Frequent Exam Questions without Answers
Utility in Bundles: The Equimarginal Principle and Indifference Analysis
Chapter 8 ― Question 4
Below you find the utility a consumer derives from buying three commodities A, B and C.
| Product | A | B | C |
| Quantity | 2 | 3 | 4 |
| Price per unit | $5 | $7 | $9 |
| Utility derived from the last unit | 10 utils | 10 utils | 10 utils |
The consumer
- has made a rational decision because all three products yield the same marginal utility
- should decrease purchases of C
- should decrease purchases of A and B and increase purchases of C
- should increase purchases of A
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Chapter 8 ― Question 7
A consumer buys a bundle of two goods, A and B. MU/P for A is 40/1. The marginal utility of B is 20. The price of B must therefore be
- 5
- 0.5
- 2
- none of the above
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Chapter 8 ― Question 8
A consumer buys a bundle with two goods, X and Y. MU/P for X is 4, MU/P for Y is 3. What should the consumer do to optimise his decision with the same amount of money?
- increase X
- increase Y
- increase Y and lower X
- increase X and lower Y
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Chapter 8 ― Question 16
Your optimal buying decision is to buy 20 units of A at $1 and 5 units of B. The last A gave you 10 units of utility. The last unit of B gave you 20 units of utility. The price of B is
- $0.50
- $0.25
- $4.00
- $2.00
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Chapter 9 ― Question 10
Using our wine-water example, write down the equations which a consumer uses to make an optimal choice between water and wine
1) when he applies the equimarginal principle for bundles
2) when he applies indifference analysis
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Chapter 9 ― Question 11
A consumer's budget for commodity X and commodity Y is $100. X costs $10 per unit, Y $5 per unit.
1) Draw the budget line on a diagram.
2) The consumer wants to spend half of his budget on each commodity. Label this point on the budget line.
3) What is the marginal rate of substitution between X and Y at this point?
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Chapter 9 ― Question 15
Your utility function for commodities x and y is u(x,y) = 8x + 4y. You buy 10 units of x and 4 units of y. You now lower your purchases of x to 8. How many units of y must you buy to get the same utility?
- 8 units of y
- 4 units of y
- 12 units of y
- None of the above.
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Chapter 9 ― Question 17
You are offered a job. The pay is $10 per hour. You can choose the number of hours. The maximum you are able to work is 50 hours. Your utility function for leisure and money to spend on consumption is U(C,L) = CL.
1) Write down your budget constraint for leisure and consumption. This gives you your options in terms of the allocation of time. (Consider only options with a difference of 5 hours, otherwise the list becomes too long.)
2) Calculate the utility each bundle yields. This gives you your options in terms of utility.
3) Find the optimal bundle of leisure and consumption.
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Chapter 9 ― Question 18
Explain why two indifference curves cannot intersect.
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