TAX3704 EXAM PACK 2024 & ANSWERS

TAX3704 EXAM PACK 2024 & ANSWERS The marginal rate of substitution (MRS) determines the rate at which a consumer is willing to substitute between two goods in order to achieve A higher level of satisfaction A lower level of satisfaction The same level of satisfaction None of the statements associated with this question are correct - Answer The same level of satisfaction The maximum quantity of good X that is affordable is: M/PY M/X M/PX PYY - Answer M/PX What is the horizontal intercept of the budget line, given that M = $1,000, PX = $50, and PY = $40? 2000.0 20.0 25.0 11.11 - Answer 20.0 The maximum quantity of good Y that is affordable is: M/PX M/X M/PY M/Y - Answer M/PY Joe prefers a three pack of soda to a six-pack. What properties does this preference violate? Completeness Transitivity More is better Diminishing MRS - Answer More is better When the price of one good increases, the associated income effect is represented by a move from one indifference curve to a Lower indifference curve since real income is now higher Lower indifference curve since real income is now lower Higher indifference curve since real income is now higher Higher indifference curve since real income is now lower - Answer Lower indifference curve since real income is now lower When the price of one good decreases, the associated substitution effect is represented by a Move from one indifference to a higher indifference curve since real income is now higher Move from one indifference to a lower indifference curve since real income is now lower Move along a given indifference curve holding real income constant Move along a given indifference curve since real income increases - Answer Move along a given indifference curve holding real income constant The substitution affect isolates the change in the consumption of a good caused by: The lower "real" income The change in the relative prices of two goods The change in consumer preferences None of the statements associated with this question are correct - Answer The change in the relative prices of two goods Given that income is $750 and PX = $32 and PY = $8, what is the market rate of substitution between goods X and Y? -0.75 -3 -4 -25 - Answer -4 What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and PX = $10, PY = $15, X = 30, and M = 600? 10 15 20 25 - Answer 20 M=PX(X) + PY(Y) A cash gift causes the budget line to Shift to the right in a parallel fashion Shift to the left in a parallel fashion Rotate clockwise None of the statements associated with this question are correct - Answer Shift to the right in a parallel fashion Indifference curves further from the origin imply A higher level of satisfaction A lower level of satisfaction The same level of satisfaction as any other curve None of the statements associated with this question are correct - Answer A higher level of satisfaction A≻B means Bundle A is not preferred to bundle B Bundle A is preferred to bundle B Bundle A is equally preferred to bundle B Bundle A is greater than bundle B - Answer Bundle A is preferred to bundle B The marginal rate of substitution (MRS) determines the rate at which a consumer is willing to substitute between two goods in order to achieve A higher level of satisfaction A lower level of satisfaction The same level of satisfaction None of the statements associated with this question are correct - Answer The same level of satisfaction A price increase causes a consumer's "real" income to: Decrease Increase Remain unchanged Vary along the budget line - Answer Decrease The horizontal intercept of the budget line is: -PX/PY M/PX M/PY PYY - Answer M/PX Sam Voter prefers Ronald to Joe, Joe to Gary, and Gary to Ronald. Sam's preferences Are consistent with our assumptions about consumer behavior Indicate that he is a liberal Are not complete Are not transitive - Answer Are not transitive The idea that a consumer is limited to selecting a bundle of goods that is affordable is captured by the: Budget constraint Indifference curve Consumer equilibrium Price changes - Answer Budget constraint If a consumer's income decreases, what will happen to the budget line? It will shift outward It will become steeper It will become flatter It will shift inward - Answer It will shift inward The property that implies that indifference curves are convex to the origin is: More is better Completeness Transitivity Diminishing marginal rate of substitution - Answer Diminishing marginal rate of substitution A situation where a consumer says he does not know his preference ordering for bundles X and Y would violate the property of: More is be better Completeness Substitutability Complementarity - Answer Completeness Economies of scale exist whenever long-run average costs Increase as output is increased Decrease as output is increased Remain constant as output is increased None of the statements associated with this question are correct - Answer Decrease as output is increased