Q&A Hero

Q: Figure 3.3Refer to the indifference curve in Figure 3.3. Which of the following is true about the MRS?A) It is negative.B) It is positive.C) It is equal to zero.D) It is undefined.

Q: Figure 3.3Refer to the indifference curve in Figure 3.3. Which of the following statements about marginal utility (MU) is correct?A) MU(A) = 0.B) MU(B) = 0.C) MU(A) is negative.D) MU(B) is negative.

Q: Figure 3.3Refer to the indifference curve in Figure 3.3. Which of the following statements is correct?A) This individual receives no satisfaction from Good A.B) This individual receives no satisfaction from Good B.C) This individual will only consume A and B in fixed proportions.D) none of the above

Q: What is a good argument for using the model of the consumer despite the fact that it requires making many simplifying assumptions? A) It is complex to solve. B) The assumptions are sometimes realistic. C) It explains observed patterns of behavior. D) It is used in many scholarly fields.

Q: Which of the following are examples of situations in which the standard model of the consumer may not be realistic? A) Impulse purchases B) Following fads and fashions instead of one's own preferences C) Addictions or other strong habits in consumption D) all of the above

Q: 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 incomplete. C) violate the assumption that more is preferred to less. D) all of the above

Q: Mikey is very picky and insists that his mom make his breakfast with equal parts of cereal and apple juice any other combination and it ends up on the floor. Cereal costs 4 cents per tablespoon and apple juice costs 6 cents per tablespoon. If Mikey's mom budgets $8 per month for Mikey's breakfast, how much cereal and juice does she buy? A) 40 tablespoons each of cereal and juice B) 80 tablespoons each of cereal and juice C) 40 tablespoons of cereal and 75 tablespoons of juice D) 100 tablespoons of cereal and 67 tablespoons of juice

Q: Consider the following three market baskets: Food Clothing A 15 18 B 13 19 C 14 17 If baskets B and C are on the same indifference curve, and if preferences satisfy all four of the basic assumptions, then: A) A is preferred to C. B) A is preferred to B. C) Both A and B answer choices are correct. D) none of the above

Q: Consider the following three market baskets:Table 3.1FoodClothingA63B85C58Refer to Table 3.1. Which of the following cannot be true?A) The consumer could be indifferent between A and B.B) A and C could be on the same indifference curves.C) The consumer could be indifferent between B and C.D) A and C could be on different indifference curves.

Q: Consider the following three market baskets:Table 3.1FoodClothingA63B85C58Refer to Table 3.1. If preferences satisfy all four of the basic assumptions: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.

Q: 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.

Q: If indifference curves are concave to the origin, which assumption on preferences is violated? A) Diminishing marginal rates of substitution B) Transitivity of preferences C) More is preferred to less D) Completeness

Q: Which of the following is true about the indifference curve where one commodity (such as pollution) is "bad"? A) It has a negative slope. B) It has a positive slope. C) It is horizontal. D) It is vertical.

Q: Alvin's preferences for good X and good Y are shown in the diagram below.Figure 3.2Refer to Figure 3.2. Which assumption concerning preferences do Alvin's indifference curves violate?A) Diminishing marginal rates of substitutionB) Transitivity of preferencesC) More is preferred to lessD) CompletenessE) both A and C

Q: Alvin's preferences for good X and good Y are shown in the diagram below.Figure 3.2Refer to Figure 3.2. At any consumption bundle with the quantity of good X exceeding the quantity of good Y (that is, a bundle located below the 45 degree line, like point A), Alvin's marginal rate of substitution of good X for good Y isA) diminishing.B) positive.C) constant and positive.D) zero.

Q: Alvin's preferences for good X and good Y are shown in the diagram below.Figure 3.2Based on Figure 3.2, it can be inferred that:A) Alvin does not consider good X as "good."B) Alvin will never purchase any of good Y.C) Alvin regards good X and good Y as perfect substitutes.D) Alvin regards good X and good Y as perfect complements.E) none of the above

Q: Alvin's preferences for good X and good Y are shown in the diagram below.Figure 3.1Refer to Figure 3.1. Which assumption concerning preferences do Alvin's indifference curves violate?A) Diminishing marginal rates of substitutionB) Transitivity of preferencesC) More is preferred to lessD) Completeness

Q: Alvin's preferences for good X and good Y are shown in the diagram below.Figure 3.1Refer to Figure 3.1. 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.

