Economics 172 Name: ___________________

Spring 2006 Quiz 3

1. All consumers

a. face the same budget line (same slope and same y intercept) for the same pair of goods. The same slope, yes; intercept depends on income.

b. face a budget line with the same slope for the same pair of goods. This is true

c. face a budget line with different slopes for the same pair of goods. For the same pair of goods, the slope is the same for all consumers.

d. face a budget line with different slopes and a different y intercept for the same pair of goods.

No

2. Fred consumes a certain amount of pizza and salad. At this consumption level, if Fred’s marginal utility of pizza equals 10 and his marginal utility of salad equals 2, then

His ratio MUp/MUs=5 . Getting one more unit of pizza would reduce his MU a little. Giving up one unit of salad would increase his MU a little. He’d be willing to give up salad to get more pizza, so that means b is correct. We don’t know how much more of each he would eat, so c and d are not correct.

a. he would give up 5 pizzas to get the next salad.

b. he would give up 5 salads to get the next pizza.

c. he will eat five times as much pizza as salad.

d. he will eat five times as much salad as pizza.

3. A consumer buys food (F) and shelter (S). If the consumer’s income rises and there is no change in the prices of F or S, the marginal rate of transformation of F for S will

a. increase.

b. decrease.

c. stay the same. There will be no change, since the prices don’t change. The MRT is the slope of the budget line.

d. change, but there is not enough information to know what the direction of magnitude of the change will be.

4. If two bundles are on the same indifference curve, then

a. the consumer derives the same level of total utility from each bundle. That’s how we define an indifference curve: total utility is constant everywhere on it.

b. the consumer derives the same level of marginal utility from each good everywhere on the indifference curve.

c. the consumer will always choose to consume equal quantities of each good.

d. the marginal rate of substitution between the two bundles equals one, since there are two goods.

5. Which of the following will make the budget line steeper?

a. A rise in a consumer’s income.

b. A rise in the price of good X (where X is the good on the X axis). If the price of good x rises the x intercept shifts in toward the origin. Since the price of Y does not change, the y intercept is constant.

c. A rise in the price of good Y (where Y is the good on the Y axis). This will reduce the slope.

d. A rise in the consumer’s marginal value of X and no change in the consumer’s marginal value of good Y.