Answers to Sample Exam 2

  1. c
  2. c
  3. c
  4. a
  5. d
  6. a
  7. b
  8. c
  9. Simple, Chevrolets are less expensive than Cadillacs.
  10. We did this one in class. Your answer should show that intersecting indifference curves violate several basic assumptions about human choice behavior.
  11. This is similar to ones we did in class from the problem set.
  12. A lump sum tax will shift the budget constraint inward. A typical consumer will have to relocate to a lower indifference curve on the new, lower constraint. Since Yugos are assumed to be an inferior good, the consumption must increase if income falls. Thus you should draw your new indifference curve tangent somewhere to the right of the originial consumption bundle.
  13. The $40,000 job is depicted by the constraint AB. The $38,000 job is depicted by the constraint CDB. Clearly, a young and healthy person will prefer the $40,000 job since it allows him to get on a higher indifference curve (this is point E). If a person chooses point E, it will leave him with $39,000 for all other goods.

     

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