Q: Alvin's preferences for good X and good Y are shown in the diagram below.Figure 3.1Based on Figure 3.1, it can be inferred that:A) Alvin does not consider good X as "good."B) Alvin will never purchase any of good Y.C) Alvin regards good X and good Y as perfect substitutes.D) Alvin regards good X and good Y as perfect complements.E) none of the above

Q: 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

Q: Suppose that a market basket of two goods is changed by adding more of one of the goods and subtracting one unit of the other. The consumer will: A) rank the market basket more highly after the change. B) rank the market basket more highly before the change. C) rank the market basket just as desirable as before. D) any one of the above statements may be true.

Q: 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 completeness. E) none of the above

Q: In what ways can economists help auto manufacturers estimate the marginal rate of substitution between features such as vehicle interior size and acceleration? A) Examining production cost data B) Conducting consumer surveys about willingness to pay for auto features C) Solving the standard consumer model D) Statistically analyzing historical data on purchases of different types of autos E) B and D only

Q: Zoe is an executive at Dell Computer Company who is in charge of designing the next version of laptop computers. She will consider such features as screen size, weight, processor speed, and CD and DVD drives. Given the fact that it is costly to include more features in new products, why might Zoe be interested in data on how much consumers paid for a range of laptops with different attributes? A) in order to estimate willingness to pay for each feature. B) in order to set an optimal price for the laptops. C) in order to determine the best features to include. D) in order to estimate willingness to trade off one feature for another. E) all of the above

Q: The slope of an indifference curve reveals: A) that preferences are complete. B) the marginal rate of substitution of one good for another good. C) the ratio of market prices. D) that preferences are transitive. E) none of the above

Q: 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

Q: A curve that represents all combinations of market baskets that provide the same level of utility to a consumer is called: A) a budget line. B) an isoquant. C) an indifference curve. D) a demand curve. E) none of the above

Q: The assumption that preferences are complete: 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.

Q: 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.

Q: 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.

Q: The assumption of transitive preferences implies that indifference curves must: A) not cross one another. B) have a positive slope. C) be L-shaped. D) be convex to the origin. E) all of the above

Q: The theory of consumer behavior is based on certain assumptions. The set of four basic assumptions includes: A) completeness. B) transitivity. C) intransitivity. D) Both A and B are correct. E) Both A and C are correct.

Q: Which of the following is NOT an assumption regarding people's preferences in the theory of consumer behavior? A) Preferences are complete. B) Preferences are transitive. C) Consumers prefer more of a good to less. D) All of the above are basic assumptions about consumer preferences.

Q: 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.

Q: Suppose that a consumer's increase in nominal income from the base year exceeds the inflation level given by a Paasche cost of living index for their level of purchases: ( < ) Is this information enough to imply how the consumer's level of well-being has changed? (Hint: Use a revealed preference argument.)

Q: Suppose that a consumer's increase in nominal income from the base year is exceeded by the inflation level given by a Paasche cost of living index for their level of purchases: ( < ) Show that this information implies that the consumer is strictly worse-off as compared to the base year. (Hint: Use a revealed preference argument.)

Q: Suppose that a consumer's increase in nominal income from the base year exceeds the inflation level given by a Laspeyres cost of living index for their level of purchases : ( < ). Show that this information implies that the consumer is strictly better-off as compared to the base year. (Hint: Use a revealed preference argument.)

Q: Suppose the table below lists the price and consumption levels of food and clothing during 1990 and 2000. Calculate a Laspeyres and Paasche index using 1990 as the base year.

Q: Which of the following statements about the composition of price indices is NOT true?A) The Paasche index is calculated with current-year prices.B) The Paasche index is calculated with base-year quantities for the bundle.C) The Laspeyres index is calculated with current-year prices.D) The Laspeyres index is calculated with base-year quantities for the bundle.

