Microeconomics 2nd Edition By Goolsbee - Test Bank

1. Which of the following is a key assumption of the supply and demand model? A) that the price and quantity sold are determined in a single market B) that the prices and quantities sold are simultaneously determined in all markets C) the way the whole economy achieves equilibrium D) that international markets affect domestic markets, which in turn affect local markets 2. A key assumption of the supply and demand model is that: A) each firm's good is unique and cannot be duplicated by other firms in the market. B) firms will continue to raise price until profits become positive. C) each firm in the market produces an identical good. D) each firm produces at a level of output at which price exceeds marginal cost. 3. One assumption of the supply and demand model is that: A) several large sellers can raise prices by restricting output. B) buyers with bargaining power are able to receive quantity discounts. C) all of the goods in the market sell for the same price. D) larger firms sell their products at lower prices than smaller firms. 4. Which of the following is not an assumption underlying the supply and demand model? A) The focus is on supply and demand in a single market. B) All goods sold in the market are identical. C) Different firms sell their goods at different prices. D) There are many producers and consumers in the market. 5. In the supply and demand model, we assume that there are _____ buyers and _____ sellers in the market. A) many; many B) several; several C) many; several D) several; many 6. Which of the following factors influences demand? I. consumer income II. prices of complement goods III. prices of substitute goods IV. the number of consumers A) I and IV B) II and III C) I, III, and IV D) I, II, III, and IV 7. Electric guitars and amplifiers are complement goods, and electric guitars and acoustic guitars are substitute goods. An increase in the price of amplifiers _____ the number of electric guitars consumers want to buy, while an increase in the price of acoustic guitars _____ the number of electric guitars consumers want to buy. A) increases; decreases B) decreases; increases C) decreases; decreases D) increases; increases 8. Which of the following statements is TRUE? A) A demand curve shows the relationship between a product's price and the number of units consumers want to buy at each price, assuming there are no changes in other factors affecting demand. B) A demand curve shows the relationship between consumer income and the quantity purchased of some product. C) A demand curve shows the relationship among consumer income, price of a product, quantity supplied, and the number of units of that product consumers want to buy. D) A demand curve is drawn with the assumption that demand equals supply. 9. If the demand curve is QD = 10 - 2P, then the lowest price at which no consumer is willing to buy the good (i.e., the demand choke price) is: A) 10. B) 2. C) 7. D) 5. 10. The demand curve for a good is Q = 80 – 0.20P, where Q is the quantity demanded and P is the price per unit. This good's inverse demand curve is: A) P = 80 – 0.20Q. B) P = 40 – Q. C) P = 5Q + 40. D) P = 400 – 5Q. Use the following to answer questions 11-12: Figure 2.1 11. (Figure 2.1) Mathematically, the demand curve D1 is described by this equation: A) Q = 0.75 – P. B) Q = 6 – 0.75P. C) Q = 8 – 1.33P. D) P = 6 – 8P. 12. (Figure 2.1) A salmonella outbreak would shift the demand curve for turkey from D1 to _____, and a discovery that eating turkey reduces muscle fatigue in athletes would shift the demand curve for turkey from D1 to _____. A) D2; D3 B) D3; D2 C) D3; D3 D) D2; D2 13. Which of the following will not cause demand for apples to increase or decrease? A) a reduction in the price of apples. B) a reduction in the price of a complement for apples. C) an increase in income. D) a decrease in the number of consumers in the market. 14. Which of the following statements is TRUE? I. As more sellers enter a market, the supply of the product will increase. II. If input prices increase, the supply of the product will be unaffected because firms pass the higher costs of production to consumers in the form of higher prices. III. Firms respond to high prices for their product by offering a larger quantity for sale. A) I B) II and III C) I, II, and III D) I and III 15. Genetically modified soybean seed is an example of a new technology that has increased productivity. As a result, this new technology _____ production costs and _____ the supply of soybeans. A) raised; increased B) lowered; decreased C) lowered; increased D) raised; decreased 16. Suppose that farmers can use their land to grow and sell soybeans and cotton. Cotton prices have risen. Farmers respond by producing _____ soybeans and _____ cotton. A) more; less B) less; more C) more; more D) less; less Use the following to answer question 17: Figure 2.2 17. (Figure 2.2) If the price of turkey is $4 per pound, _____ pounds of turkey will be offered for sale; if the price of turkey is $7 per pound, _____ pounds of turkey will be offered for sale. A) 3,000; 6,000 B) 0; 6,000 C) 2,000; 5,000 D) 1,000; 8,000 18. Suppose that the supply of a good is given by Q = –50 + 5P, where Q is the quantity supplied and P is the price measured in dollars per unit. This equation indicates that the quantity supplied increases by _____ units for every dollar increase in price. A) 5 B) 45 C) 50 D) 55 Use the following to answer question 19: Figure 2.3 19. (Figure 2.3) An increase in quantity supplied could be indicated by: A) the supply curve shifting from S1 to S2. B) the supply curve shifting from S1 to S3. C) movement up and along supply curve S1. D) the supply curve shifting from S3 to S2. 20. If the supply curve is QS = 4P - 4, then the highest price at which no producer is willing to sell the good (i.e., the supply choke price) is: A) 1 B) 4 C) 3 D) 2 Use the following to answer question 21: Figure 2.3 21. (Figure 2.3) What could cause the supply curve to shift from S1 to S2? A) an increase in the number of asparagus farmers B) poor weather conditions that reduce the asparagus harvest C) better fertilizers that lower the costs of production D) a decrease in the price of asparagus 22. In the blackberry market, the quantity demanded is given by QD = 2,600 – 500P, and the quantity supplied is given by QS = –400 + 100P. What are the equilibrium price and equilibrium quantity? A) $5 and 100 pounds B) $4.25 and 3,000 pounds C) $2.50 and 900 pounds D) $1.80 and 2,200 pounds 23. If the price of crude oil increases and the number of people who own cars falls: A) the equilibrium price of gasoline will increase and equilibrium quantity of gasoline will decrease. B) the equilibrium price of gasoline will decrease and equilibrium quantity of gasoline will be uncertain. C) the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will decrease. D) the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will increase. Use the following to answer questions 24-26: Figure 2.4 24. (Figure 2.4) At what price does the quantity demanded by consumers equal the quantity supplied by producers? A) $5 B) $4 C) $1 D) $3 25. (Figure 2.4) At a price of $2, there is an excess: A) supply of 4,000 pounds. B) supply of 3,000 pounds. C) demand of 3,000 pounds. D) demand of 1,000 pounds. 26. (Figure 2.4) An excess supply of 3,000 pounds occurs at a price of: A) $2. B) $5. C) $6. D) $8. 