Quiz - Keys

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1. Evaluate the following statements.

I. All points to the interior of the budget constraint are affordable.
II. All points that lie on the budget constraint cost the same amount of money.
A) Both I and II are true.

B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.
2. In a comparative statics exercise, we examine
A) how changes in an endogenous variable result in changes in exogenous variables.

B) how changes in an exogenous variable result in changes in endogenous variables.
C) how exogenous and endogenous variables are simultaneously determined in the market.
D) how economic agents optimize their behavior in the face of constraints.
3. __________ questions have to do with explanation and prediction, __________ questions

have to do with ‘what ought to be’
A) Positive; Negative
B) Negative; Normative
C) Affirmative; Positive
D) Positive; Normative
4. The following assumption(s) of preferences is (are) violated when indifference curves are
thick
A) Completeness
B) Transitivity
C) More is better
D) All of the above
5. Assume that food is measured on the vertical axis and clothing on the horizontal axis. If the
price of food falls relative to that of clothing, the budget line will
A)Become flatter
B) Become steeper
C) Shift outward
D) Become steeper or flatter depending on the relationship between prices and income
6. The demand for books in a market is: Qd = 120 – P and the supply of books is: Qs = 5P. If P =
$25, which of the following is true?
A) There is a surplus equal to 30.

B) There is a shortage equal to 30.
C) There is a shortage, but it is impossible to determine how large.
D) There is a surplus, but it is impossible to determine how large.
7. Along any downward sloping straight-line demand curve
A)The slope varies but the price elasticity is constant

B) The price elasticity varies, but the slope is constant
C) Both the price elasticity and slope vary
D) Both the price elasticity and slope are constant
8. Which of the following would shift the demand curve for new textbooks to the right?
A)A fall in the price of paper used in publishing texts

B) A fall in the price of equivalent used textbooks
C) An increase in the number of students attending college
D) A fall in the price of new textbooks
9.Perfectly elastic demand is represented by a demandcurve that
A)is vertical
B) is horizontal
C)has a 45° slope
D) is a rectangular hyperbola
10. If the price elasticity of demand is unitary elastic, then as the price falls
A)quantity demanded decreases

B) total revenue falls
C)quantity demanded does not change
D)total revenue does not change
11. The cross price elasticity between a pair of substitutes goods would be
A) Positive
B) Negative
C) Zero
D) Positive or zero depending upon the strength of the relationship
12. Which of the following is True
A)If there are two goods with positive prices and the price of one good is reduced, while income
and other prices remain constant, then the size of the budget set is reduced.
B) If all prices are doubled and money income is left the same, the budget set does not
changebecause relative prices don't change.
C) If there are two goods and the prices of both goods rise by the same factor, then the new
budget line must be parallel to the initial budget line.
D) If there are two goods with positive prices and the price of one is increased, slope of the
budget line will become flatter.
13. In year 1, the price of good x was 4, the price of good y was 2, and income was 60. In year2,
the price of x was 17, the price of good y was 8, and income was 60. On a graph with x on
thehorizontal axis and y on the vertical axis, the new budget line is
A) Flatter than the old one and lies below it

B) Flatter than the old one and lies above it
C) Steeper than the old one and lies below it
D) Steeper than the old one and lies above it
14.Suppose that the prices of good x and good y both double, and income triples. On a graph
where the budget line is drawn with x on the horizontal axis and y on the vertical axis
A) The budget line remains the same as before

B) The budget line becomes flatter and shifts outward
C) The new budget line is parallel to the old budget line and lies below it
D) None of the above
15. Monica has preferences represented by the utility function U(x, y) = 10x+ 5y. She
consumes10 units of good x and 9 units of good y. If her consumption of good x is lowered to 1,
how many units of y must she have in order to be exactly as well off as before?
A) 11 units of good y
B) 36 units of good y
C) 27 units of good y
D) 18 units of good y
16. Prasad's utility function is: min{x+3y, 3x+y}. Sethu's utility function is: min {3x+9y,
9x+3y}. Prasad and Sethu have the same income and face the same prices. Which of the
following is true?
(A) Prasad and Sethuwill demand the same amount of good x.

(B) Prasad and Sethu will demand goods in ratio of 1 and 3.
(C) Sethu will demand more of x and y than Prasad.
(D) Prasad will demand more of x and y than Sethu.
17. For normal goods, the own price elasticity of demand is
A) negative only when price decreases

B) negative regardless of the direction of the price change
C) positive only when price decreases
D) positive regardless of the direction of the price change
18. If the price elasticity of demand for Corn is –2, when Corn ismeasured in quintals. When
corn is measured in kilograms, the price elasticity of demand for corn will be
A) – 0.002
B) – 0.200
C) – 0.020
D) – 2.000
19. If the price elasticity of demand for a good is –1, then doubling the price of that good will
A) Double the total expenditures on that good

B) Reduce the total expenditures on that good by half
C) Leave the total expenditure on that good unchanged
D) Reduce the total expenditure in equal proportion
20. Consider the following three market baskets A, B, and C comprising only two goods S and
K. If baskets A and B are on the same indifference curve and if indifference curves exhibit
diminishing MRS, then:
S K
A 5 8
B 15 6
C 10 7
A) C is preferred to both A and B.

B) A and B are both preferred to C.
C) C is on the same indifference curve as A and B.
D) Not enough information to determine preferences for C relative to other goods.

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_________________________________________________________________________

1. Evaluate the following statements.

A) Both I and II are true.

2. In a comparative statics exercise, we examine

A) how changes in an endogenous variable result in changes in exogenous variables.

3. __________ questions have to do with explanation and prediction, __________ questions

A) There is a surplus equal to 30.

A)The slope varies but the price elasticity is constant

A)A fall in the price of paper used in publishing texts

9.Perfectly elastic demand is represented by a demandcurve that

A)quantity demanded decreases

12. Which of the following is True

A) Flatter than the old one and lies below it

A) The budget line remains the same as before

(A) Prasad and Sethuwill demand the same amount of good x.

17. For normal goods, the own price elasticity of demand is

A) negative only when price decreases

A) Double the total expenditures on that good

A) C is preferred to both A and B.

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