Q: You using a Laspeyres (fixed-weight )price index to compare price changes over time, and the index is based on consumption bundles from 2005 when energy costs were lower and housing costs were higher. Your results are likely to:A) Overstate changes in the cost of living because the weight assigned to energy is too small.B) Overstate changes in the cost of living because the weight assigned to energy is too large.C) Understate changes in the cost of living because the weight assigned to housing is too small.D) Understate changes in the cost of living because the weigh assigned to housing is too large.

Q: Which price index tends to understate the impact of price changes on consumers? A) Chain-weighted index B) Laspeyres index C) Paasche index D) Ideal cost-of-living index

Q: The purpose of a chain-weighted price index is to account for: A) the costs of purchasing wholesale products like chains and industrial goods. B) the changes in the quantities of goods and services purchased over time. C) linkages in price changes among industrialized countries. D) none of the above

Q: The key reason that the Laspeyres price index tends to overstate the impact of price changes on consumers is that it: A) only accounts for price increases and ignore price decreases. B) measures prices two periods after the actual price changes occurred. C) ignores the possibility that consumers alter their consumption as prices change. D) All of the above are correct. E) none of the above

Q: The Laspeyres price index tends to ________ the ideal cost-of-living index. A) be higher than B) be lower than C) be equal to D) zero faster than

Q: An ideal cost-of-living index measures: A) The relative cost of maintaining a particular utility level. B) The relative changes in consumer satisfaction that arise from price increases. C) The relative price of those goods that are considered to be necessities in consumption. D) none of the above

Q: May enjoys spending her free time with her friends at the mall and solving problems from her microeconomics text. She has 16 hours per week of free time. Diagram May's time constraint.If MUF = and MUP = where F is her time spent with friends at the mall and P is her time spent working problems, how much time should May spend at each activity?

Q: At commodity bundle A, which consists of only apples and oranges, Annette's marginal utility per dollar spent on apples is 10 and her marginal utility per dollar spent on oranges is 8. Diagram a representative budget constraint and indifference curve that that passes through bundle A given Annette's budget is exhausted at bundle A. Is Annette maximizing utility? Why or why not? If she is not, what could she do to increase her level of satisfaction?

Q: The following table presents Mary's marginal utility for each of the four goods she consumes to exhaust her income. The price of Good 1 is $1, the price of Good 2 is $2, the price of Good 3 is $3 and the price of Good 4 is $4. Indicate the consumption bundle in the table that maximizes Mary's level of utility.

Q: The following table presents Alfred's marginal utility for each good while exhausting his income. Fill in the remaining column in the table. If the price of tuna is twice the price of peanut butter, at what consumption bundle in the table is Alfred maximizing his level of satisfaction? Which commodity bundle entails the largest level of tuna fish consumption? Bundle MU of peanut butter MU of tuna Marginal Rate of Substitution A 0.25 2.41 B 0.31 1.50 C 0.42 0.84 D 0.66 0.33

Q: Natasha derives utility from attending rock concerts (r) and from drinking colas (c) as follows:U(c,r) = c.9r.1The marginal utility of cola (MUc) and the marginal utility of rock concerts (MUr) are given as follows:MUc = .9c-.1r.1 MUr = .1c.9r-.9a. If the price of cola (Pc) is $1 and the price of concert tickets (Pr) is $30 and Natasha's income is $300, how many colas and tickets should Natasha buy to maximize utility?b. Suppose that the promoters of rock concerts require each fan to buy 4 tickets or none at all. Under this constraint and given the prices and income in (a), how many colas and tickets should Natasha buy to maximize utility?c. Is Natasha better off under the conditions in (a) or (b)? Explain your answer.

Q: John consumes two goods, X and Y. The marginal utility of X and the marginal utility of Y satisfy the following equations: MUX = Y MUY = X. The price of X is $9, and the price of Y is $12. a. Write an expression for John's MRS. b. What is the optimal mix between X and Y in John's market basket? c. John is currently consuming 15 X and 10 Y per time period. Is he consuming an optimal mix of X and Y?

Q: If MUa/Pa is greater than MUb/Pb, and the consumer is consuming both goods, the consumer is not maximizing utility. True or false. Explain.