27. Suppose that the demand and supply curves for green peas are given by QD = 10 – 8P and QS = 2P, where P is price per pound and Q is measured in thousands of pounds. If the price per pound of peas is $0.50, the market _____, so the price will _____. A) has excess demand of 3,000 pounds; rise B) has excess supply of 1,000 pounds; fall C) is in equilibrium; remain unchanged D) has excess demand of 5,000 pounds; rise 28. Suppose that the equilibrium price of blackberries is $3 per pound, and the price of black raspberries (a substitute for blackberries) increases. What happens in the market for blackberries? A) An excess supply of blackberries at $3 per pound leads to an increase in quantity demanded and a decrease in quantity supplied. B) The demand curve for blackberries shifts to the right, reflecting an increase in both the equilibrium price and the quantity. C) An excess demand of blackberries at $3 per pound results in a new equilibrium price that is less than $3 per pound. D) The demand curve for blackberries decreases, reducing the equilibrium price and raising the equilibrium quantity. 29. Suppose that we observe a decrease in the price of sunscreen and fewer people buying sunscreen. What could have caused this change? A) a violation of the law of demand B) a tax on sunscreen manufacturers C) a new study documenting that the ingredients in sunscreen are linked to an increased risk of malignant melanoma, a dangerous form of skin cancer D) a new production process that reduces the costs of making sunscreen 30. The Internet has made learning to play a musical instrument easier than ever, with thousands of Web sites offering free music lessons. What happens in the musical instruments market as a result of the availability of these free lessons? A) The supply curve increases, pushing down the price. B) The demand curve shifts out, pushing up the price. C) The demand curve shifts out, which in turn causes the supply curve to increase. The overall effect on price is ambiguous. D) The price of musical instruments falls, causing an increase in the quantity demanded. Use the following to answer question 31: Figure 2.5 31. (Figure 2.5) Which of the following events could have caused the demand curve to shift? I. The price of a substitute good decreased. II. The price of a complement good increased. III. The income of consumers increased. IV. The number of buyers in the market increased. A) I, II, III, and IV B) III and IV C) II, III, and IV D) I and II 32. The market for matsutake mushrooms is characterized by the following demand and supply equations: QD = 100 – P and QS = –50 + 2P, where Q is measured in pounds and P is measured in price per pound. If a new fertilizer increases the quantity supplied by 30 pounds at every price, the equilibrium price changes from _____ to _____. A) $50; $70 B) $100; $30 C) $150; $110 D) $50; $40 33. An increase in input prices causes: A) the market supply to shift inward, driving the equilibrium price downward. B) the market supply to shift outward, leading to a higher equilibrium price. C) the market supply to shift inward, driving the equilibrium price higher. D) the supply curve to decrease and the demand curve to decrease. 34. In the market for oranges, we observe that the equilibrium price increased and the equilibrium quantity increased. What could have caused this change? A) an increase in supply and a decrease in demand B) an increase in demand C) a decrease in supply D) an increase in supply 35. Many video game makers in the early 1980s went out of business because: A) a large increase in the supply of games lowered the price of video games so much that it made them unprofitable. B) a large decrease in the supply of games raised the price of video games so much that consumers stopped buying them. C) a large decrease in consumer demand lowered the price of video games so much that it made them unprofitable. D) a large increase in consumer demand raised the price of video games to the point that they were no longer affordable. 36. What happens in the market for Blu-ray discs if the price of Blu-ray players falls? A) The demand for Blu-ray discs increases. B) The quantity demanded of Blu-ray discs increases. C) The supply of Blu-ray discs increases. D) The demand and supply of Blu-ray discs increase. Use the following to answer question 37: Figure 2.6 37. (Figure 2.6) Suppose that the demand curve in both markets shifts out by the same distance. The change in price will be larger in _____, and the change in quantity will be larger in _____. A) market A; market A B) market A; market B C) market B; market A D) market B; market B 38. Suppose a fall in consumer income drives down the demand for lobster while a record harvest increases supply. How would these changes affect the equilibrium price and quantity of lobsters? A) Both equilibrium price and equilibrium quantity would decrease. B) The equilibrium price would fall, but the effect on the equilibrium quantity cannot be predicted. C) The equilibrium price would fall and the equilibrium quantity would increase. D) The equilibrium quantity would increase, but the effect on price cannot be predicted. 39. A decrease in both demand and supply will cause a(n) _____ equilibrium price and a(n) _____ equilibrium quantity. A) uncertain effect on; decrease in B) increase in; decrease in C) increase in; uncertain effect on D) decrease in; uncertain effect on 40. If a 10% increase in the price of pork reduces quantity demanded by 7%, the price elasticity of demand is: A) –1.43. B) –0.14. C) –3.0. D) –0.70. 41. Consumers are particularly price-responsive when: A) it is difficult to substitute across suppliers and prices are high. B) prices are low and they have little time to change their consumption patterns. C) a product has many substitutes and they have a long time to adjust their consumption. D) there are few substitute goods available for a product, and they have a short time horizon to adjust their consumption. 42. In market A, a 4% increase in price reduces quantity demanded by 2%. In market B, a 3% increase in price reduces quantity demanded by 4%. The price elasticity of demand in market A and market B are considered_____ and _____, respectively. A) elastic; inelastic B) inelastic; elastic C) perfectly elastic; unit elastic D) unit elastic; perfectly inelastic Use the following to answer question 43: Figure 2.7 43. (Figure 2.7) What is the price elasticity of demand at point A and point B? A) point A = –2.0, point B = –0.50 B) point A = –0.50, point B = –0.50 C) point A = –1.0, point B = –2.0 D) point A = –2.5, point B = –1.5 Use the following to answer question 44: Figure 2.8 44. (Figure 2.8) Which of the following statements is TRUE? I. The price elasticity of demand is less than 1 in absolute value at prices less than $5. II. The price elasticity of demand is elastic at prices above $5. III. The price elasticity of demand is negative infinity at a price of $0. IV. At $5, the price elasticity of demand is perfectly inelastic. A) III only B) II and IV C) I, II, III, and IV D) I and II Use the following to answer question 45: Figure 2.9 45. (Figure 2.9) The price elasticity of supply at $4 is: A) 0. B) 4. C) infinity. D) 0.67. 