Econ E1010 Quiz 1 - KEY

Spring 2022

1. A consumer prefers market basket A to market basket B, and prefers market basket B to
market basket C. Therefore, A is preferred to C. The assumption that leads to this conclusion is:

A) transitivity.
B) completeness.
C) all goods are good.
D) diminishing MRS.
E) assumption of rationality.

2. If
X and Y are perfect substitutes, which of the following assumptions about indifference
curves is not satisfied?
A) Completeness
B) Transitivity
C) More is preferred to less
D) Diminishing MRS
E) none of the above (All of the above assumptions are satisfied.)

3. The endpoints (horizontal and vertical intercepts) of the budget line:

A) measure its slope.
B) measure the rate at which one good can be substituted for another.
C) measure the rate at which a consumer is willing to trade one good for another.
D) represent the quantity of each good that could be purchased if all of the budget were allocated
to that good.
E) indicate the highest level of satisfaction the consumer can achieve.

4. Oscarconsumes only two goods, X and Y. Assume that Oscar is not at a corner solution, but
he is maximizing utility. Which of the following is NOT necessarily true at Oscar’s
consumption point?
A) MRSxy = Px/Py.
B) MUx/MUy = Px/Py.
C) Px/Py = money income.
D) Px/Py = slope of the indifference curve at the optimal choice.
E) MUx/Px = MUy/Py.

5. Which of the following is true regarding income along a price-consumption curve?

A) Income is increasing.
B) Income is decreasing.
C) Income is constant.
D) The level of income depends on the level of utility.

6. Suppose the price of rice increases and you view rice as an inferior good. The substitution
effect results in a ________ change in rice consumption, and the income effect leads to a
________ change in rice consumption.

A) positive, positive
B) positive, negative
C) negative, positive
D) negative, negative

Hint: Here a negative change implies a drop in rice consumption and a positive change implies a
rise in rice consumption.

7. Consider the utility function U(X, Y) = 8XY.

Can you identify the expression for the marginal utility of good X?

A) X
B) 8X
C) 8Y
D) Y

8. For the utility function U(X, Y) = 8XY, can you identify the expression for the marginal
utility of Y?
A) Y
B) X
C) 8Y
D) 8X

9. For the utility function U(X, Y) = 8XY, can you identify the expression for the marginal rate
of substitution (MRS)?

A) (8X/Y)
B) (X/Y)
C) (Y/X)
D) (8Y/X)

10. Consider a consumer who only buys 2 goods, X and Y, with her income of $100.
The price of 1 unit of X is $2.
The price of 1 unit of Y is $4.

Can you identify the budget equation for this consumer?

A) 100 = X + 4Y
B) 100 = 4X + 2Y
C) 100 = 2X + 4Y
D) 100 = 2X + Y

11. For the consumer who buys X and Y with an income of $100 and price of X is $2 and price
of Y is $4, what will be the absolute value of the slope of the consumer's budget line if good X
is plotted on the horizontal axis and good Y is plotted on the vertical axis?
A) 2
B) 4
C) (1/2)
D) (1/4)

12. For the consumer who buys X and Y with an income of $100 when the price of X is $2 and
the price of Y is $4, what will be the total units of good X she will buy if she decides to
spend all her income on good X?

A) 20
B) 25
C) 40
D) 50

13. Gupi is a consumer who consumes two goods X and Y. His preference over X and Y is given
by the utility function U(X, Y) = 9X + 6Y.
Can you identify Gupi's marginal utility from good X from the choices given below?

A) 9X
B) 9
C) 6
D) 6X

14. Can you identify Gupi's marginal utility from good Y?

A) 12
B) 9
C) 6
D) 3

15. For consumer Gupi with the utility function U = 9X + 6Y, we need more information to find
his optimal consumption choice bundle. However, based on the information that is given in the
question about Gupi's preference over X and Y, we can conclude
A) I have no idea what to conclude.
B) Gupi will consume both X and Y at the optimal consumption bundle.
C) Gupi with consume either X or Y at the optimal consumption bundle.
D) Gupi will consume neither X nor Y at the optimal consumption bundle.