Q: The local mall has a make-your-own sundae shop. They charge customers 35 cents for each fresh fruit topping and 25 cents for each processed topping. Barbara is going to make herself a sundae. The total utility that she receives from each quantity of topping is given by the following table: Fresh Fruit Topping Processed Topping # of Units Total Utility # of Units Total Utility 1 10 1 10 2 18 2 20 3 24 3 10 4 28 4 0 5 30 5 -10 6 28 6 -20 7 24 7 -30 8 18 8 -40 9 10 9 -50 10 -6 10 -60a. What is the marginal utility of the 6th fresh fruit topping?b. Of the two toppings, which would Barbara purchase first? Explain.c. If Barbara has $1.55 to spend on her sundae, how many fresh fruit toppings and processed toppings will she purchase to maximize utility?d. If money is no object, how many fresh fruit toppings and processed toppings will Barbara purchase to maximize utility?e. Which of the basic assumptions of preferences are violated by preferences shown in the table above?

Q: Define the marginal rate of substitution. Using this concept, explain why market basket A is not utility maximizing while market basket B is utility maximizing.

Q: Janice Doe consumes two goods, X and Y. Janice has a utility function given by the expression: U = 4X0.5Y0.5. So, MUX = and MUY = . The current prices of X and Y are 25 and 50, respectively. Janice currently has an income of 750 per time period. a. Write an expression for Janice's budget constraint. b. Calculate the optimal quantities of X and Y that Janice should choose, given her budget constraint. Graph your answer. c. Suppose that the government rations purchases of good X such that Janice is limited to 10 units of X per time period. Assuming that Janice chooses to spend her entire income, how much Y will Janice consume? Construct a diagram that shows the impact of the limited availability of X. Is Janice satisfying the usual conditions of consumer equilibrium while the restriction is in effect? d. Calculate the impact of the ration restriction on Janice's utility.

Q: An individual consumes products X and Y and spends $25 per time period. The prices of the two goods are $3 per unit for X and $2 per unit for Y. The consumer in this case has a utility function expressed as: U(X,Y) = .5XY MUX = .5Y MUY = .5X. a. Express the budget equation mathematically. b. Determine the values of X and Y that will maximize utility in the consumption of X and Y. c. Determine the total utility that will be generated per unit of time for this individual.

Q: Jane lives in a dormitory that offers soft drinks and chips for sale in vending machines. Her utility function is U = 3SC (where S is the number of soft drinks per week and C the number of bags of chips per week), so her marginal utility of S is 3C and her marginal utility of C is 3S. Soft drinks are priced at $0.50 each, chips $0.25 per bag. a. Write an expression for Jane's marginal rate of substitution between soft drinks and chips. b. Use the expression generated in part (a) to determine Jane's optimal mix of soft drinks and chips. c. If Jane has $5.00 per week to spend on chips and soft drinks, how many of each should she purchase per week?

Q: Suppose your utility from consuming X and Y is expressed as u(X,Y) = ln(XY) where ln() is the natural logarithm operator. Given this information, which of the following statements is NOT true? A) The marginal utility of X may be positive or negative (depending on the quantity of X and Y consumed). B) The marginal utility of X does not depend on the quantity of Y consumed. C) The marginal utility of Y does not depend on the quantity of X consumed. D) all of these statements are not true

Q: You view tea and scones as perfect complements, and the corners of the indifference curves lie on the 45-degree line. Tea is plotted along the horizontal axis of the indifference map. Also, at your current point of consumption, you have not fully exhausted the available budget, and you consume more tea than scones. Based on this information, which of the following statements is NOT true? A) The marginal utility of tea equals zero for your current consumption bundle. B) The marginal utility of scones equals zero for your current consumption bundle. C) To reach the point of optimal consumption, you must increase your scone consumption. D) The equal marginal principle does not have to be satisfied at the optimal consumption point for this problem.