46. The demand curve for a product is Q = 50 – 0.5P. What is the price elasticity of demand at a price of $60? A) –1.50 B) –1.0 C) –0.80 D) –0.25 47. The inverse demand curve for eggs is P = 20 – 0.25Q. What is the price elasticity of demand at P = $4? A) –0.45 B) –2.0 C) –4.0 D) –0.25. Use the following to answer question 48: Figure 2.10 48. (Figure 2.10) What is the price elasticity of demand at point A? A) –2.6 B) –1.54 C) –0.7 D) –3.2 Use the following to answer question 49: Figure 2.11 49. (Figure 2.11) Which of the following statements is TRUE regarding the figure? I. The price elasticity of demand is . II. The demand curve is perfectly inelastic. III. An increase in price has no effect on quantity demanded. A) I and III B) I, II, and III C) II and III D) II 50. Suppose that the supply of oil to Pittsburgh, Pennsylvania, is perfectly elastic. If more people move to Pittsburgh because of its great football and hockey teams, what happens to the equilibrium price and quantity of oil in Pittsburgh? A) Both the equilibrium price and the quantity increase. B) The equilibrium price increases, but the equilibrium quantity is unchanged. C) The equilibrium quantity increases, but the equilibrium price is unchanged. D) Both the equilibrium price and the quantity are unchanged. 51. The price of baseball tickets increased by 5%, leading to a 3% decrease in the number of tickets sold. Given this specific situation, total expenditures on baseball tickets: A) fell. B) stayed the same. C) increased. D) could have increased, decreased, or stayed the same depending on the price elasticity of demand. 52. An increase in the price of computer chips causes a decrease in the total revenue of computer chip manufacturers. The price elasticity of demand for computer chips is: A) positive and elastic. B) inelastic. C) elastic. D) positive and inelastic. Use the following to answer question 53: Figure 2.12 53. (Figure 2.12) As the price of the product rises from $0 to $40, what happens to total expenditures? A) Total expenditures increase, reaching a maximum at a price of $40. B) Total expenditures remain unchanged. C) Total expenditures decrease, reaching a minimum at a price of $40. D) Total expenditures first increase and then decrease, as price approaches the midpoint of the demand curve. 54. If the inverse demand curve for a good is given by P = 100 – 4Q, the price elasticity of demand is elastic at a price of _____ and inelastic at a price of _____. A) $40; $60 B) $60; $50 C) $55; $35 D) $35; $30 55. The income elasticity of demand for dental services is 2.40, and the income elasticity of demand for nursing homes is 0.90. Based on these estimates, dental services are a(n) _____ and nursing home care is a(n) _____. A) luxury good; normal good B) normal good; inferior good C) inferior good; luxury good D) normal good; luxury good 56. If a 5% increase in income increases quantity demanded by 4%, the income elasticity of demand is: A) 1.25. B) 0.80. C) 2.0. D) 0.02. 57. Suppose that the cross-price elasticity of demand for movie popcorn with respect to movie tickets is –0.75. If the price of movie tickets rises by 4%, the quantity demanded of movie popcorn will: A) fall by 18.75%. B) fall by 30%. C) rise by 3%. D) fall by 3%. 58. On some days Gus makes his own salad for lunch, preferring to use either iceberg or romaine lettuce, topped off with lots of fresh tomatoes. The cross-price elasticity of demand for iceberg lettuce with respect to romaine lettuce is _____, and the cross-price elasticity of demand for iceberg lettuce with respect to tomatoes is _____. A) positive; negative B) negative; positive C) zero; positive D) negative; zero 59. List the four basic assumptions of the supply and demand model. 60. Two firms, Boeing and Airbus, produce large commercial airplanes. Boeing and Airbus have different flight control systems, with many pilots preferring one system to the other. Also, the Airbus A380, at $375.3 million, has a double-deck design that can hold up to 840 passengers. The Boeing 747 can hold up to 568 passengers, and it sells for $317.5 million. What key assumptions of the supply and demand model are violated in the large commercial airplane market? 61. Write out an equation for a downward-sloping linear demand curve. Next, graph this demand curve on a well-labeled diagram, showing the numerical values of the vertical and horizontal intercepts. 62. Suppose that the demand for a product is given by Q = 25 – 0.25P. a. Solve for the inverse demand curve. b. Graph the inverse demand curve, showing the numerical values for the vertical and the horizontal intercepts. c. If the product's price is $105 per unit, how many units will consumers be willing to buy? Use the following to answer question 63: Figure 2.13 63. (Figure 2.13) Use the figure to answer the next set of questions. a. List the most common factors affecting demand that could cause the movement from point A to point B. b. List the most common factors affecting demand that could cause the demand curve to shift out from D1 to D2. 64. Determine the equation for both normal and inverse demand equations using the information in the associated graph. 65. The supply curve of rubber balls is given by Q = 100P – 10. a. What happens to the quantity supplied of rubber balls if the price of rubber balls increases by $1? b. What is the equation for the inverse supply curve? c. Graph the supply curve of rubber balls, showing the quantity supplied at prices of $0.10 and $0.60. 66. What is the difference between a change in supply and a change in quantity supplied? 67. The normal supply curve is QS = 12P – 20. What is the inverse supply curve? 68. According to the nearby figure, what is the equation for the normal supply curve? Now assume that the price of raw materials for this product falls, leading suppliers to offer three additional units at every price. What is the equation for the new supply curve? 69. The inverse supply equation for clay pots is P = 0.5Q S + 1; the inverse demand equation is P = –2QD + 15. Quantity is in thousands of units. What are the normal supply equation, the normal demand equation, and the resulting equilibrium price and quantity? 70. In the market for cotton, the quantity demanded and quantity supplied are expressed mathematically as QD = 400 – 250P and QS = 250P – 100, where P is the price per pound of cotton. a. What are the equilibrium price and equilibrium quantity? b. Graph the demand and supply curves, and include your answers from part a. 71. Suppose that the demand and supply curves for a good are given by QD = 1,000/P and QS = 10P. a. What are the equilibrium price and equilibrium quantity? b. Explain what is happening in the market at a price of $2. c. Explain what is happening in the market at a price of $20. 72. Suppose that the demand and supply curve for a good are given by QD = 90 – P and QS = 4P – 10. a. What are the equilibrium price and equilibrium quantity? b. At what price is there an excess demand of 50 units? 73. How are the following events likely to affect equilibrium price and equilibrium quantity in the maple syrup market? a. The price of pancake mix doubles. b. Academic scientists claim that consuming maple syrup raises good cholesterol. c. Sap streak disease spreads throughout North America, killing tens of thousands of maple trees. d. The price of Aunt Jemima pancake syrup (made with corn syrup, not maple syrup) increases. 74. The market for cod liver oil pills is characterized by the following demand and supply equations: QD = 100 – 4P and QS = –20 + 2P, where P is the price per bottle and Q is the quantity of bottles. a. What are the equilibrium price and quantity? b. If consumers want to purchase 60 more bottles at any given price, what are the new equilibrium price and quantity? 75. Using well-labeled supply and demand curves, show how the following events will affect the market for the metal lead. a. A large deposit of lead is found in Australia. b. Millions of Chinese who were recently lifted out of poverty buy new cars that use lead acid batteries. c. The EPA bans the use of lead ammunition because of environmental concerns. d. A new production technology reduces the cost of removing lead from ore. 76. According to political journalist Michael Kinsley, “The price of oil shoots up; we start using less; reduced demand sends the price down; we start using more; pretty soon it's shooting up again.” Explain whether you agree or disagree with Kinsley's assessment of oil markets. 