UT Arlington ECON 3301- Mainstream economic theory

Question 1

1. Mainstream economic theory hypothesizes that individuals make decisions by

   	comparing reference points
   	maximizing utility
   	none of the above
   	minimizing loss

Question 2

1. Utility measures

   	the satisfaction a consumer receives from consuming a bundle of goods
   	All of the above are correct.
   	the satisfaction a consumer places on their budget constraint.
   	the income a consumer receives from consuming a bundle of goods

Question 3

1. If consuming 1 piece of pizza and 1 coke gives you a utility level of 10, consuming 2 pieces of pizza and 1 coke gives you a utility level of 15, but consuming 1 piece of pizza and 1 coke gives your friend a utility level of 12 (according to him), then

   	you prefer consuming 2 pieces of pizza and 1 coke 1.5 times more than consuming 1 piece of pizza and 1 coke
   	you prefer to consume 2 pieces of pizza and 1 coke
   	if you both consume 1 piece of pizza and 1 coke, your friend is happier
   	you prefer to consume 1 piece of pizza and 1 coke

Question 4

1. 
   
   Refer to the figure above. Which of the following statements is correct?

   	Point A is preferred equally to point E.
   	The bundles along indifference curve I1 are preferred to those along indifference curve I2.
   	Point A is preferred equally to point C.
   	The bundle associated with point B contains more Ho-Ho's than that associated with point C

Question 5

1. 
   

   On the graph above, the curved lines refer to:

   	marginal utility curves, relating beef to chicken
   	total utility curves relating income to chicken
   	indifference curves where utility is constant
   	downward sloping demand curves

Question 6

1. 
   

   Suppose that the consumer is at point B. Line GE represents:

   	the demand for chicken.
   	the demand for beef.
   	the supply of chicken.
   	the consumer’s budget constraint.

Question 7

1. Suppose at point B that chicken increases in price and beef does not. Which point represents the most plausible new equilibrium for the consumer?

   	Point A
   	Point B
   	Point E
   	Point F

Question 8

1. George consumes two goods, milk and cookies. He has maximized his utility given his income. Milk costs $2 per gallon and he consumes it to the point where the marginal utility he receives from milk is 4. Cookies cost $4 per bag and the relationship between the marginal utility that George gets from eating a bag of cookies and the number of bags he eats per month is as follows:
   

   Bags of Cookies	1	2	3	4	5	6
   Marginal Utility	20	16	12	8	4	0

   
   
   How many bags of cookies does George buy each month?

   HINT: All you need to use to solve this problem is the utility-maximizing condition, which says the "bang for the buck" or marginal utility per dollar should be equal for the two goods.

   	1
   	2
   	3
   	4

Question 9

1. Use the following information to answer the next 4 questions.
   Every month I budget $150 to spend on my hobbies, shopping and reading. I use it to buy pairs of shoes (S), which cost $60, and to buy novels (N), which cost $15. My preferences for shoes and novels are described below.
   
   

   When deciding what I will purchase first (starting from 0 shoes and 0 novels)

   	I prefer to purchase a pair of shoes
   	my marginal utility per dollar of pairs of shoes is 3 for the first pair of shoes
   	I am indifferent between a pair of shoes and a novel
   	I prefer to purchase a novel

Question 10

1. My marginal utility for the second pair of shoes is

   	200
   	120
   	240
   	180

Question 11

1. My marginal utility per dollar for the second pair of shoes is

   	4
   	3
   	2
   	1

4.35 points

Question 12

1. My utility-maximizing choice of pairs of shoes and novels is

   	1 pair of shoes and 1 novel
   	1 pair of shoes and 5 novels
   	2 pairs of shoes and 2 novels
   	2 pairs of shoes and 1 novel

Question 13

1. Suppose the price elasticity of demand for basketballs is -1.20. A 1 percent increase in price will result in

   	a 12 percent reduction in the number of basketballs demanded.
   	an 8 percent reduction in the number of basketballs demanded.
   	an 18 percent decrease in the quantity of basketballs demanded.
   	a 1.2 percent decrease in the quantity of basketballs demanded.

Question 14

1. If the price elasticity of demand for a good is -0.40, then a 10 percent increase in price would result in

   	a 4.0 percent decrease in the quantity demanded.
   	a 10 percent decrease in the quantity demanded.
   	a 40 percent decrease in the quantity demanded.
   	a 400 percent decrease in the quantity demanded.

Question 15

1. Which of the following would you expect to have the highest income elasticity of demand?

   	housing
   	water
   	diamonds
   	hamburgers

Question 16

1. Suppose the government increases the tax on gasoline in order to raise revenue. Since raising the gasoline tax would increase the price of gasoline, the government must be assuming that the

   	demand for gasoline is price elastic.
   	demand for gasoline is price inelastic.
   	demand for gasoline is price unit-elastic.
   	tax on gasoline will not affect the consumption of gasoline.

