Have no effect on the budget line
Shift the budget line in (down and to the left)
answer
Shift the budget line out (up and to the right)
question
If both prices double this will
Shift the budget line out (up and to the right)
Rotate the budget line counterclockwise
Have no effect on the budget line
Shift the budget line in (down and to the left)
Shift the budget line out (up and to the right)
Rotate the budget line counterclockwise
Have no effect on the budget line
Shift the budget line in (down and to the left)
answer
Shift the budget line in (down and to the left)
question
When talking about consumer choice, we make a lot of assumptions about preferences. In particular, we make two very important assumptions to ensure that we have well-behaved preferences: 1. More is better and 2. Averages are preferred to extremes. Which of the following sets of preferences violates our idea of well-behaved preferences?
(3,3) > (2,2)
(0,24) ~ (24,0) and (12,12) > (0,24)
(5,5) > (13,13)
(6,6) >~ (6,6)
(3,3) > (2,2)
(0,24) ~ (24,0) and (12,12) > (0,24)
(5,5) > (13,13)
(6,6) >~ (6,6)
answer
(5,5) > (13,13)
question
If a consumer has some utility function u(x1,x2) and we know that (z1,z2) > (y1,y2), then it must be the case that
u(z1,z2) < u(y1,y2)
u(z1,z2) > u(y1,y2)
u(z1,z2) = u(y1,y2)
u(z1,z2) <= u(y1,y2)
u(z1,z2) < u(y1,y2)
u(z1,z2) > u(y1,y2)
u(z1,z2) = u(y1,y2)
u(z1,z2) <= u(y1,y2)
answer
u(z1,z2) > u(y1,y2)
question
When a consumer makes an optimal choice, he chooses the
Cheapest bundle
Most expensive bundle
Bundle that gives him the highest utility and is affordable
Most preferred bundle without considering his budget
Cheapest bundle
Most expensive bundle
Bundle that gives him the highest utility and is affordable
Most preferred bundle without considering his budget
answer
Bundle that gives him the highest utility and is affordable
question
Demand functions are very convenient when dealing with consumer choice. They tell us
How much the consumer is willing to give up of the good to obtain one extra unit of the other good
How much of a good the consumer can afford but nothing about what he will choose
the optimal amount of a good given prices and income of the consumer
The amount of money the consumer has to work with
How much the consumer is willing to give up of the good to obtain one extra unit of the other good
How much of a good the consumer can afford but nothing about what he will choose
the optimal amount of a good given prices and income of the consumer
The amount of money the consumer has to work with
answer
The optimal amount of a good given prices and income of the consumer
question
Suppose a consumer faces the budget constraint 14x1 +21x2 = 1000 and is currently spending all of her money on some combination of goods 1 and 2. If she wants to increase how much of x2 she has by 20, how must x1 change?
X1 = -30
X1 = 20
X1 =-15
X1 = 40
X1 = -30
X1 = 20
X1 =-15
X1 = 40
answer
X1 = -30
question
Which of the following violates our idea of well-behaved preferences?
(6,6) > (0,12)
(10,10) > (5,5)
(0,12) > (6,6)
(0,12) ~ (12,0)
(6,6) > (0,12)
(10,10) > (5,5)
(0,12) > (6,6)
(0,12) ~ (12,0)
answer
(0,12) > (6,6)
question
Suppose Bob needs to buy phones and phone chargers for his family. Each phone needs exactly one charger to be useful since the phone cannot be used without being charged. What kind of preferences are represented?
answer
Perfect Complements
question
Suppose Bob is buying phones for his family, but this time he has to choose between a Google Pixel and Samsung Galaxy. Bob knows nothing about phones, so he doesn't care about the difference between the two. He will buy whichever phone gives him the best bang for his buck. What kind of preferences are represented?
answer
Perfect Substitutes
question
Suppose A,B, and C are different consumption bundles and A and B are on the same Indifference Curve, but C is on a different Indifference Curve. If the consumer gets 20 utility from bundle B and 40 utility from bundle C, how much utility does the consumer get from bundle A?