77. In each of the following cases, predict what will happen to the equilibrium price and quantity. a. More sellers enter the market and consumer income decreases. The good is a normal good. b. The price of a substitute good increases and sellers' options in other markets become less profitable. c. A drought reduces the cotton harvest and cotton clothing falls out of favor with consumers. d. The price of inputs in production rises and the price of a complement good falls. 78. In the market for good X, demand is QD = 6,000 – 0.8P and supply is QS = 0.4P – 300. a. What are the equilibrium price and quantity? b. Solve for the inverse demand and inverse supply equations. c. Suppose that an increase in consumer income makes consumers willing to pay $500 more per unit of good X. Also, a technological breakthrough in production makes firms willing to sell good X for $500 less per unit. What are the new equilibrium price and quantity? 79. Assume that the demand equation for exercise watches, such as the Fitbit, is QD = 2,200 – 15P and the supply equation is QS = 15P – 800. Calculate the equilibrium price and equilibrium quantity in this market. 80. Assume that the demand equation for exercise watches, such as the Fitbit, is QD = 2,200 – 15P and the supply equation is QS = 15P – 800. After a favorable study shows that using exercise watches significantly reduces users' weights, quantity demanded increases by 300 at every price. The new equilibrium price will be _____ and the new equilibrium quantity will be _____. 81. Suppose the inverse demand for a good is given by P = 6 – Q. a. What is the price elasticity of demand at P = $3? Is demand elastic at this price? b. If consumers are willing to pay $2 more per unit, what is the price elasticity of demand at P = $3? Is demand elastic at this price? 82. Answer the following questions about price elasticity of demand. a. The price elasticity of demand for MLB tickets is –0.50. What happens to the quantity of tickets sold if ticket prices rise by 5%? b. The price elasticity of demand for fried chicken is –1.12. What happens to expenditures on fried chicken following a price increase? c. Suppose the demand for insulin is given by QD = 1,000. What is the price elasticity of demand at P = $100? d. What will happen to the price elasticity of demand if there are more substitute goods available? 83. The demand and supply curves for a good are given by QD = 50 – 2P and QS = P – 1. a. Calculate the price elasticity of demand at the equilibrium price. b. Calculate the price elasticity of supply at the equilibrium price. c. What would happen to consumer expenditures on the good if firms must pay higher prices for their inputs in production? 84. Consider the following questions on elasticity. a. If a 3% increase in income leads to a 1% increase in the quantity purchased, what is the income elasticity of demand? Is the good an inferior good? b. The price of good Y decreases by 15% and the quantity sold of good X increases by 4%. What is the cross-price elasticity of demand for good X with respect to good Y? How are good X and good Y related? c. The demand equation is QD = 15 – P. What is the price elasticity of demand at P = $6? 85. Suppose your company is faced with the following demand curve: QD = 600 – 100P. The price elasticity of demand, ED, at a price of $5 equals _____, and the price elasticity of demand, ED, at a price of $1 equals _____. 86. Please refer to the nearby figure. In the market for asparagus, consumer income rises by 10%, leading to the new demand curve: QD = –0.5P + 6.5. What is the income elasticity of demand between the old and new equilibrium prices? 87. The inverse supply equation for clay pots is P = 0.5QS + 1; the inverse demand equation is P = –2QD + 15. Quantity is in thousands of units. Which is more elastic at a price of $3.80, demand or supply? Round your answers to four decimal places. 88. Assume that the elasticity of supply is 1.59. If the price of the product increases by 10%, by how much do we expect the quantity supplied to increase? Answer Key 1. A 2. C 3. C 4. C 5. A 6. D 7. B 8. A 9. D 10. D 11. B 12. A 13. A 14. D 15. C 16. B 17. C 18. A 19. C 20. A 21. B 22. A 23. C 24. B 25. C 26. C 27. D 28. B 29. C 30. B 31. B 32. D 33. C 34. B 35. A 36. A 37. C 38. B 39. A 40. D 41. C 42. B 43. A 44. D 45. C 46. A 47. D 48. B 49. C 50. C 51. C 52. C 53. A 54. C 55. A 56. B 57. D 58. A 59. 1. We examine how supply and demand interact in a single market. 2. All goods bought and sold in the market are homogeneous. 3. All goods in the market sell for the same price. 4. There are many producers and consumers in the market. 60. Three assumptions are violated. First, Boeing and Airbus produce different types of airplanes. Second, Boeing and Airbus planes sell for different prices. Third, there are only two producers of large commercial airplanes, not many. 61. Answers will vary, but the general form of a demand curve is given by Q = a – bP, where parameter a is a positive constant and parameter b is a positive constant. The horizontal intercept is a, and the vertical intercept is a/b. One example of a demand curve is Q = 100 – 2P. The demand curve intersects the quantity axis (horizontal intercept) at 100 and intersects the price axis (vertical intercept) at 50. 62. a. Solve the demand equation for these values: 0.25P = 25 – Q P = 100 – 4Q b. c. Q = 25 – 0.25(105) = –1.25, so consumers are not willing to buy any of the product. 63. a. A rise in the good's price is the only factor that could cause movement up and along a given demand curve. b. If there is a change in the number of consumers, in consumer income, in consumer tastes, or in the price of other goods, the demand curve shifts out. 64. First, since the graph shows a linear demand curve, the generic form of the equation will be y = mx + b. To find the inverse demand equation, first replace y with P and x with QD to get P = mQD + b. The y-intercept, b, will be the price when quantity demanded is zero, which we determine from the graph to be $6, so P = mQD + 6. Finally, slope is the change in price due to a change in quantity for the inverse demand curve, which in this case is –6/12, or –0.5. Plugging this into the equation leads to the inverse demand equation of P = –0.5QD + 6. To find the normal demand equation, solve the inverse demand equation for QD: P = –0.5QD + 6 P – 6 = –0.5QD QD = –2P + 12 65. a. For every $1 increase in price, the quantity supplied of rubber balls increases by 100. b. –100P = –10 – Q P = 0.10 + Q/100 c. 66. A change in supply refers to the supply curve shifting position, setting up an entirely new relationship between price and quantity supplied. A change in quantity supplied is a movement along a supply curve that is caused by a change in the product's price. 67. To find the inverse supply curve, solve the normal supply equation for P. QS = 12P – 20 12P = 20 + QS P = 0.083QS + 1.67 68. To find the original supply equation, start with y = mx + b since the supply curve is linear. Replace y with P and x with QS to get P = mQS + b. The y-intercept in this case will be the price when quantity supplied equals zero, or $4. The slope will be DP/DQS, or (8 – 4)/(6 – 0) = 0.67. Plugging the y-intercept and slope into P = mQS + b yields P = 0.67QS + 4. Solve for QS to find the normal supply equation: QS = 1.5P – 6. If the price of raw materials falls, leading suppliers of this product to offer three additional units at every price, the supply curve will shift to the right by three units, leading to a new normal supply equation with a y-intercept that is three units lower than the original equation: QS = 1.5P – 3. 