Question

1. If P2=52, P1=76 and I=13,323 and a tax=58% on x2. What would be the x1-intercept of the budget line? (assume the tax on x2 is implemented)

2. If the budget equation for drinking shots is the following 25 Jaggerbomb + 28 Patron = 11,564. What is the oppotunity costs of one more Jaggerbomb? (input this number as positive)

3. Morton was exhausting his income by consuming 5 units of chewing gum and 76 of cigarettes a week. The price of chewing gum increased from $34 to $97. The price of cigarettes remained the same at $24. How much would Morton's income have to rise so that he can still exactly afford 5 units of chewing gum and 76 cigarettes? (remember consumer income is always exhausted). (Hint: use the budget equation with the prices and quantities given to you in the problem).

4. You go out to a bar with you date and ask her what she wants to drink and she says: I don’t know. This violates which of the following assumptions about consumer’s preferences

a. more is better

b. Completeness

c. reflexive

d. convexity

5. As an individual moves southeast along his well-behaved indifference curve substituting more and more X1 for X2, the absolute value of his MRS

	a.	increases.
	b.	decreases.
	c.	changes in a way that cannot be determined.
	d.	stays the same.

6. If all preference assumptions are satisfied, a consumer who prefers one head of broccoli to one head of cauliflower, one head of cauliflower to one package of brussels sprouts, and one

	a.	head of cabbage to one package of brussels sprouts, must prefer the package of brussels sprouts to a head of broccoli
	b.	package of brussels sprouts to one head of cabbage, must prefer a head of cauliflower to a head of cabbage
	c.	package of brussels sprouts to one head of cabbage, must prefer a package of brussels sprouts to a head of cauliflower
	d.	package of brussels sprouts to one head of cabbage, must prefer a head of broccoli to any other vegetable
	e.	package of brussels sprouts to one head of cabbage, must prefer a head of cabbage to a head of cauliflower

Answer 1

1. x1 intercept of the budget line = maximum amount of x1 that can be purchases = I/P1 = 13,323/76 = 175.30
So, x1 intercept of the budget line is 175.30

2. Opportunity cost of one more Jaggerbomb = Price of Jaggerbomb/Price of Patron = 25/28 = 0.89
Opportunity cost of one more Jaggerbomb is 0.89

3. Income required to purchase 5 units of chewing gum and 76 of cigarettes is given by,
(5*34) + (76*24) = 170 + 1824 = 1,994
New income required to purchase 5 units of chewing gum and 76 of cigarettes at new price is given by,
(5*97) + (76*24) = 485 + 1824 = 2,309
So, income should rise by 2,309 - 1,994 = 315
Income should rise by 315.

4. d. convexity
(Convexity means choices can be ranked which cannot be done in this case)

Note: Post four MCQs at a time.