Question

Consider the budget set for a consumer with income of 100 facing the following prices. The price for the first five units of good 1 is $10 (per unit) If the consumer buys more than five units, the price is $5 for any subsequent unit purchased. If the consumer spends all of her money on good 1, how many units of good 1 can she buy?

10

12

15

20

25

Well-behaved preferences are

convex

monotonic

reach the consumer’s bliss point inside the budget set

both a and b

none of the above

Consider the budget set for a consumer with income of 100 facing the following prices. The price for the first five units of good 1 is $10 (per unit) If the consumer buys more than five units, the price is $5 for any subsequent unit purchased. If the consumer buys 2 units of good 2 at a price of $10 a unit and is on her budget constraint, how many units of good 1 does she buy?

7

8

9

10

11

Consider a consumer facing prices $6 for good 1 and $3 for good 2. Which statement is true?

The opportunity cost of 1 unit of good 2 is 0.5 units of good 1, on the consumer’s budget constraint.

The opportunity cost of 1 unit of good 2 is 1 unit of good 1, on the consumer’s budget constraint.

The opportunity cost of 1 unit of good 2 is 3 units of good 1, on the consumer’s budget constraint.

The opportunity cost of 1 unit of good 2 is 6 units of good 1, on the consumer’s budget constraint.

It is not possible to ascertain the opportunity cost of good 2 in terms of good 1 forgone on the consumer’s budget constraint.

Consider a consumer facing prices $6 for good 1 and $3 for good 2. Which statement is true?

The opportunity cost of 1 unit of good 1 is 0.5 units of good 2, on the consumer’s budget constraint.

The opportunity cost of 1 unit of good 1 is 1 units of good 2, on the consumer’s budget constraint.

The opportunity cost of 1 unit of good 1 is 6 units of good 2, on the consumer’s budget constraint.

The opportunity cost of 1 unit of good 1 is 2 units of good 2, on the consumer’s budget constraint.

The opportunity cost of 1 unit of good 1 is 3 units of good 2, on the consumer’s budget constraint.

Answer 1

(1) Option (3)

If number of units purchased be X, then

5 x $10 + $5(X - 5) = $100

$50 + $5X - $25 = $100

$5X = $75

X = 15

(2) Option (4)

Preferences are good when they are monotonic and convex.

(3) Option (5)

Total amount spent for good X = $100 - (2 x $10) = $100 - $20 = $80.

If number of units purchased be X, then

5 x $10 + $5(X - 5) = $80

$50 + $5X - $25 = $80

$5X = $55

X = 11

(4) Option (1)

On the budget line, opportunity cost of good 2 = Price of good 2 / Price of good 1 = $3/$6 = 0.5 unit of good 1

(5) Option (4)

On the budget line, opportunity cost of good 1 = Price of good 1 / Price of good 2 = $6/$2 = 2 units of good 2