20
40
-40
60
20
40
-40
60
answer
20
question
The Slutsky Equation gives us insight into how Demand for a good changes when the price of that good changes. One effect of a change in price is that the consumer's effective income, or "purchasing power" changes as well, which affects how much of the good the consumer can afford. This is called the
answer
Income Effect
question
According to the Slutsky Equation, if a good is a Giffen Good, then
answer
It must also be inferior
question
Which of the following goods is most likely to have very inelastic demand?
answer
Life-saving medicine
question
Firms often have many ways to produce a given level of output. However, since inputs are costly, they are usually concerned with producing the most output they can. Therefore, a firm's production function is
answer
A function that gives the maximum amount of output from a given amount of inputs
question
A firm makes railroad tracks using metal rails and wooden planks. To make each segment of railroad track, the firm must use exactly two metal rails and ten wooden planks. Any more of either resource does not help. What kind of technology is the firm using?
answer
Fixed Proportions
question
What does it mean for Technology to be Monotonic?
answer
If we increase the amount of one input being used, we should be able to produce at least as much output as before
question
Suppose a firm has the following production function: f(x1,x2) = 5x1 +6x2. What amount of extra output would the firm produce if it increased the amount of input 1 by 1 unit?
answer
5 units of output
question
The difference between the short-run and the long-run is that
answer
In the short-run, the firm has some inputs that are fixed and cannot be changed.
question
A firm's cost function
answer
Gives the lowest possible cost of producing given output y
question
If a firm's production function has decreasing returns to scale, then its average cost will
answer
Increase as output increases
question
There is an important relationship between short-run cost functions and long-run cost functions. The interpretation for this is that
answer
The long-run cost function is the short-run cost function when input 2 is fixed at exactly the level that minimizes long-run cost
question
If we graph the Marginal Cost curve (MC), the Average Variable Cost Curve (AVC), and the Average Cost curve (AC) on the same graph, we will see that
answer
The MC curve intersects both AC and AVC curves at their lowest points
question
When a firm is in Perfect Competition, we know
answer
That the firm will only set its output, not its price
question
A firm is considered shutdown when it produces output y=0. In a perfectly competitive market, why might a firm not shut down even if it is taking a loss?
answer
A firm can cover some of the Fixed Cost as long as Average Variable Cost is less than the price of output
question
The supply curve of a firm in a perfectly competitive market is
answer
Only the part of the MC curve above the AVC curve.
question
Market Demand is
answer
The sum of all individual demands in a market
question
Which of the following goods is most likely to have very Inelastic demand?
answer
Life-saving medicine
question
In a market with no tax, equilibrium occurs where
D(pd +t) = S(ps)
D(pd) = DWL
DWL is maximized
D(pd) = S(ps)
D(pd +t) = S(ps)
D(pd) = DWL
DWL is maximized
D(pd) = S(ps)
answer
D (pd) = S(ps)
question
What is a Quantity Tax?
answer
A tax levied per unit bought or sold
question
When a tax is imposed on a market, it is usually imposed on either the consumers or on the producers. What effect does imposing the tax on producers have relative to imposing it on the consumers?
answer
There is no difference: the end result is exactly the same
question
When a tax is imposed on a market, who bears more of the tax burden between producers and consumers?
answer
Whoever has less responsiveness to changes in price
question
If Supply is perfectly elastic, how is the tax burden distributed?
answer
It is completely passed along to the consumers
question
What is the Dead Weight Loss of a tax?
answer
The lost value to society due to the reduction in sales of a good because of a tax
question
Intuitively thought of as the value buyers get from participating in a market, the difference between what one was willing to pay and what one actually paid for a good is called
answer
Consumer Surplus
question
What is the Nash Equilibrium of the Prisoner's Dilemma
answer
Both will testify against the other since testify is the dominant strategy
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