Question 17

1. 
   
   
   At a price of $4 per bushel, demanders are willing to buy ____ bushels, for total expenditures of _______.

   	400; $400.
   	300; $1800
   	400; $1600
   	200; $1600

Question 18

1. 
   
   At a price of $8 per bushel, suppliers are willing to provide ____ bushels, for total expenditures of _______.

   	400; $3200.
   	300; $1800
   	200; $800
   	100; $100

Question 19

1. 
   
   In the market above, the equilibrium price is ____ dollars per bushel, and the equilibrium quantity is _____ bushels:

   	2; 500
   	3; 400
   	6; 300
   	10; 500

Question 20

1. Suppose that in the market above, there is a lack of rainfall, shrinking the crop of apples. At the same time a government report urges people to eat apples rather than junk food.

   	equilibrium price and quantity will fall
   	equilibrium price will rise and equilibrium quantity will rise
   	equilibrium prices and quantities will remain unchanged
   	equilibrium price will rise and equilibrium quantity may rise or fall

Question 21

1. Which of the following statements best describes a production function?

   	the maximum level of output generated from given levels of inputs
   	the maximum profit generated from given levels of inputs
   	all levels of inputs that could produce a given level of output
   	all levels of output that can be generated from given levels of inputs

Question 22

1. Suppose a daily production function for a small company that sews dolls is given by q = 3W + M². What is the maximum output that can be produced with 2 workers (W) and 2 sewing machines (M)?

   	2
   	4
   	6
   	10

Question 23

1. Suppose a Candy’s Cookie Shop is able to produce 1,000 cookies per day when 3 workers are hired. The cookie shop is able to produce 1,200 cookies per day when 4 workers are hired and 1,350 cookies when 5 workers are hired (holding other inputs fixed). The marginal product of the 5th worker is _______ the marginal product of the 4^thworker, and this is consistent with ________

   	less than, diminishing marginal product
   	the same as, constant marginal product
   	greater than, diminishing marginal product
   	less than, diminishing marginal utility

2. Mainstream economic theory hypothesizes that individuals make decisions by

   	comparing reference points
   	maximizing utility
   	none of the above
   	minimizing loss

Question 1
Question 2

1. Utility measures

   	the satisfaction a consumer receives from consuming a bundle of goods
   	All of the above are correct.
   	the satisfaction a consumer places on their budget constraint.
   	the income a consumer receives from consuming a bundle of goods

Question 3

1. If consuming 1 piece of pizza and 1 coke gives you a utility level of 10, consuming 2 pieces of pizza and 1 coke gives you a utility level of 15, but consuming 1 piece of pizza and 1 coke gives your friend a utility level of 12 (according to him), then

   	you prefer consuming 2 pieces of pizza and 1 coke 1.5 times more than consuming 1 piece of pizza and 1 coke
   	you prefer to consume 2 pieces of pizza and 1 coke
   	if you both consume 1 piece of pizza and 1 coke, your friend is happier
   	you prefer to consume 1 piece of pizza and 1 coke

Question 4

1. 
   
   Refer to the figure above. Which of the following statements is correct?

   	Point A is preferred equally to point E.
   	The bundles along indifference curve I1 are preferred to those along indifference curve I2.
   	Point A is preferred equally to point C.
   	The bundle associated with point B contains more Ho-Ho's than that associated with point C

4.35 points
Question 5

1. 
   

   On the graph above, the curved lines refer to:

   	marginal utility curves, relating beef to chicken
   	total utility curves relating income to chicken
   	indifference curves where utility is constant
   	downward sloping demand curves

4.35 points
Question 6

1. 
   

   Suppose that the consumer is at point B. Line GE represents:

   	the demand for chicken.
   	the demand for beef.
   	the supply of chicken.
   	the consumer’s budget constraint.

4.35 points
Question 7

1. Suppose at point B that chicken increases in price and beef does not. Which point represents the most plausible new equilibrium for the consumer?

   	Point A
   	Point B
   	Point E
   	Point F

4.35 points
Question 8

1. George consumes two goods, milk and cookies. He has maximized his utility given his income. Milk costs $2 per gallon and he consumes it to the point where the marginal utility he receives from milk is 4. Cookies cost $4 per bag and the relationship between the marginal utility that George gets from eating a bag of cookies and the number of bags he eats per month is as follows:
   

   Bags of Cookies	1	2	3	4	5	6
   Marginal Utility	20	16	12	8	4	0

   
   
   How many bags of cookies does George buy each month?

