Question

Suppose that a consumer has a 10$ budget. The price of Good X is $2 and the price of Good Y is $1. Which of the following bundles would the consumer be able to purchase with a voucher for Good X of $8 (The consumer may still have some of the cash or voucher left unused)

a. X = 3. Y= 10

b. X = 5. Y= 10

c. X = 1. Y= 14

d. X = 6. Y= 6

If there is a positive but diminishing marginal productivity of labor, then which of the following statements is true?

1) The graph of total product is downward sloped.

2) Total product curve is linear.

Select one:

a. Statement 1 is true but statement 2 is false.

b. Statement 2 is true but statement 1 is false.

c. Both statements are true.

d. Both statements are false.

Answer 1

The price of good X is $2 and that of good Y is $1.

The total budget is $10.

There is a voucher for good X of $8. This means at max $8/$2 =4 good X can be acquired with this voucher.

If we look at the combination X =6, Y=6,

The voucher allows the individual to get 4 X. Hence he / she has to buy 2 additional units of X. This would cost $2*2=$4. And 6 units of Y would cost =$1*6=$6. Total cost = $4+$6=$10.

Hence the correct option is

d. X = 6. Y= 6

The total product curve is an inverted S shaped curve.

Hence the correct option is

d. Both statements are False.