Gary Franklin is a movie critic.

He invented the Franklin Scale with

which he rates movies from 1 to 10 (10 being best). When asked
about his scale, Mr. Franklin explained "that it is a subjective
measure of movie quality. A movie with a ranking of 10 is not
necessarily 10 times better than a movie with a ranking of 1, but it
is better. A movie with a ranking of 5 is better than a movie with a
ranking of 1, but is not as good a movie with a ranking of 10.
That's all it really tells you." Based on Mr. Franklin's description,
his scale is:

A) ordinal but not cardinal.

B) cardinal but not ordinal.
C) an objective standard to judge movies.
D) neither cardinal nor ordinal.
If a market basket is changed by adding more of at least
one good, then rational consumers will:
A) rank the market basket more highly after the change.
B) more likely prefer a different market basket.
C) rank the market basket as being just as desirable as
before.
D) be unable to decide whether the first market basket is
preferred to the second or vice versa.
E) have indifference curves that cross.
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.
The assumption that consumers are decisive:

A) means that a consumer will spend her entire income.

B) is unnecessary, as long as transitivity is assumed.
C) recognizes that there may be pairs of market baskets that
cannot be compared.
D) means that the consumer can compare any two market baskets
of goods and determine that either one is preferred to the other or
that she is indifferent between them.
An upward sloping indifference curve defined over two
goods violates which of the following assumptions from
the theory of consumer behavior?

A) transitivity.
B) preferences are complete.
C) more is preferred to less.
D) all of the above
E) none of the above
Indifference curves are convex to the origin because of:

A) transitivity of consumer preferences.

B) the assumption of a diminishing marginal rate of
substitution.
C) the assumption that more is preferred to less.
D) the assumption of decisiveness.
E) none of the above
If indifference curves cross, then:

A) the assumption of a diminishing marginal rate of

substitution is violated.
B) the assumption of transitivity is violated.
C) the assumption of completeness is violated.
D) consumers minimize their satisfaction.
E) all of the above
 Alvin's preferences for good X and good Y are
shown in the diagram. Which of the following
is true concerning Alvin's marginal rate of
substitution?

A) It is diminishing.
B) It is positive but varies
along the indifference
curve.
C) It is constant.
D) It is zero.
Envision a graph with meat on the horizontal axis and
vegetables on the vertical axis. A strict vegetarian would
have indifference curves that are:

A) vertical lines.
B) horizontal lines.
C) diagonal straight lines.
D) right angles.
E) upward sloping
If preferences satisfy all Food Clothing
four of the basic A 6 3
assumptions: B 8 5
C 5 8

A) A is on the same indifference curve as B.

B) B is on the same indifference curve as C.
C) A is preferred to C.
D) B is preferred to A.
E) Both A and B answer choices are correct.
Jane is trying to decide which courses to take next
semester. She has narrowed down her choice to two
courses, Econ 1 and Econ 2. Now she is having trouble
and cannot decide which of the two courses to take. It's
not that she is indifferent between the two courses, she
just cannot decide. An economist would say that this is
an example of preferences that:

A) are not transitive.

B) are not decisive or complete.
C) violate the assumption that more is preferred to less.
D) all of the above
Using your understanding of indifference curves and marginal
rates of substitution, explain how Pierre’s indifference curves
would be shaped if:

(a) he only eats quiche with escargot. Furthermore, he

eats 1 quiche with 3 of the tasty snails, no more no less.

(b) he is completely indifferent between Pernod Pastis and

Ricard Pastis of equal quantities.

(c) he enjoys both soccer and rugby, but Pierre really enjoys
soccer much more than rugby.

(d) Pierre enjoys couscous but detests sauerbraten.

A consumer has $100 per day to spend on product A,
which has a unit price of $7, and product B, which has a
unit price of $15. What is the slope of the budget line
if good A is on the horizontal axis and good B is on the
vertical axis?

A) -7/15
B) -7/100
C) -15/7
D) 7/15
Suppose that the prices of good A and good B were to
suddenly double. If good A is plotted along the horizontal
axis,

A) the budget line will become steeper.

B) the budget line will become flatter.
C) the slope of the budget line will not change.
D) the slope of the budget line will change, but in an
indeterminate way.
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.
An increase in income, holding prices constant, can be
represented as:

A) a change in the slope of the budget line.

B) a parallel outward shift in the budget line.
C) an outward shift in the budget line with its slope
becoming flatter.
D) a parallel inward shift in the budget line.
Assume that food is measured on the horizontal axis and
clothing on the vertical 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.
A consumer maximizes satisfaction at the point where his
valuation of good X, measured as the amount of good Y he
would willingly give up to obtain an additional unit of X,
equals:
A) the magnitude of the slope of the indifference curve
through that point.
B) one over the magnitude of the slope of the indifference
curve through that point.
C) Px/Py
D) Py/Px
Pencils sell for 10 cents and pens sell for 50 cents. Suppose Jack,
whose preferences satisfy all of the basic assumptions, buys 5 pens and
one pencil each semester. With this consumption bundle, his MRS of
pencils for pens is 3, (3 pencils/pen). Which of the following is true?
A) Jack could increase his utility by buying more pens and fewer
pencils.
B) Jack could increase his utility by buying more pencils and fewer
pens.
C) Jack could increase his utility by buying more pencils and more
pens.
D) Jack could increase his utility by buying fewer pencils and fewer
pens.
The price of lemonade is $0.50; the price of popcorn is
$1.00. If Fred has maximized his utility by purchasing
lemonade and popcorn, his marginal rate of substitution will
be:
A) 2 lemonades for each popcorn.
B) 1 lemonades for each popcorn.
C) 1/2 lemonade for each popcorn.
D) indeterminate unless more information on Fred's
marginal utilities is provided.
How will the consumer reallocate their
budget if Px/Py is greater than the Marginal
Rate of Substitution of X for Y, i.e., the
maximum amount of Y given up for the
additional X?
Let U = 20 X1/4 Y3/4 . Answer the following questions.

What is the marginal utility of good X?

What is the marginal utility of good Y?
What is the marginal rate of substitution?

Differentiate with respect to good X.

Differentiate with respect to good Y.
Take the ratio of MUx/MUy.
MUx = 5 X-3/4 Y3/4
MUy = 15 X1/4 Y-1/4

MRS = 1/3 Y/X

Let Px = $5, and Py = $10, and the

consumer has an income in the amount of
$700. What are the utility maximizing
quantities of goods X and Y.
Intuitive approach.
Utility Maximization requires:
Tangency condition MRS = Px/Py
On the budget line Income = Px X + Py Y

1/3 Y/X = $5/$10, Y = 3/2X,

700 = 5 X + 10 (3/2 X)
X = 700/20 = 35
Y = 3/2 (35) = 52 ½

700 = 5x35 + 10x52.5

Derive the slope of the budget line in the two
period model of consumption.

Have consumption in the first period on the

horizontal axis and second period consumption
on the vertical axis.