The next 3 questions relate to the graph shown in question 3-7.
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| 7 | |
Karl is willing to give up ten units of food for one unit of shelter. The price of food is 10 and the price of shelter is 50. From this information we can identify Karl's place on the graph below as point  <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078021693/236468/chap03_2.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (4.0K)</a>]]>
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| | A) | A. |
| | B) | B. |
| | C) | C. |
| | D) | D. |
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| 8 | |
From the information given in the question and the graph in question 3-7 the income of Karl is |
| | A) | 50 |
| | B) | 10 |
| | C) | 500 |
| | D) | not able to be determined. |
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| 9 | |
If Karl is situated at point D on the graph in question 3-7 and wants to improve his situation, he will need to |
| | A) | consume more food and less shelter until the MRS of shelter for food falls substantially. |
| | B) | Consume less food and more shelter until the MRS of shelter for food falls substantially. |
| | C) | Consume less food and more shelter until the MRS of shelter for food rises substantially. |
| | D) | Do something other than the options described above. |
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| 10 | |
An indifference curve is linear and has a steeper slope than the budget line. This means that |
| | A) | the optimal solution will include a market basket of all one good. |
| | B) | there is no diminishing marginal utility in the consumption of either good. |
| | C) | the marginal rate of substitution of X for Y is everywhere greater than the ratio of the price of X to the price of Y. |
| | D) | all of the above are true. |
| | E) | none of the above are true. |
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| 11 | |
To draw a budget line for two goods one must know at least |
| | A) | the relative prices of the goods and the money income of the consumer. |
| | B) | the money income of the consumer and the absolute price of one good. |
| | C) | the absolute price of both goods. |
| | D) | The relative price of one good and the absolute price of the other good. |
| | E) | The money income of the consumer and the absolute price of both goods. |
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| 12 | |
From the graph below answer the following 3 questions. Assume that the consumers money income (M) is $500. Use Px as the nominal price of X and Py as the nominal price of Y.  <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078021693/236468/chap03_3.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (3.0K)</a>]]>
Which statement is true of the budget line shown? |
| | A) | The absolute price of good Y is 10 and the absolute price of good X is 5. |
| | B) | Good X is twice as expensive as good Y. |
| | C) | If none of good Y is consumed, then 10 of good X can be consumed if the price of X is 10. |
| | D) | At the midpoint on the budget line only half of the budget is spent. |
| | E) | None of the statements above is true. |
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| 13 | |
If the price of X is doubled |
| | A) | The budget line would rotate in such a way that it would become steeper, but the Y intercept would not change. |
| | B) | The budget line would become steeper with an increased Y intercept and a reduced X intercept. |
| | C) | The budget line would become flatter with a constant Y intercept and an increase in the X intercept. |
| | D) | The budget line would become steeper with a constant X intercept and an increased Y intercept. |
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| 14 | |
Which of the following would alter the budget line to move it parallel and away from the origin? |
| | A) | A decrease in income from $500 to $300 |
| | B) | A 10% increase in the nominal price of both good X and good Y |
| | C) | A 10% decrease in the nominal price of both good X and good Y |
| | D) | An increase in the income from $500 to $700. |
| | E) | Both c and d are correct. |
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| 15 | |
Phil is willing to give up one unit of food for ten units of shelter. The price of food is 20 and the price of shelter is 60. From this information and the graph below we can identify Phil's place on the graph as point ___ and his income as ____.  <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078021693/236468/chap03_4.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (4.0K)</a>]]>
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| | A) | A, 600 |
| | B) | B, 60 |
| | C) | C, 200 |
| | D) | D, 600 |
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| 16 | |
The fact that indifference curves tend to be convex to the origin shows us that |
| | A) | people exhibit diminishing marginal utility characteristics. |
| | B) | People prefer more rather than less. |
| | C) | Consumer's preference ordering is transitive. |
| | D) | Consumers can rank all possible combinations of goods and services. |
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| 17 | |
The marginal rate of substitution |
| | A) | shows how intensely the consumer values one good in comparison to another. |
| | B) | shows the rate at which the consumer can exchange one good for another in the market. |
| | C) | Is sufficient to determine the absolute price of each of two goods in the model. |
| | D) | can easily be obtained empirically |
| | E) | relates accurately to none of the above statements. |
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| 18 | |
Peter would give anything to obtain more of good X and he considers good Y to be worthless. In other words, Peter's ____________________ if X is on the horizontal axis. |
| | A) | budget line is a straight line. |
| | B) | indifference curve is horizontal |
| | C) | optimal point is on the vertical axis |
| | D) | indifference curve is vertical |
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| 19 | |
Which one of the following three statements is false? |
| | A) | A cash grant always allows the consumer more choices than a subsidized price of equal value for one commodity. |
| | B) | It is possible that a consumer will pick the same market basket when faced with a choice of a cash grant or a single product subsidy of equal value. |
| | C) | Cash grants shift part of the budget line to the right but single product cash subsidies shift the entire budget line to the right. |
| | D) | None of the above three statements are false. |
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| 20 | |
For perfect substitutes |
| | A) | the indifference curve is a straight line. |
| | B) | there is no diminishing marginal utility. |
| | C) | The consumer will either pick a corner solution or be totally indifferent between all possible market baskets. |
| | D) | All of the above statements are correct. |
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