Econ 349 Exam 2: Sample
1. The slope of the budget constraint depicts:
a) the consumer's real income.
b) diversity in consumption.
c) the rate at which the consumer is able to substitute one good for
another.
d) the rate at which the consumer is willing to substitute one
good for another.
2. As an individual moves along an indifference curve:
a) her satisfaction decreases.
b) her satisfaction increases.
c) her satisfaction remains constant.
d) her satisfaction decreases at an increasing rate.
e) her satisfaction increases at a decreasing rate.
3. The usefulness of indifference curves with budget constraints is:
a) the precise depiction of consumer tastes.
b) the precise depiction of consumer incomes and the price of goods.
c) the precise depiction of what the consumer wants confronted by the
constraints facing her.
d) that it enables us to show the superiority of certain tastes.
e) that it enables economists to confuse the hell out of undergraduate
students.
4. Suppose a budget constraint shifts inward, with its slope unchanged.
Such a shift might be caused by:
a) a decrease in income, with no change in prices.
b) an increase in the price of one good, with no change in income or the
price of the other good.
c) an increase in income, with no change in prices.
d) a decrease in the price of one good, with no change in income or the
price of the other good.
e) both c and d above.
5. Consider any two goods. Which of the following statements concerning
indifference curves is false?
a) the further the indifference curve from the origin, the higher the
level of satisfaction it represents.
b) it shows all combinations of goods that yield the same satisfaction to
the consumer.
c) the slope of the indifference curve shows the rate at which a consumer
is willing to trade one good for the other.
d) indifference curves will shift if there is a proportionate change in
all prices or if income changes.
e) none of the above are false.
6. Yesterday you were consuming four beers and two nachos. Today you are
consuming 3 beers and 3 nachos. Assuming that your tastes did not change
overnight, and that both goods are normal, we can say that:
a) the relative price of beer increased.
b) the relative price of nachos increased.
c) your money income must have changed.
d) you are now better off.
e) you are now worse off.
7. A point lying inside the budget line indicates:
a) an unattainable market bundle for the consumer.
b) the consumer is not spending all of her income.
c) the minimum combination of the goods the consumer can buy.
d) that one of the commodities is an economic bad.
e) none of the above.
8. In equilibrium, a consumer:
a) is maximizing his income.
b) is consuming the largest market bundle possible.
c) is consuming the most desired market bundle, given her income and the
prices of the goods.
d) is consuming where the marginal rate of substitution between the two
goods are equal.
11. A (Family Feud) survey shows that most people prefer Cadillacs to
Chevrolets. How can you reconcile this survey result with the fact that
more people drive Chevrolets than Cadillacs?
12. Explain why indifference curves cannot intersect each other.
13. Draw the indifference curves for the following two people:
a) Barney hates brontosaurus burgers and is indifferent to pterodactyl
eggs. Plot eggs on the horizontal axis. Show the direction of higher
utility.
b) Fred loves brontosaurus burgers and hates pterodactyl eggs. Plot eggs on
the horizontal axis. Show the direction of higher utility.
14. Assume that Yugos are an inferior good. What happens to the
consumption of Yugos if the government levies a lump sum tax on consumers.
Illustrate your argument with the appropriate budget lines and
indifference curves. Plot Yugos on the horizontal axis and AOG on the
vertical axis. Explain briefly.
15. Suppose on graduation, you receive two job offers. One offer provides
a salary of $40,000 per year but provides no fringe benefits. The other
job pays you $38,000 per year but allows you to consume up to 20 physician
office visits per year with the bill paid by your employer. Suppose that
the market price of an office visit is $100.
a) Draw your budget line showing your options to consume visits to
physicians each year and expenditures on AOG under each job offer. (Graph
each job offer on the same graph. Put visits on the horizontal axis.)
b) Suppose you are young and healthy and expect to go to the physician 10
times a year. Which job offer would you choose and why? Use indifference
curve analysis to show this choice.
c) Assuming that you actually do make 10 medical visits per year, show how
much income you can retain to spend on all other goods if you take the job
offer selected above.