69. Solving P = 0.5QS + 1 for QS leads to QS = 2P –2; solving P = –2QD + 15 for QD yields QD = –0.5P + 7.5. Set QD = QS –0.5P + 7.5 = 2P – 2 2.5P = 9.5 P = $3.80 Q = 2(3.80) – 2 = 5,600 70. a. QD = QS 400 – 250P=250P – 100 –500P = –500 P = $1 QD = 400 – 250 (1) = 150 QS = 250(1) – 100 = 150 P = 1; Q = 150 b. 71. a. QD = QS 1,000/P = 10P. P2 = 100 P = 10 QD = 1,000/(10) = 100 QS = 10(10) = 100 P = 10; Q = 100 b. There is excess demand of 480 units. At P= $2, QD = 1,000/(2) = 500 and QS = 10(2) = 20, giving an excess demand of 480. c. There is an excess supply of 150 units. At P = $20, QD = 1,000/(20) = 50 and QS = 10(20) = 200, giving an excess supply of 150. 72. a. QD = QS 90 – P = 4P – 10. –5P = –100 P = $20 QD = 90 – 20 = 70 QS = 4(20) – 10 = 70 P = 20; Q = 70 b. At P = 10, QD = 90 – 10 = 80 and QS = 4(10) – 10 = 30, giving excess demand of 50. 73. a. A rise in the price of a complement will cause a decrease in demand, leading to a decrease in the equilibrium price and quantity. b. A positive change in consumer tastes will cause an increase in demand, leading to an increase in the equilibrium price and quantity. c. The production of maple syrup will be reduced (a decrease in supply), leading to an increase in the equilibrium price and decrease in the equilibrium quantity. d. A rise in the price of a substitute good will cause an increase in demand, leading to an increase in the equilibrium price and quantity. 74. a. Set QD = QS and solve for P. 100 – 4P = –20 + 2P –6P = –120 P = 20 Q = 100 – 4(20) = 20 b. The demand equation is now QD = 160 – 4P. Set QD = QS and solve for P. 160 – 4P = –20 + 2P –6P = –180 P = 30 Q = 160 – 4(30) = 40 75. a. b. c. d. 76. Disagree. Kinsley is confusing movements along the demand curve with shifts of the demand curve. 77. a. An increase in supply and decrease in demand will cause the price to fall, with an indeterminate effect on quantity. b. An increase in demand and supply will cause the quantity to rise, with an indeterminate effect on price. c. A decrease in supply and demand will cause the quantity to fall, with an indeterminate effect on price. d. A decrease in supply and an increase in demand will cause the price to rise, with an indeterminate effect on quantity. 78. a. QD = QS 6,000 – 0.8P = 0.4P – 300 –1.2P = –6,300 P = $5,250 QD = 6,000 – 0.8(5,250) = 1,800 QS = 0.4(5,250) – 300 = 1,800 P = $5,250; Q = 1,800 b. Inverse demand: QD = 6,000 – 0.8P 0.8P = 6,000 – QD P = 7,500 – 1.25QD Inverse supply: QS = 0.4P – 300 –0.4P = –300 – QS P = 2.5QS + 750 c. The new inverse demand equation is P = 8,000 – 1.25QD, and the new inverse supply equation is P = 2.5QS + 250. Set P = P 8,000 – 1.25QD = 2.5QS + 250 – 3.75P = 7,750 Q = 2,066.67 P = 8,000 – 1.25(2,066.67) = $5,416.66 P = 2.5(2.066.67) + 250 = $5,416.66 P = $5,416.66; Q = 2,066.67 79. To find equilibrium price and quantity, set QD = QS and solve for P: QD = QS 2,200 – 15P = 15P – 800. 30P = 3,000 P = 100 Q = 2,200 – 15(100) = 700 80. The new demand curve will be QD = 2,500 – 15P. To find the new equilibrium price and quantity, set QD = QS and solve for P: QD = QS 2,500 – 15P = 15P – 800 30P = 3,300 P = 110 Q = 2,500 – 15(110) = 850 81. a. Price elasticity = –1. Demand is unit elastic. b. Price elasticity of demand = –0.60. Demand is inelastic. 82. a. The quantity of tickets sold will decrease by 2.5% (5 × –0.50). b. Because demand is elastic, an increase in price will cause a reduction of expenditures. c. This demand curve is vertical (perfectly inelastic), so the price elasticity of demand is zero. d. The good will become more price elastic. 83. a. QD = QS 50 – 2P = P – 1 –3P = –51 P = 17 QD = 50 – 2(17) = 16 QS = 17 – 1 = 16 The equilibrium price is $17 and equilibrium quantity is 16. The price elasticity of demand = –2 × 17/16 = –2.13. b. The price elasticity of supply is 1 × 17/16 = 1.06. c. Given that the price elasticity of demand is elastic, a rise in price (owing to higher input prices) would reduce expenditures on the good. 84. a. Income elasticity of demand = 1/3 = 0.33. The sign is positive, so it is a normal good. b. Cross-price elasticity of demand is 4/–15 = –0.27. The sign is negative, so the goods are complements. c. The price elasticity of demand is –1(6/9) = –0.67. 85. The price elasticity of demand, ED, at a price of $5: ED = –100 × (5/100) = –5. The price elasticity of demand at a price of $1: ED = –100 × (1/500) = –0.2. 86. Based on the graph, the original equilibrium is $4 and 3,000. By the new demand curve QD = –0.5P + 6.5 and original supply curve of QS = P – 1, the new equilibrium will be $5 and 4,000 pounds. The quantity rose by 33% because of the 10% increase in income. This implies that the income elasticity will be EDI = %DQ/%/DI = 0.33/0.10 = 3.3, so the product is a luxury item. 87. To calculate the elasticity of demand: ED = {[1/slope] × [DP/DQD]} = {(1/ –2) × (3.80/5.60)} = –0.3393 To find elasticity of supply: ES = {[1/slope] × [DP/DQS]} = {(1/ –0.5) × (3.80/5.60)} = 1.3571 Since |ED| < ES, the supply curve is more elastic at a price of $3.80. 88. An elasticity of supply equal to 1.59 is interpreted as a 1% change in price being expected to lead to a 1.59% change in quantity supplied. This can be scaled further to say that a 10% change in price is expected to lead to a 1.59 × 10 or 15.9% change in quantity supplied. 1. The additional utility obtained from consuming an extra unit of a good is called: A) marginal utility. B) marginal rate of substitution. C) disutility. D) population-averaged utility. 2. Kyle's utility function is U = 4X + 3.7Y, where X is units of good X and Y is units of good Y. What is the marginal utility of good X? A) 4X + 3.7 B) 4 C) 0.3X D) U/4 3. Which of the following statements is FALSE? A) Utility is the difference between the consumer's assets and her liabilities. B) One person's utility cannot be compared to another person's utility. C) A utility function gives the relationship between a consumer's well-being and the quantities of goods consumed. D) Inputs into a utility function may include wool socks, DVD rentals, roller coaster rides, asparagus, and Sunday church services. 