Question

1)An increase in one product price but not the other:

a. shifts the budget line parallel to the left

b. shifts the budget line parallel to the right

c. changes the slope of the budget line

d. doesn’t affect the budget line because income remains constant

2)Assume you allocate your time between attending classes (which take 2 hours) and working out (which take 1 hour). To maximize your total utility, you will choose a bundle where:

a. the marginal utility from each activity is maximized

b. the total utility per hour from each activity is equal

c. the total utility from each activity is equal

d. the marginal utility per hour from each activity is equal

3)If you do not spend your entire budget in a given month, your consumption will appear:

a. as a point on your budget line

b. as a point above your budget line

c. as a point below your budget line

d. as two points corresponding to the goods purchased

4)Joe has $50 to spend on pizza and movies. If movies are $5 each and a pizza is $10, assuming he spends all his money, he can buy:

a. 6 movies and 2 pizzas

b. 8 movies and 4 pizzas

c. 2 movies and 6 pizzas

d. 6 movies and 4 pizzas

5)Scruffie the cat has a budget of $30. A cat toy costs $2 and a can of tuna costs $1. Which of the following combinations of goods is NOT on her budget line?

a. 10 cat toys and 10 cans of tuna

b. 8 cat toys and 16 cans of tuna

c. 5 cat toys and 20 cans of tuna

d. All of the above combinations are on her budget line

Answer 1

(1) (c)

If price of good represented vertically rises (falls), budget line rotates downward (upward) along vertical axis, and if price of good represented horizontally rises (falls), budget line rotates leftward (rightward) along horizontal axis.

(2) (d)

Total utlity is maximized when MU per hour is equalized for all options.

(3) (c)

An underutilized budget is represented by an interior solution.

(4) (a)

Budget line: 50 = 5M + 10P

Total cost of only option (a) equals the budget [= $5 x 6 + $10 x 2 = $30 + $20 = $50 = Total budget].

(5) (b)

Total cost of option (b) = $2 x 8 + $1 x 16 = $16 + $16 = $32 > $30 (exceeds budget).