1) What links the decisions of consumers and firms in a market?
A) the government
B) prices
C) coordination officials
D) microeconomics
2) Consider the demand functions: A) Qd = 250 - 2P B) Qd = 300 - 3P.
Which of the demand functions reflects a higher level of consumer incomes?
A) A
B) B
C) A and B reflect the same consumer incomes.
D) More information is needed.
3) The above figure shows a graph of the market for pizzas in a large town. No pizzas will be demanded unless price is less than
A) $0.
B) $5.
C) $12.
D) $14.
4) Suppose the market demand curve for pizza can be expressed as QD=100 -2P + 3Pb, where QD = is the quantity of pizza demanded, P is the price of pizza, and Pb is the price of a burrito. What is the relationship between burritos and pizza, from the point of view of consumers?
A) They are independent
B) They are complements
C) They are substitutes
D) Not enough information to answer the question.
5) The above figure shows the demand curve for crude oil. If the market price is $10 a barrel, what is the price elasticity of demand?
A) -.02
B) -1
C) -10
D) -500
6) If the demand curve for a good always has unitary price elasticity, what does this imply about consumer behavior?
A) Consumers do not react to a price change.
B) Consumers will spend a constant total amount on the good.
C) Consumers are irrational.
D) Consumers do not obey the Law of Demand.
7) If Ryan's marginal utility of pizza equals 10 and his marginal utility of robots equals 2, then
A) he would give up 5 pizzas to get the next robot.
B) he would give up 5 robot to get the next pizza.
C) he will consume five times as many pizzas as robots.
D) he will consume five times as manyrobots as pizza.
8) Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in the above figure. Which bundle will Max choose?
A) a
B) b
C) c
D) d
9) Suppose Joe's utility for lobster (L) and soda (S) can be represented as U = L0.5 S0.5. Joe walks into a restaurant with $72. Lobsters cost $18 each and sodas cost $2 each. How much lobster and soda will Joe consume if he intends to spend all his money? (There are no tax and no tips.)
A) 2 lobsters, 18 sodas
B) 2 lobsters, 9 sodas
C) 72 lobsters, 36 sodas
D) 9 lobsters, 2 sodas
E) None of the above
10) Richard receives government transfer payments and currently consumes 5 guns and 6 goose livers. Assume the price of guns decreases by 10% and the price of goose liver increases by 20%. The government raises Richard's transfer payments so he can still afford 5 guns and 6 goose livers. Does this constitute a true cost-of-living adjustment (COLA)?
A) No. Richard is overcompensated.
B) No. Richard is undercompensated.
C) Yes. The payment just achieves the right level of compensation.
D) Not enough information.
11) Under which of the following conditions will there be no substitution bias in the CPI?
A) Indifference curves are convex.
B) Indifference curves are L-shaped.
C) Indifference curves are linear.
D) Indifference curves are downward sloping.
12) The above figure shows Bob's utility function. He currently has $100 of wealth, but there is a 50% chance that it could all be stolen. The midpoint of the chord that runs from zero and intersects the utility function where wealth is 100, represents Bob's
A) risk premium.
B) expected utility of receiving $50 with certainty.
C) expected utility of receiving $0 50% of the time and $100 50% of the time.
D) risk neutrality.
E) None of the above
Q13) Bob's utility function is shown in the above figure. He currently has $100 worth of property, but there is a 50% chance that all of it will be stolen. An insurance company offers to reimburse Bob for his loss if the money is stolen. What is the most that Bob would pay for such a policy? Explain.