4. Suppose that U = U(P, M), where P and M are peanuts and marshmallows. The marginal utility of marshmallows, MUM, is given by: A) P + M. B) P/M. C) ΔU(P, M)/ΔM. D) ΔU(P, M) × ΔM. 5. Maggie prefers cheese to crayons, and she prefers crayons to coconuts. To satisfy the assumption of _____, Maggie must also prefer _____. A) rankability; cheese to coconuts B) transitivity; cheese to coconuts C) transitivity; coconuts to cheese D) rankability; coconuts to cheese 6. Carleton is presented with two bundles of goods: silk ties and cufflinks. Which of the following statements satisfies the assumption of rankability? I. Carleton prefers silk ties to cufflinks. II. Carleton prefers cufflinks to silk ties. III. Carleton is equally satisfied with either silk ties or cufflinks. A) I B) II C) I or II D) I, II, and III 7. Randy likes baseball more than football, football more than basketball, and basketball more than baseball. Which assumption about consumer preferences does this violate? A) completeness and rankability B) more is better C) transitivity D) The more a consumer has of a particular good, the less she is willing to give up of something else to get even more of that good. 8. Sonia says she prefers two theater tickets and one bottle of French wine to three games of bowling and one pitcher of draft beer. In this example, Sonia is demonstrating the _____ assumption of consumer behavior. A) more is better than less B) completeness and rankability C) transitivity D) diminishing marginal utility Use the following to answer question 9: Figure 4.1 9. (Figure 4.1) Sam's grandmother, who is visiting from Florida, gives Sam 10 oranges and 1 pineapple. As a result, Sam will be willing to: A) trade away more than one orange for an additional pineapple. B) trade lots of pineapples for an additional orange. C) trade his only pineapple for one more orange. D) give up all of his oranges for several more pineapples. Use the following to answer question 10: Figure 4.2 10. (Figure 4.2) Joanne's utility function is U = TC, where T is baskets of tomatoes and C is bags of carrots. One of Joanne's indifference curves will go through points: A) A, B, and F. B) B, D, and E. C) A, D, and E. D) D, C, and E. 11. Which assumption(s) allow(s) us to draw indifference curves? A) cardinal measurement and cardinal ranking B) rankability and completeness C) that the more we have of a good, the less we are willing to give up to get even more of it D) free disposal and more is better Use the following to answer question 12: Figure 4.3 12. (Figure 4.3) Which of the following statements is FALSE? A) Indifference curve U2 provides a higher level of utility than indifference curve U1. B) Bundle C is preferred to bundle D. C) Bundle A is preferred to bundle C. D) The consumer is indifferent between bundle A and bundle D. Use the following to answer question 13: Figure 4.4 13. (Figure 4.4) This figure violates the assumption: A) of convex indifference curves. B) of transitivity. C) of rankability. D) that the more you have of a good, the less you are willing to give up to get even more of it. Use the following to answer question 14: Figure 4.5 14. (Figure 4.5) Which of the following statements is TRUE? I. The consumer prefers any point on indifference curve U2 to any point on indifference curve U1. II. The consumer receives 20% more satisfaction from consuming along indifference curve U2 than along indifference curve U1. III. This consumer is not willing to give up units of good X for more units of good Y. A) I and III B) I C) II D) I and II Use the following to answer question 15: Figure 4.6 15. (Figure 4.6) What type of good is good X? A) perfect substitute B) perfect complement C) bad D) neutral good 16. Monroe consumes crab cakes and tuna. Monroe's utility increases with the consumption of crab cakes, but his utility neither increases nor decreases with the consumption of tuna. Assuming tuna is on the x-axis and crab cake is on the y-axis, what do Monroe's indifference curves look like? A) horizontal lines B) vertical lines C) upward-sloping lines from the origin D) downward-sloping lines Use the following to answer question 17: Figure 4.7 17. (Figure 4.7) Which of these indifference curves is convex to the origin? A) U1 B) U2 C) U3 D) U4 Use the following to answer question 18: Figure 4.8 18. (Figure 4.8) Which of the following statements is FALSE? I. At point A, the consumer is willing to give up three winter coats for one wool sweater. II. At point B, the consumer is willing to give up one winter coat for four wool sweaters. III. At point A, the consumer is willing to give up three wool sweaters for one winter coat. IV. At point B, the consumer is willing to give up four wool sweaters for one winter coat. A) I only B) I and II C) III D) IV 19. Cher's marginal rate of substitution of necklaces (N) for earrings (E) is 5 (MRSEN = 5). This information implies that: A) Cher is willing to trade away five necklaces for one more pair of earrings, holding her utility constant. B) Cher will move to a higher indifference curve if she trades away five necklaces for one more pair of earrings. C) Cher should own five times as many necklaces as pairs of earrings. D) the slope of the indifference curve is 5 and thus upward sloping. 20. The equation for the marginal rate of substitution of good X for good Y (that is, MRSXY) is given by: A) ΔU(X,Y)/ΔX. B) –ΔY/ΔX. C) ΔY × ΔX. D) –X/Y. Use the following to answer questions 21-22: Figure 4.9 21. (Figure 4.9) Suppose that the consumer moves from point A to point B along her indifference curve. If the marginal utility of winter coats is 25, the marginal utility of wool sweaters is: A) 12.5. B) 2. C) 16. D) 50. 22. (Figure 4.9) What is the marginal rate of substitution between points A and B? A) 4 B) 6 C) 2 D) 8 23. Jewel's utility is a function of golf (G) and music lessons (M), where MUG = 1/G and MUM = 1/M. What is the equation for the marginal rate of substitution of music lessons for golf (MRSGM)? A) GM B) M/G C) G/M D) M – G 24. Jewel's utility is a function of golf (G) and music lessons (M), where MUG = 1/G and MUM = 1/M. What is MRSGM when M = 10 and G = 4? A) 2.5 B) 14 C) 0.4 D) 6 25. Fisher's utility function for trout (T) and salmon (S) is given by U = ST, where the MUT = S and MUS = T. Which set of consumption bundles lies on the same indifference curve? A) bundles of (S = 2 and T = 4) and (S = 3 and T = 3) B) bundles of (S = 5 and T = 5) and (S = 25 and T = 1) C) bundles of (S = 10 and T = 2) and (S = 5 and T = 1) D) bundles of (S = 8 and T = 6) and (S = 7 and T = 10) 26. The utility function U = Y/X violates the assumption(s) of: A) rankability. B) completeness. C) more is better. D) rankability and completeness. 27. Suppose that the marginal utility of good Y = 2X2 and the marginal utility of good X = 4XY. What is the slope of the indifference curve when Y = 7 and X = 2? Assume that good X is on the horizontal axis and good Y is on the vertical axis. A) 7 B) 0.143 C) –14 D) –0.143 Use the following to answer question 28: Figure 4.10 28. (Figure 4.10) _____ is willing to give up a lot guitars for a small number of video games, and _____ is willing to give up a lot of video games for a small number of guitars. A) John; Paul B) Paul; John C) Paul; Paul D) John; John Use the following to answer question 29: Figure 4.11 29. (Figure 4.11) The indifference curve _____ indicates that the two goods, X and Y, are relatively poor substitutes for one another, whereas the indifference curve _____ indicates that the two goods are close substitutes for one another. A) U1; U3 B) U3; U2 C) U2; U1 D) U3; U1 30. A graph of the utility function U = 4Y + X would reveal that goods X and Y are: A) perfect substitutes. B) near substitutes. C) perfect complements. D) near complements. 31. Brenda's utility function for regular-flavored toothpaste (R) and mint-flavored toothpaste (M) is given by U = 2R + 4M. Which of the following statements is TRUE? A) MRSMR = 2M/R. B) Brenda's indifference curves are vertical. C) Brenda's indifference curves are horizontal. D) Brenda is willing to give up two tubes of regular-flavored toothpaste for one tube of mint-flavored toothpaste. 