   HINT: All you need to use to solve this problem is the utility-maximizing condition, which says the "bang for the buck" or marginal utility per dollar should be equal for the two goods.

   	1
   	2
   	3
   	4

4.35 points
Question 9

1. Use the following information to answer the next 4 questions.
   Every month I budget $150 to spend on my hobbies, shopping and reading. I use it to buy pairs of shoes (S), which cost $60, and to buy novels (N), which cost $15. My preferences for shoes and novels are described below.
   
   

   When deciding what I will purchase first (starting from 0 shoes and 0 novels)

   	I prefer to purchase a pair of shoes
   	my marginal utility per dollar of pairs of shoes is 3 for the first pair of shoes
   	I am indifferent between a pair of shoes and a novel
   	I prefer to purchase a novel

4.35 points
Question 10

1. My marginal utility for the second pair of shoes is

   	200
   	120
   	240
   	180

4.35 points
Question 11

1. My marginal utility per dollar for the second pair of shoes is

   	4
   	3
   	2
   	1

4.35 points
Question 12

1. My utility-maximizing choice of pairs of shoes and novels is

   	1 pair of shoes and 1 novel
   	1 pair of shoes and 5 novels
   	2 pairs of shoes and 2 novels
   	2 pairs of shoes and 1 novel

4.35 points
Question 13

1. Suppose the price elasticity of demand for basketballs is -1.20. A 1 percent increase in price will result in

   	a 12 percent reduction in the number of basketballs demanded.
   	an 8 percent reduction in the number of basketballs demanded.
   	an 18 percent decrease in the quantity of basketballs demanded.
   	a 1.2 percent decrease in the quantity of basketballs demanded.

4.35 points
Question 14

1. If the price elasticity of demand for a good is -0.40, then a 10 percent increase in price would result in

   	a 4.0 percent decrease in the quantity demanded.
   	a 10 percent decrease in the quantity demanded.
   	a 40 percent decrease in the quantity demanded.
   	a 400 percent decrease in the quantity demanded.

4.35 points
Question 15

1. Which of the following would you expect to have the highest income elasticity of demand?

   	housing
   	water
   	diamonds
   	hamburgers

4.35 points
Question 16

1. Suppose the government increases the tax on gasoline in order to raise revenue. Since raising the gasoline tax would increase the price of gasoline, the government must be assuming that the

   	demand for gasoline is price elastic.
   	demand for gasoline is price inelastic.
   	demand for gasoline is price unit-elastic.
   	tax on gasoline will not affect the consumption of gasoline.

4.35 points
Question 17

1. 
   
   
   At a price of $4 per bushel, demanders are willing to buy ____ bushels, for total expenditures of _______.

   	400; $400.
   	300; $1800
   	400; $1600
   	200; $1600

4.35 points
Question 18

1. 
   
   At a price of $8 per bushel, suppliers are willing to provide ____ bushels, for total expenditures of _______.

   	400; $3200.
   	300; $1800
   	200; $800
   	100; $100

4.35 points
Question 19

1. 
   
   In the market above, the equilibrium price is ____ dollars per bushel, and the equilibrium quantity is _____ bushels:

   	2; 500
   	3; 400
   	6; 300
   	10; 500

4.35 points
Question 20

1. Suppose that in the market above, there is a lack of rainfall, shrinking the crop of apples. At the same time a government report urges people to eat apples rather than junk food.

   	equilibrium price and quantity will fall
   	equilibrium price will rise and equilibrium quantity will rise
   	equilibrium prices and quantities will remain unchanged
   	equilibrium price will rise and equilibrium quantity may rise or fall

4.35 points
Question 21

1. Which of the following statements best describes a production function?

   	the maximum level of output generated from given levels of inputs
   	the maximum profit generated from given levels of inputs
   	all levels of inputs that could produce a given level of output
   	all levels of output that can be generated from given levels of inputs

Question 22

1. Suppose a daily production function for a small company that sews dolls is given by q = 3W + M². What is the maximum output that can be produced with 2 workers (W) and 2 sewing machines (M)?

   	2
   	4
   	6
   	10

Question 23

1. Suppose a Candy’s Cookie Shop is able to produce 1,000 cookies per day when 3 workers are hired. The cookie shop is able to produce 1,200 cookies per day when 4 workers are hired and 1,350 cookies when 5 workers are hired (holding other inputs fixed). The marginal product of the 5th worker is _______ the marginal product of the 4^thworker, and this is consistent with ________

   	less than, diminishing marginal product
   	the same as, constant marginal product
   	greater than, diminishing marginal product
   	less than, diminishing marginal utility