1.

Consider three sets of preferences, where the first and the second are represented by utility
2 2
functions: u(x,y) = Min[x ,y], v(x,y) = x + y and a lexicographic preference ordering.
[(x,y) ≥ ((0,0)]in all cases. These preferences satisfy:
(a)strong monotonicity, strong monotonicity and weak convexity respectively.
(b)weak monotonicity, strong monotonicity and strict convexity respectively.
(c)strong monotonicity, weak convexity and strict convexity respectively.
(d)weak monotonicity, weak convexity and weak convexity respectively.

2. Let u be a utility function such that u:X→R, where X is a finite set. Consider a relation ‘≿ ’
defined over X such that a ≿b ↔ u(a) ≥ u(b) – 1.This preference relation is :
(a)transitive and complete
(b)not transitive but complete
(c)transitive but not complete
(d)can’t say

3.Zakir is a buyer and seller of apples(x) and berries(y) with ‘x’ represented on the horizontal axis
(what a change from oranges and apples!!).Assume that at the initial equilibrium, Zakir does not
trade. If ‘x’ is an inferior good and the price of ‘x’ falls:
(a)the initial budget constraint passes through the initial endowment and the new consumption bundle
shall lie to the left of the initial endowment on it .
(b) the initial budget constraint passes through the initial endowment and the new consumption bundle
shall lie to the right of the initial endowment on it.
(c)the final budget constraint passes through the initial endowment and the new consumption bundle shall
lie to the left of the initial endowment on it.
(d) the final budget constraint passes through the initial endowment and the new consumption bundle
shall lie to the right of the initial endowment on it.

4.Lama, an indigent farmer from Bihar, consumes wheat (x) and sugar (y) and earns Rs.500 a
1/2 1/2
month.His utility function over ‘x’ and ‘y’ is defined by u(x,y) = x y . Sugar (y) has to be bought
in the open market at the price of Rs.10 per kg. He can buy 50 kilograms of wheat from the local
ration shop at Rs.2 a kg. If he wants to consume more wheat, he must buy it from the open market
at the price of Rs.5 per kg.
(a)Laxman’s budget constraint on the (x,y)plane has a constant slope of -1/2 and his optimal consumption
is (x,y)= (50,20).
(b) Laxman’s budget constraint on the (x,y)plane has a constant slope of -1/2 and his optimal
consumption is (x,y)= (50,25).
(c) Laxman’s budget constraint on the (x,y)plane has a constant slope of -1/5 till x=50, -1/2 for
x > 50 and his optimal consumption is (x,y)= (80,25).
(d) Laxman’s budget constraint on the (x,y)plane has a constant slope of -1/5 till x=50, -1/2 for
x > 50 and his optimal consumption is (x,y)= (90,20).

5.Ira has strictly convex preferences defined over jazz (x) and Indian classical music (y) : her utility
function is represented by u(x,y) = (x+1).(y+4). She faces a linear budget constraint (assume that P y
=1 and M=20). Two (independent) sufficient conditions for the optimum bundles (x,y) to be = (0,6)
and (6,0) are:
(a) Px > 10 and Px < 7/4.
(b) Px > 10 and Px < 4/7.
(c) Px > 7/4 and Px < 10.
(d) Px > 4/7 and Px < 10.
6. Nimai has a utility function defined by u(x,y) = Min[x,y]+z. Assuming that
(Px, Py ,PZ )=(1,2,3) and M=20:
(a) the Engel curve for ‘x’ is the x axis on the (x,z) plane if x < y ; the demand curve for ’y’ is a
rectangular hyperbola if y > x and Py ∊ (4,2)
(b) the Engel curve for ‘x’ is upward sloping in the (x, M) plane if x < y ; the demand curve for ’y’ is a
rectangular hyperbola if y < x and Py ∊ (2,3)
(c) the Engel curve for ‘x’ is a straight line from the origin on the (x,z) plane if x < y ; the demand curve
for ’y’ is a straight line parallel to the horizontal axis.
(d) the Engel curve for ‘x’ is the y axis on the (x,M) plane if x < y ; the demand curve for ’y’ is a straight
line parallel to the y axis if y < x and Py ∊ (2,3)

7. Armaan utility function, defined over movies(x) and books(y), is defined by

u(x,y) = Max[2x,y]. He subsequently changed his name to Irrfan and his utility function to u(x,y) =
2 2
2x + y .Assuming that (Px , Py)=(1,1)
(a)For both utility functions, his demand curves for ‘x’ are identical rectangular hyperbolas, his Engel
curves for ‘x’ can be represented by identical straight lines through the origin and his ICCs would be the x
axis.
(b) the Engel curve for the first utility function is the ‘x’ axis and for the latter utility function, a
rectangular hyperbola.
(c) the demand curve for the first utility function is a downward sloping straight line and for the latter
utility function, a rectangular hyperbola.
(d) the Income consumption curve for the first utility function is a straight line through the origin and for
the latter utility function, the ‘y’ axis.

8.An economic agent has a utility function defined over cars that can be consumed only in whole
numbers and ‘residual’ money income. Her money income is Rs.250,000 a year and she can buy a
maximum of 2 cars. The cost of 1 car per year is Rs.90,000 and if she buys 2 cars in a year, the cost
per car is Rs.80,000. Let her utility functions from 0, 1 and 2 cars (and the residual money income)
1/2 1/2 1/2
be: u(0,M) = M , u(1,M) = (3/2)M , u(2,M) =(5/2)M . Assume that she maximises utility.
(a) She shall buy 2 cars and her reservation price for 2 cars shall be 97560 (approximately).
(b) She shall buy 1 car and her reservation price for 2 cars shall be 25,400 (approximately).
(c) She shall buy 1 car and her reservation price for 2 cars shall be 24,400 (approximately).
(d) She shall buy 2 cars and her reservation price for 2 cars shall be 25,400 (approximately).

9.The following question is based on the given table: the observed choices of (X1, X2 X3)
in three different prices in three different situations for a consumer:

Observation P1 P2 P3 X1 X2 X3
1 1 3 10 3 1 4
2 4 3 6 2 5 3
3 1 1 5 4 4 3

(a)She violates WARP but does not violate SARP.

(b)She violates WARP and SARP.
(c)She violates SARP but does not violate WARP.
10.The expenditure on potatoes (x) and onions (y) in 2020 is 4 times the expenditure in 2000 (the
bundles bought are not identical in 2000 and 2020). The value of an (x,y) bundle in 2020 is 3 times
that of an identical bundle in 2000 (at 2000 prices).
(a) The consumer must be better off in 2020.
(b) The consumer must be worse off in 2020.
(c) The information given is not sufficient to determine the consumer’s welfare.