Question

WID Name: 6) Refer to the diagram on the right. 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.2 C) This individual will only consume A and B in fixed proportions. D) none of the above Good B Increasing → utility Good A 7) Fisher's utility function for trout (T) and salmon (S) is given by U-ST, where the Mur-S and MUs = T. Which set of consumption bundles lies on the same indifference curve? A) bundles of (S = 2 and T-4) and (S-3 and T-3) B) bundles of (S = 5 and T-5) and (S-25 and T = 1) C) bundles of (S-10 and T-2) and (S = 5 and T-1) D) bundles of (S-8 and T-6) and (S-7 and T = 10) Good Y 8) Consider the indifference map in the diagram on the right: Which of the four basic assumptions about consumer preferences are violated by this indifference map? A) More is better than less Increasing ubility Transitivity C) Diminishing MRS D) A and B are correct. E) A and C are correct. Good X 9) Refer to the diagram below. Theodore's budget line has changed from A to B. Which of the following explains the change in Theodore's budget line? A) The price of food and the price of clothing increased. P) The price of food increased, and the price of clothing(Units per week) decreased. C) The price of food decreased, and the price of clothing increased. D) The price of food and the price of clothing decreased. E) none of the above Clothing Budget Line A Budget Line B Food

Answer 1

Ans)

6.
A) This individual receives no satisfaction from Good A
In the given graph good B is a neutral good and good B is a normal good.Neutral goods are goods for
which the consumer receives no satisfaction from its consumption.

7.
B) bundles of (S-5 and T=5) and (S=25 and T=1)
U=ST
If two consumption bundles fall on the same indifference curve then they would provide the same level of utility.This is true only for the consumption bundles in part B.
U(5,5)=25
U(25,1)=25

8.
E) A and C are correct
One of the basic assumptions violated is that the more is better than the less which would imply that higher the indifference curve the more the utility, the other assumption is of diminishing MRS, for a concave indifference curve the marginal rate of substitution increases.

9.
C. The price of food decreased and the price of clothing increased.
Moving from the budget line from A to B we can see that now less of clothing is being bought this implies that the price of clothing must have increased.Similarly, for the food we can now see that more of food is being consumed then this would imply that the price of food must have fallen.