Question

1. Ms. Rada has a utility function u(x,y) = xy and an income of $250. Suppose the price of good y is $4 a unit. Find the consumer’s demand function for good x.

(a.) x* = 125/(4Px)

(b.) x* = 125/Px

(c.) x* = 250/Px

(d.) x* = 250/(0.5Px)

2. A consumer has a demand curve of X = 550 – 2.5Px– 10M, where Pxis the price of good X, and M is income. In this case, good X is a _____ good.

(a.)Normal

(b.)Inferior

(c.)Luxury

(d.)Substitute

3. A consumer has the utility function u(x,y)= min{0.5x, y} and an income of $150. Let the price of y be $11. Find the consumer’s demand for good x?

(a.)x* = 125/4px

(b.)x* = 125/(2.5 + px)

(c.)x* = 150/2px

(d.)x* = 150/(px+ 5.5)

4. A consumer has income of M and a utility function u(x,y) = x + y. The price of x is 2 and the price of y is $4. What is the optimal basket of (x,y)?

(a.)(M/2, 0)

(b.)(M/2, M/2)

(c.)(M/4, M/4)

(d.)(0, M/4)

Answer 1