Question 1

Which of the following best describes the assumption of 'completeness' in consumer preferences?

Accepted Answer

Consumers can always compare and rank all possible options.

Question 2

Suppose a consumer's utility function is $$U = XY. If $$the consumer has 4 units of X and 5 units of Y, what is their utility?

Accepted Answer

$$U = 20$$

Question 3

If a consumer's indifference curves are straight lines, which type of goods does this represent?

Accepted Answer

Perfect substitutes

Question 4

Given the budget constraint $$P_X X + P_Y Y = M$$, what does the slope of the budget line represent?

Accepted Answer

The opportunity cost of consuming Good X in terms of Good Y

Question 5

Jane's utility function is $$U = T 	imes B$$, where $$T is $$tacos and $$B is $$burritos. If Jane consumes 3 tacos and 6 burritos, what is her marginal utility of tacos ($$MU_T$$)?

Accepted Answer

$$MU_T = 6$$

Question 6

Which of the following statements about indifference curves is FALSE?

Accepted Answer

Indifference curves are always upward sloping.

Question 7

A consumer faces the following budget constraint: $$2X + 4Y = 40. $$What is the maximum number of units of Y the consumer can buy if they buy no X?

Accepted Answer

$$Y = 10$$

Question 8

If the marginal utility per dollar spent on Good X is greater than that for Good Y, what should the consumer do to maximize utility?

Accepted Answer

Buy more of Good X and less of Good Y.

Question 9

Suppose a consumer's utility function is $$U = \min\{2X, Y\}. If $$the consumer has 4 units of X and 10 units of Y, what is their utility?

Accepted Answer

$$U = 8$$

Question 10

The law of diminishing marginal rate of substitution states that as a consumer consumes more of Good X, the marginal rate of substitution of Y for X:

Accepted Answer

Decreases

Question 11

If a consumer's demand function for tacos is $$q = 10 - 2P$$, what is the quantity demanded when the price is $$P = 3$$?

Accepted Answer

$$q = 4$$

Question 12

A market consists of two consumers with individual demand functions $$q_1 = 20 - 2P$ and q_2$ = 40 - 5P. $$What is the market demand function?

Accepted Answer

$$Q = 60 - 7P$$

Question 13

If the price of Good X falls while the price of Good Y and income remain constant, what happens to the budget line?

Accepted Answer

It rotates outward from the X-axis intercept.

Question 14

Jane is willing to pay $$\2800$ for a laptop, but the market price is $$\$$2700. $$What is her consumer surplus?

Accepted Answer

$$CS = 100$$

Question 15

Which utility function represents perfect complements?

Accepted Answer

$$U = \min\{aX, bY\}$$

Question 16

A consumer's optimal bundle occurs where:

Accepted Answer

The budget line is tangent to the highest attainable indifference curve.

Question 17

If a consumer's utility function is $$U = 2X + 3Y$$, what is the marginal rate of substitution (MRS) of Y for X?

Accepted Answer

$$MRS_{Y,X} = \frac{3}{2}$$

Question 18

Taylor always consumes cookies and donuts in a fixed ratio of 6:1. If her budget is $$\10$, cookies cost $$\$$1$$ each, and donuts cost $$\4$ each, how many cookies and donuts will she buy to maximize utility?

Accepted Answer

6 cookies and 1 donut

Question 19

Which of the following is NOT an assumption of consumer preferences in standard theory?

Accepted Answer

Inconsistency

Question 20

If a consumer's utility function is Cobb-Douglas, $$U = X$$^{0.5}$$ Y$$^{0.5}$$, and prices are P_X = 2$, P_Y = 4$, with income M = 40$, what is the optimal bundle of X and Y?

Accepted Answer

$$X^* = 10, Y^* = 5$$

Consumer Theory: The Demand Side of the Market

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