Question

1. Suppose the price of a taco is $1 and the price of a soft drink is $2. If Mehmet has $5, then he can buy: A) four tacos and two soft drinks B) three tacos and two soft drinks C) four tacos and one soft drink D) three tacos and one soft drink 2. Tena has $50 per week to spend on lunches. Egg rolls cost $2 each and a plate of chow mein costs $7. Tena wants to buy five plates of chow mein and ten egg rolls per week This combination of chow mein and egg rolls each week is: A) obtainable, but she would be spending every bit of her lunch money. B) obtainable, but she could buy more egg rolls C) obtainable, but she could buy more chow mein. D) unobtainable. 3. Which event would cause the budget line to shift outward? A) Income increased. B) Income decreased C) The price of one of the goods increased. D) The price of one of the goods decreased. 4. What effect will higher prices for cars and lower prices for homes home have on the budget line? A) The budget line will shift outward B) Both intercepts will change, but the slope will not change The slope and both intercepts will change C) The intercept associated with car ownership will decrease, but the intercept associated with home ownership will remain the same D) 5. The main difference between marginal utility and total utility is that: A) marginal utility looks at the satisfaction of the total bundle of goods and total utility looks at the total quantity consumed B) marginal utility looks at the satisfaction of an additional unit, while total utility looks at the satisfaction from the total quantity consumed C) total utlity looks at societal satisfaction, while marginal utility looks at the satisfaction of an individual person. D) consumers maximize marginal utility only

Answer 1

The budget line is represented by Px*X+Py*Y = I, where Px, Py are Price of two commodities X and Y, whereas X and Y represents the quantities consumed of X and Y commodities. I denotes income of the consumer.

1. 4 tacos and 2 soft drinks would lead to an expenditure of 4*1+2*2 = 8 (Unaffordable)
2. 3 tacos and 2 soft drinks would lead to an expenditure of 3*1+2*2 = 7 (Unaffordable)
3. 4 tacos and 1 soft drinks would lead to an expenditure of 4*1+1*2 = 6 (Unaffordable)
4. 3 tacos and 1 soft drinks would lead to an expenditure of 3*1+1*2 = 5 (affordable and maximised)

Budget is $50, Price of Egg Roll = $2 and Plate of Chow costs $7. So the budget line wil be 2E + 7C = 50, where E represents quantity of egg rolls and C denotes plates of Chow

Tena wants Five plates of Chow and ten Egg rolls, the expenditure would be 2*10+7*5 = $55

This combination is unobtainable with current budget of $50

An increase in income will lead to the budget line shifting outwards. An increase in income will lead to more buying of both commodities if they are normal. That is with an increase in income the quantity demanded for both commodities will increase. The budget line will shift outwards.

A higher price of car will lead to budget line swiveling inwards and a lower price for homes will get the budget line to swivel outwards. So the slope and intercepts both will change due to this.

The marginal utility looks at the satisfaction derived from an additional unit whereas the total utility is the satisfaction derived from all or total quantity consumed. The correct option is B.