32. The consumer's utility function for goods X and Y is U = 3X + 15Y. Good X is placed on the x-axis and good Y is placed on the y-axis. Which of the following statements is TRUE? I. The marginal utility of good Y is 15. II. The MRSXY = 5. III. The consumer is always willing to trade away 5 units of good X for 1 unit of good Y. A) I and II B) II only C) I and III D) I, II, and III 33. Martha loves to eat chili, especially an award-winning chili recipe that calls for using 2 tablespoons of chili powder for 1 pound of ground buffalo. What is Martha's utility as a function of tablespoons of chili powder (P) and pounds of ground buffalo (B)? A) U = min{2B, P} B) U = min{0.50B, P} C) U = 2P + B D) U = 2PB 34. The three-legged Ork, a space creature from the universe Warhammer, wears 1 right shoe and 2 left shoes. Which set of market bundles provides an Ork with the highest level of utility? A) 15 right shoes and 14 left shoes B) 10 right shoes and 16 left shoes C) 12 right shoes and 12 left shoes D) 6 right shoes and 12 left shoes Use the following to answer question 35: Figure 4.12 35. (Figure 4.12) The three-legged Ork, a space creature from the universe Warhammer, wears 1 right shoe and 2 left shoes. His indifference curves are presented in Figure 4.12. Based on the shape of the Ork's indifference curves, right and left shoes are: A) perfect substitutes. B) perfect complements. C) consumed in changing proportions. D) neither perfect substitutes nor perfect complements. Use the following to answer question 36: Figure 4.13 36. (Figure 4.13) What rotated the budget constraint? A) an increase in the price of good X B) a decrease in the price of good Y C) a decrease in income D) an increase in the price of good Y 37. Beth has $200 of income to spend on e-books (E), priced at $10 per book, and Zumba (Z) classes, priced at $8 per class. Which of the following consumption bundles is infeasible? A) E = 20 and Z = 0 B) E = 2 and Z = 22 C) E = 10 and Z = 13 D) E = 8 and Z = 15 Use the following to answer questions 38-40: Figure 4.14 38. (Figure 4.14) For budget constraint 1, the price of good X and the price of good Y could equal _____, respectively. A) $175 and $100 B) $80 and $140 C) $140 and $160 D) $6 and $4 39. (Figure 4.14) For budget constraint 2, suppose that the price of good Y is $90 per unit. What is the price of good X? A) $92 B) $88 C) $81 D) $102.24 40. (Figure 4.14) Suppose the budget constraint shifted from constraint 2 to constraint 1. What could have caused this change? A) a decrease in income B) a decrease in the price of good X C) a decrease in income and an increase in the price of good X relative to that of good Y D) an increase in the relative price of good X to that of good Y 41. If a consumer's budget constraint has a slope that is less than -1: A) the consumer gets more utility from good X than from good Y. B) the price of good X is less than the price of good Y. C) the consumer gets less utility from good X than from good Y. D) the price of good X is greater than the price of good Y. 42. Billy is maximizing utility subject to his limited income. As a result, which of the following statements is TRUE? A) The slope of the indifference curve is twice the slope of the budget constraint. B) The indifference curve intersects the budget constraint at precisely two points. C) The budget constraint is tangent to the indifference curve. D) The MRSXY = PXPY. 43. Suppose that MUY = 15, MUX = 10, PY = $2, and PX = $1. Which of the following statements is TRUE? A) The consumer is maximizing utility. B) The consumer could increase utility by giving up 1 unit of good Y for 2 units of good X. C) The consumer could increase utility by giving up 2 units of good X for 1 unit of good Y. D) The consumer is receiving more marginal utility per dollar from good Y than from good X. 44. Nancy's ratio of marginal utility for coffee and lipstick is 3:1, while the price ratio of coffee to lipstick is 1.5:1. Which of the following statements is (are) TRUE? I. Coffee provides Nancy with 3 times the utility of lipstick. II. Nancy could increase utility by decreasing her consumption of coffee by 3 units and increasing her consumption of lipstick by 1.5 units. III. Nancy could increase utility by decreasing her consumption of lipstick by 3 units and increasing her consumption of coffee by 2 units. IV. Nancy could increase utility by decreasing her consumption of coffee by 1 unit and increasing her consumption of lipstick by 3 units. A) IV only B) I and II C) I and III D) III only 45. A consumer spends his limited income on three goods such that the MUX = 4, MUY = 4, MUZ = 4; and PX = 4, PY = 2, PZ = 1. Which of the following statements is (are) TRUE? I. Because the marginal utilities of all three goods are equal, the consumer is maximizing utility. II. The consumer receives the most bang for the buck from good Z. III. The marginal utility per dollar spent is not equal across all 3 goods, so the consumer is not maximizing utility. A) I B) II C) III D) II and III Use the following to answer question 46: Figure 4.15 46. (Figure 4.15) The consumer maximizes utility by consuming: A) 7 mushrooms and no spinach. B) 8 units of spinach and no mushrooms. C) on indifference curve U2. D) approximately 4 mushrooms and 4 units of spinach. 47. Suppose that MUX = Y and MUY = X. The prices of good X and good Y are $5 and $4, respectively. How many units of good X does the consumer buy if she has $410 of income? A) 15 B) 41 C) 25 D) 33 48. The utility function for Morris is U = min{4M, T}, where M is pints of milk and T is cans of tuna. Morris has $90 to spend on tuna (priced at $2 per can) and milk (priced at $1 per pint). What is Morris's utility-maximizing consumption bundle? A) M = 30 and T = 30 B) M = 40 and T = 25 C) M = 10 and T = 40 D) M = 15 and T = 65 49. Frank's utility function is U = 10X + 6Y. Frank has a budget of $60 to spend on goods X and Y. The price of good X is $3 and the price of good Y is $2. How many units of good X and good Y does Frank purchase? A) X = 20 and Y = 0 B) X = 0 and Y = 10 C) X = 15 and Y = 5 D) X = 10 and Y = 20 50. Suppose that U = min{2X, 0.5Y}, where X is units of good X and Y is units of good Y. The price of good X is $1 and the price of good Y is $2. What is the minimum expenditure necessary to achieve a utility level of 100? A) $333.33 B) $550 C) $1,200 D) $450 51. The consumer's budget constraint is $6 = 0.50G + P, where G is packs of gum and P is bags of pretzels. The marginal utility of pretzels is MUP = G0.5, and the marginal utility of gum is MUG = 0.5G–0.5P. The consumer's utility function is U = G0.5P. the utility-maximizing bundle consists of _____ packs of gum and _____ bags of pretzels. A) 8; 2 B) 4; 4 C) 2; 5 D) 6; 3 Use the following to answer question 52: Figure 4.16 52. (Figure 4.16) To maximize utility, this consumer will buy _____ hockey tickets and _____ soccer tickets. A) 5; 3 B) 3; 5 C) 8; 0 D) 0; 8 53. Parker consumes goods X and Y. Her utility function is U = XY, which means that MUX = Y and MUY = X. Prove that Parker's utility function satisfies all four assumptions of consumer preferences. 54. Larry's utility function is U = 4X + 12Y. Which property of consumer preferences does Larry's utility function violate? Explain your answer. 55. List the four properties of utility functions, giving an example of each property. 56. Peter's utility function is U = 5X + 2Y. What is Peter's marginal utility of good X and good Y? Interpret your answer. 57. Jimi's utility function for guitars (G) and haircuts (H) is U = 1.05GH. Eddie's utility function for guitars and haircuts is U = GH + H0.5. Does Jimi or Eddie receive more satisfaction from consuming 10 guitars and 9 haircuts? 58. Bertha's utility function for soccer balls (S) and tennis balls (T) is U = ST + 5S. Find five consumption bundles that give Bertha exactly 100 units of utility. 59. Draw an indifference curve for the utility function U = 0.5XY when utility equals 5. Identify four consumption bundles on the indifference curve along with their respective values of X and Y. 60. Missy's utility increases with the size of her apartment. However, Missy is willing to sacrifice some apartment space if she can live closer to the beach. Draw Missy's indifference curves. 