Q: Use the following statements to answer this question: I. The equal marginal principle may be used to characterize the maximum utility consumption decision even if the diminishing MRS assumption does not hold. II. The equal marginal principle implies that the MRS at the optimal consumption bundle is always equal to the price ratio. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

Q: Bill uses his entire budget to purchase Pepsi and hamburgers, and he currently purchases no Pepsi and 6 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 2, and his marginal utility from hamburgers is Is Bill's current consumption decision optimal? A) No, he should increase Pepsi consumption and reduce hamburger consumption. B) No, he should purchase more of both goods. C) Yes, the corner solution is best because his MRS is less than the price ratio. D) We do not have enough information to answer this question.

Q: Bill currently uses his entire budget to purchase 5 cans of Pepsi and 3 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 4, and his marginal utility from hamburgers is 6. Bill could increase his utility by: A) increasing Pepsi consumption and reducing hamburger consumption. B) increasing hamburger consumption and reducing Pepsi consumption. C) maintaining his current consumption choices. D) We do not have enough information to answer this question.

Q: A team of researchers has conducted a study of the well being of the citizens of the island nation of Zarasa. Using a scale from 1 (least happy) to 10 (most happy), the researchers find that citizens who earn 100 Zarutas per year have a mean happiness of 2.0, those who earn 200 Zarutas per year have a mean happiness of 6.0, and those who earn 300 Zarutas per year have a mean happiness of 7.0. The researchers should make which of the following conclusions? A) The utility of Zarasians increases with income. B) The marginal utility of Zarasians increases with income. C) The marginal utility of Zarasians decreases with income. D) both A and B E) both A and C

Q: Alfred derives utility from consuming iced tea and lemonade. For the bundle he currently consumes, the marginal utility he receives from iced tea is 16 utils, and the marginal utility he receives from lemonade is 8 utils. Instead of consuming this bundle, Alfred should: A) buy more iced tea and less lemonade. B) buy more lemonade and less iced tea. C) buy more iced tea and lemonade. D) buy less iced tea and lemonade. E) none of the above is necessarily correct.

Q: Jane is attempting to maximize utility by selecting a market basket of goods. For each of the goods in the market basket the marginal utility per dollar spent is equal. There are some goods which are affordable but do not appear in the Jane's market basket. If Jane has maximized utility, the marginal utility per dollar spent on each of the goods that does not appear in the market basket is: A) too high. B) too low. C) zero. D) infinite. E) none of the above

Q: Monica consumes only goods A and B. Suppose that her marginal utility from consuming good A is equal to 1/Qa, and her marginal utility from consuming good B is 1/Qb. If the price of A is $0.50, the price of B is $4.00, and the Monica's income is $120.00, how much of good A will she purchase? A) 0 B) 12 C) 24 D) 48 E) 120

Q: If Px = Py, then when the consumer maximizes utility, A) X must equal Y. B) MU(X) must equal MU(Y). C) MU(X) may equal MU(Y), but it is not necessarily so. D) X and Y must be substitutes.

Q: When a person consumes two goods (A and B), that person's utility is maximized when the budget is allocated such that: A) the marginal utility of A equals the marginal utility of B. B) the marginal utility of A times the price of A equals the marginal utility of B times the price of B C) the ratio of total utility of A to the price of A equals the ratio of the marginal utility of B to the price of A. D) the ratio of the marginal utility of A to the price of A equals the ratio of the marginal utility of B to the price of B.

Q: Scenario 3.1: Andy derives utility from two goods, potato chips (Qp) and Cola (Qc). Andy receives zero utility unless he consumes some of at least one good. The marginal utility that he receives from the two goods is given as follows: Qp MUp Qc MUc 1 12 1 24 2 10 2 22 3 8 3 20 4 6 4 18 5 4 5 16 6 2 6 14 7 -2 7 12 8 -4 8 10 Refer to Scenario 3.1. If the price of potato chips is $0.50 and the price of Cola is $4.00, and Andy has an income of $14.50, how many units of potato chips will he consume? A) 5 B) 6 C) 7 D) 8 E) none of the above

