Question

6. Suppose Bob has an income of $500, the price of a bike bell is $2, and the price of bike
light is $100. Which of the following bundles is in Bob’s opportunity set?
A) 50 bike bells, five bike lights
B) 200 bike bells, two bike lights
C) 100 bike bells, one bike lights
D) 150 bike bells, three bike lights

7. Suppose Bob and Rob consume e-bikes and scooters. Bob and Rob face the same prices
and both claim to be in equilibrium. Therefore, we know that
A) they both have the same marginal utility for e-bikes.
B) they both have the same marginal utility for scooters.
C) they both have the same MRS of e-bikes for scooters.
D) All of the above.

8. Suppose Bob consumes e-bikes and scooters. If Bob’s income and prices of both goods
increase by the same percentage,
A) Bob will buy more of both goods.
B) Bob will buy more of both goods if they are both normal goods.
C) Bob will buy less of both goods if they are both inferior goods.
D) Bob’s utility maximizing bundle stays the same.

9. Suppose Bob spends his entire income on e-bikes and scooters. Every month he spends
half of his income on each of these goods. Bob's income elasticity of demand for e-bikes is
-.75. What is the income elasticity of demand for scooters?
A) 2.75
B) 0.36
C) -2.75
D) Unknown with the information provided

Answer 1

6.
For being within one's opportunity set, one has to see that his gross expenditure must be either less than or equal to the income; but not exceed it anyway. Let us now analyze the options.

A) 50 bike bells, five bike lights NO. Because [(50*2)+(5*100)] > 500
B) 200 bike bells, two bike lights NO. Because [(200*2)+(2*100)] > 500
C) 100 bike bells, one bike lights YES. Because [(100*2)+(1*100)] ≤ 500
D) 150 bike bells, three bike lights NO. Because [(150*2)+(3*100)] > 500