61. Suppose that U = XY0.5. Which of the following bundles lie on the same indifference curve? bundle A: (X = 10, Y = 9) bundle B: (X = 9, Y = 16) bundle C: (X = 12, Y = 9) bundle D: (X = 3, Y = 100) bundle E: (X = 6, Y = 25) bundle F: (X = 6, Y = 36) Use the following to answer question 62: Figure 4.17 62. (Figure 4.17) What, if any, property of utility functions is violated if: a. the indifference curve goes through points A, C, and D? b. the indifference curve goes through points B and E? c. the indifference curve goes through points A, B, and D? 63. The utility function for a consumer is U = XY/(X + Y), where the MUX = Y2/(X + Y)2 and MUY = X2/(X + Y)2. a. What is the slope of the indifference curve when X = 3.75 and Y = 3.75? b. What is the marginal rate of substitution when X = 4 and Y = 16? 64. The marginal utility for a pair of black socks is 4 and the marginal utility for a pair of white socks is 1. a. What is the MRSWB? b. If the consumer traded 8 pairs of white socks for 1 pair of black socks, what would happen to the consumer's utility? 65. Suppose that the marginal utility of good X and good Y is given by the following equations: MUX = 1/(X + 10) MUY = 1/Y a. As more units of good X are consumed, what happens to utility and marginal utility of good X? b. What is MRSXY? 66. Cashews are sold in either 8-ounce (C8) or 16-ounce (C16) cans. a. Write the equation for the utility function. b. What is the MRS? (Assume that 16-ounce cans are measured on the y-axis and 8-ounce cans are measured on the x-axis.) 67. Graph Sherman's indifference curve for beer and wine, assuming he has a strong preference for wine. Graph Rodger's indifference curve for beer and wine, assuming he has a very strong preference for beer. 68. David's utility is U = 10S + T, where S is rounds of sporting clays and T is rounds of trap. a. Graph David's indifference curve for U = 10. b. What type of goods are sporting clays and trap? 69. The ideal pheasant shell requires that lead shot (L) and gunpowder (G) be used in the following fixed proportion: 1 ounce of lead shot to 18 grains of gunpowder. Graph an indifference curve for 25 shells. 70. Mickey loves cheese and crackers, consuming 2 ounces of cheese per cracker. Draw Mickey's indifference curve, using a well-labeled diagram. 71. Belle likes to wear either sandals or Crocs, but she always receives 3 times as much marginal utility from an additional pair of Crocs as from an additional pair of sandals. Draw Belle's indifference curve, using a well-labeled diagram. 72. Pedro loves leather belts but neither likes nor dislikes additional silk ties. Draw Pedro's indifference curve, using a well-labeled diagram. 73. Freddy's utility function for pizza (P) and tacos (T) is U = PT. Graph Freddy's indifference curve, using a well-labeled diagram. 74. The three-legged Ork, a space creature from the universe Warhammer, wears 1 right shoe and 2 left shoes. Draw the Ork's indifference curves. 75. The utility function for a consumer is U = min{0.25X, Y}. What would be the marginal rate of substitution for this consumer in equilibrium? 76. A consumer has $200 to spend on groceries and entertainment. The price of entertainment is $40 and the price of groceries is $20. a. What is the equation for the consumer's budget constraint? b. Graph the consumer's budget constraint. c. Suppose the price of groceries increases to $25. Graph the consumer's new budget constraint. d. Starting from the position of the original budget constraint, graph the effect of the consumer's income increasing to $320. 77. Allen earns $1,000 per week and purchases health care (H) at $200 per unit and non-health-care (N) goods at $50 per unit. a. What is the equation for Allen's budget constraint? b. Graph Allen's budget constraint. 78. Justin buys water (W) at $2 per gallon and food (F) at $10 per unit. Justin has income of $50. Suppose that the government imposes a tax on water of $1 for each gallon consumed beyond 10 gallons. Graph Justin's budget constraint with water on the y-axis and food on the x-axis. 79. Esther has income of $80, and she consumes pizza (P) and soda (S). The price of pizza is $10 and the price of soda is $4. a. Graph Esther's budget constraint. b. Graph Esther's budget constraint assuming that there is a buy-one-get-one-free pizza special. c. Graph Esther's budget constraint assuming that there is a buy-two-get-one-free pizza special. 80. Bucky has $20 to spend on bowling and billiards. The prices of bowling and billiards are $4 and $1 per game, respectively. Graph Bucky's budget constraint, assuming he has a coupon for two free games of bowling. Place bowling on the x-axis and billiards on the y-axis. 81. Carl's budget constraint is 75 = 10X + 4Y. a. How many units of good X can Carl afford? b. What is the vertical intercept of the budget constraint? c. What is the slope of the budget constraint? d. Can Carl afford to buy 4 units of good X and 10 units of good Y? e. If Carl's income increases by 10%, what happens to the slope of the budget constraint? f. What is Carl's MRSXY at the utility-maximizing point? 82. Susie likes to shop at the Flower Mart, where a vase of flowers is priced at $10. She also likes to shop at Yummy Freeze, where a cup of frozen yogurt is priced at $5. Susie has an income of $60. a. Graph Susie's budget constraint, placing flowers on the x-axis and frozen yogurt on the y-axis. b. Suppose that Susie's grandmother gives her a cash gift of $20. Graph Susie's budget constraint. c. Now, suppose that in lieu of the cash gift of $20, Susie's grandmother gives her a $20 gift card to Yummy Freeze. Graph Susie's budget constraint. 83. A consumer buys coffee (C) for $3 each and bagels (B) for $1.50 each. If she has income of $40, what is the equation of her budget constraint? If a tax of $0.25 were placed on the purchase of bagels, what would be the equation of her new budget constraint? 84. A consumer buys coffee (C) for $3 each and bagels (B) for $1.50 each. She has income of $40. If the coffee shop limits the number of bagels that a customer may purchase to 6, what is the equation of her budget constraint? 85. The equation for budget constraint 1, assuming income of $140, is _____ and for budget constraint 2, assuming income of $180, it is_____. 86. A consumer is consuming a bundle of goods in which her MRSXY is greater than PX /PY. a. In a well-labeled diagram, show this situation using a budget constraint and indifference curve. b. Is the consumer maximizing utility? If not, what should she do to maximize utility? 87. Suppose that Angie's MUX = Y2 and MUY = 2XY. The price of good X is $10 and the price of good Y is $2. If Angie is consuming 8 units of good X and 16 units of good Y, is she maximizing utility? Explain your answer. 88. Marsha claims that if a consumer is maximizing utility and happens to be purchasing equal quantities of good X and good Y, the MRSXY must equal 1. Prove this claim incorrect by drawing an appropriate budget constraint and indifference curve. 89. Max's utility function is U = 6XY, where the MUX = 6Y and MUY = 6X. The prices of good X and good Y are $12 and $15, respectively. Suppose that Max's indifference curve is tangent to his budget constraint, where he is consuming 20 units of good X. How many units of good Y must Max be consuming? 90. Helen considers Titleist (T) and Callaway (C) golf balls perfect substitutes. Her utility function is U = 10T + 8C. A sleeve of Titleist is priced at $12, compared to $10 for Callaway balls. What is Helen's utility-maximizing bundle of golf ba