Q: Scenario 3.1: Andy derives utility from two goods, potato chips (Qp) and Cola (Qc). Andy receives zero utility unless he consumes some of at least one good. The marginal utility that he receives from the two goods is given as follows: Qp MUp Qc MUc 1 12 1 24 2 10 2 22 3 8 3 20 4 6 4 18 5 4 5 16 6 2 6 14 7 -2 7 12 8 -4 8 10 Refer to Scenario 3.1. If the price of potato chips is $0.50 and the price of Cola is $4.00, and Andy has an unlimited income, how many units of potato chips will he consume? A) 5 B) 6 C) 7 D) 8 E) none of the above

Q: Scenario 3.1: Andy derives utility from two goods, potato chips (Qp) and Cola (Qc). Andy receives zero utility unless he consumes some of at least one good. The marginal utility that he receives from the two goods is given as follows: Qp MUp Qc MUc 1 12 1 24 2 10 2 22 3 8 3 20 4 6 4 18 5 4 5 16 6 2 6 14 7 -2 7 12 8 -4 8 10 Refer to Scenario 3.1. What is the total utility that Andy will receive if he consumes 5 units of potato chips (Qp) and no Cola drink (Qc)? A) 4 utils B) 10 utils C) 30 utils D) 40 utils E) none of the above

Q: Oscar consumes only two goods, X and Y. Assume that Oscar is not at a corner solution, but he is maximizing utility. Which of the following is NOT necessarily true? A) MRSxy = Px/Py. B) MUx/MUy = Px/Py. C) Px/Py = money income. D) Px/Py = slope of the indifference curve at the optimal choice. E) MUx/Px = MUy/Py.

Q: Marginal utility measures: A) the slope of the indifference curve. B) the additional satisfaction from consuming one more unit of a good. C) the slope of the budget line. D) the marginal rate of substitution. E) none of the above

Q: If a consumer must spend her entire income on some combination of two commodities and chooses to spend it all on just one of the commodities then: A) the other commodity is an economic bad. B) the other commodity must have zero marginal utility. C) the other commodity generates less utility per dollar spent on the good. D) the two commodities must be perfect substitutes.

Q: Tammy and Tad's father has given each of them a debit card and allows each of them to use the card to spend $500 each month. Tammy and Tad use their $500 to buy only CDs and gasoline. In February, the price of a CD was $10 and the price of gasoline was $1 per gallon. At these prices, Tammy purchased 45 CDs and 50 gallons of gas. Ted consumed 20 CDs and 300 gallons of gas. For the month of March, Tammy and Tad's father lost the records indicating who had which debit card. From the bank statement in March, their father learned that the price of a CD was $12 and a gallon of gas cost $0.80. The first debit card was used to purchase 235 gallons of gas and 26 CDs. The second debit card was used to purchase 265 gallons of gas and 24 CDs. Using revealed preference theory, identify which card Tammy must possess.

Q: The revealed preference approach can provide more informative comparisons of market baskets if we also assume that the consumer's indifference curves are: A) concave. B) convex. C) incomplete. D) intransitive.

Q: Pedro buys market basket A that includes 10 books at a price of $20 per book and 10 DVDs at a price of $10 per DVD. Market basket B contains 12 books and 12 DVDs. Based on this information, which of the following statements is NOT true? A) Revealed preference analysis implies that Pedro only prefers basket B to basket A if basket A is more expensive. B) Pedro prefers market basket B to basket A. C) Market basket B will cost more than basket A. D) If the prices change and Pedro chooses market basket C, which now costs the same as basket B, then basket C is prefer to basket A.

Q: Please consider the following figure: The consumer chooses A on budget line I1 and B on budget line I2. Which of the following statements is NOT true? A) B is preferred to C. B) A is preferred to B. C) C is preferred to A. D) All of the statements are correct.

Q: Please consider the following figure: The consumer chooses A on budget line I1 and B on budget line I2. Which of the following rankings describes the consumer's preferences (first is highest ranked and last is lowest ranked)? A) A-B-C-D B) A-D-B-C C) A-B-D-C D) We do not have enough information to rank all four bundles.

Q: Please consider the following figure: The consumer chooses A on budget line I1 and B on budget line I2. Which of the following statements is NOT true? A) A is preferred to B. B) B is preferred to C. C) C is preferred to D. D) A is preferred to C.