ECON 520 INTERMEDIATE MICROECONOMICS EXAM REVIEW; QUESTIONS & Answers 100% CORRECT (Fully solved)

ECON 520 INTERMEDIATE MICROECONOMICS
EXAM REVIEW; QUESTIONS WITH DETAILED
VERIFIED ANSWERS; ALREADY GRADED A;
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Economists use indifference curves to characterize the preferences of a rational
consumer. There are
some plausible assumptions that lead to a set of "well-behaved" (i.e., downward-sloping
and strictly
convex) indifference curves. Which one of the following is NOT among the
assumptions?
a. All goods must be economic "goods."
b. Preferences are complete.
c. Preferences are transitive.
d. All goods are normal goods - ANS-d. All goods are normal goods

An indifference curve depicts
a. all combinations of goods which are just affordable for the consumer.
b. all combinations of goods which provide the consumer the same marginal rate of
substitution.
c. all combinations of goods which are of equal cost to the consumer.
d. all combinations of goods which provide the consumer the same utility. - ANS-d. all
combinations of goods which provide the consumer the same utility

A budget line depicts
a. combinations of goods which provide the consumer the same marginal rate of
substitution.
b. combinations of goods which are affordable for the consumer.
c. combinations of goods which provide the consumer the same utility.
d. combinations of goods which provide the consumer the same marginal utility.
e. none of the above - ANS-b. combinations of goods which are affordable for the
consumer.

Given the prices of good X and Y, the (negative of the) slope of the budget constraint
(i.e., - PX/PY)

, measures
a. the amount of good Y the consumer is willing to forgo in order to consume one more
unit of good X.
b. the ratio of the consumer's income to the price of the X good.
c. the quantity of the Y good that must be forgone in order to purchase one more unit of
the X good.
d. the quantity of the X good that must be forgone in order to purchase one more unit of
the Y good - ANS-c. the quantity of the Y good that must be forgone in order to
purchase one more unit of the X good.

Suppose that Mrs. Smith has a weekly income of $1,000 available to spend on goods X
and Y. If Mrs.
Smith's income and the prices of X and Y all increase by 20%, her budget constraint will
a. shift outward by rotating about the X-intercept.
b. shift outward by rotating about the Y-intercept.
c. remain the same as before.
d. shift outward in parallel fashion.
e. shift inward in parallel fashion. - ANS-c. remain the same as before.

Suppose an individual's MRS of steak for beer is 3:1. That is, at the current
consumption choices he or
she is willing to give up 3 beers to get an extra steak. Suppose also that the price of a
steak is $12 and a
beer is $3. Then in order to increase utility the individual should
a. buy more steak and less beer.
b. buy more beer and less steak.
c. continue with current consumption. - ANS-b. buy more beer and less steak.

Some studies showed cocaine is an inferior good. If income were to rise, ceteris
paribus, the
equilibrium price of cocaine would
a. rise.
b. fall.
c. remain unchanged.
d. a or c.
e. b or c. - ANS-b. fall.

Which of the following statements is incorrect for an inferior good?
a. An inferior good may have an upward-sloping demand curve.
b. The income elasticity of demand for an inferior good is negative.
c. An inferior good is an economic "bad."
d. All of the above. - ANS-c. An inferior good is an economic "bad."

The substitution effect of a price decrease will
a. increase the consumption of normal goods only.
b. decrease the consumption of normal goods only.