Review_Questions_Mid-Term-1:

Please note that these questions are based on problems in the workbook. You can figure out
pretty easily which chapter they correspond to by going in order.

An answer key is provided at the end of this document.

The mid-term will contain a number of multiple choice questions similar to these, except that
they will be fully “self-contained,” i.e., they will not refer to the workbook problems but stand on
their own.

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. In Problem 1, if you have an income of $18 to spend, if commodity 1 cost $3 per unit, and if commodity 2
costs $9 per unit, then the equation for your budget line can be written
a. .
b. .
c. x1 + 3x2 = 6.
d. 4x1 + 10x2 = 19.
e. 12(x1 + x2) = 18.
____ 2. In Problem 3, if you could exactly afford either 2 units of x and 7 units of y, or 4 units of x and 3 units of y,
then if you spent all of your income on y, how many units of y could you buy?
a. 11
b. 7
c. 15
d. 6
e. None of the above.
____ 3. In Problem 4, Murphy used to consume 100 units of X and 50 units of Y when the price of X was $2 and the
price of Y was $4. If the price of X rose to $5 and the price of Y rose to $5, how much would Murphy’s
income have to rise so that he could still afford his original bundle?
a. $400
b. $350
c. $200
d. $600
e. None of the above.
____ 4. In Problem 4, Murphy used to consume 100 units of X and 50 units of Y when the price of X was $2 and the
price of Y was $4. If the price of X rose to $6 and the price of Y rose to $6, how much would Murphy’s
income have to rise so that he could still afford his original bundle?
a. $300
b. $900
c. $600
d. $500
e. None of the above.
____ 5. In Problem 7, Edmund must pay $6 each for punk rock video cassettes. If Edmund is paid $48 per sack for
accepting garbage and if his relatives send him an allowance of $432, then his budget line is described by the
equation
a. 6V = 48G.
b. 6V + 48G = 432.
c. 6V – 48G = 432.
d. 6V = 432 – G.
e. None of the above.
____ 6. In Problem 10, if in the same amount of time that it takes her to read 40 pages of economics and 30 pages of
sociology, Martha could read 10 pages of economics and 90 pages of sociology, then which of these
equations describes combinations of pages of economics, E, and sociology, S, that she could read in the time
it takes to read 40 pages of economics and 30 pages of sociology?
a. E + S = 70.
b. + S = 50.
c. 2E + S = 110.
d. E + S = 100.
e. All of the above.
____ 7. In Problem 11, ads in the boring business magazine are read by 300 lawyers and 1,000 M.B.A.s. Ads in the
consumer publication are read by 250 lawyers and 300 M.B.A.s. If Harry had $3,000 to spend on advertising,
if the price of ads in the boring business magazine were $600, and if the price of ads in the consumer
magazine were $300, then the combinations of recent M.B.A.s and lawyers with hot tubs whom he could
reach with his advertising budget would be represented by the integer values along a line segment that runs
between the two points
a. (2, 500, 3, 000) and (1, 500, 5, 000).
b. (3, 000, 3, 500) and (1, 500, 6, 000).
c. (0, 3, 000) and (1, 500, 0).
d. (3, 000, 0) and (0, 6, 000).
e. (2, 000, 0) and (0, 5, 000).
____ 8. In the economy of Mungo, discussed in Problem 12, there is a third person called Ike. Ike has a red income of
82 and a blue income of 25. Recall that blue prices are 1 bcu (blue currency unit) per unit of ambrosia and 1
bcu per unit of bubble gum. Red prices are 2 rcus (red currency units) per unit of ambrosia and 6 rcus per unit
of bubble gum. You have to pay twice for what you buy, once in red currency, once in blue currency. If Ike
spends all of his blue income but not all of his red income he must consume
a. at least 8 units of bubble gum.
b. at least 17 units of ambrosia.
c. exactly twice as much bubble gum as ambrosia.
d. at least 13 units of bubble gum.
e. equal amounts of ambrosia and bubble gum.

____ 9. In Problem 1, Charlie’s indifference curves have the equation , where larger constants
correspond to better indifference curves. Charlie strictly prefers the bundle (5, 13) to the bundle
a. (13, 5).
b. (6, 12).
c. (11, 8).
d. All of the above.
e. None of the above.
____ 10. In Problem 2, Ambrose has indifference curves with the equation , where larger
constants correspond to higher indifference curves. If good 1 is drawn on the horizontal axis and good 2 on
the vertical axis, what is the slope of Ambrose’s indifference curve when his consumption bundle is (4, 11)?
a.
b.
c. –1
d. –13
e. –2
____ 11. In Problem 8, Nancy Lerner is taking a course from Professor Goodheart who will count only her best
midterm grade and from Professor Stern who will count only her worst midterm grade. In one of her classes,
Nancy has scores of 20 on her first midterm and 30 on her second midterm. When the first midterm score is
measured on the horizontal axis and her second midterm score on the vertical, her indifference curve has a
slope of zero at the point (20, 30). This class could
a. be Professor Goodheart’s but could not be Professor Stern’s.
b. be Professor Stern’s but could not be Professor Goodheart’s.
c. not be either Professor Goodheart’s or Professor Stern’s.
d. be either Professor Goodheart’s or Professor Stern’s.
e. There is not enough information to tell whose class it could or couldn’t be.
____ 12. In Problem 9, if we graph Mary Granola’s indifference curves with avocados on the horizontal axis and
grapefruits on the vertical axis, then whenever she has more grapefruits than avocados, the slope of her
indifference curve is –2. Whenever she has more avocados than grapefruits, the slope is . Mary would be
indifferent between a bundle with 23 avocados and 29 grapefruits and another bundle with 31 avocados and
a. 25 grapefruits.
b. 27 grapefruits.
c. 19 grapefruits.
d. 22 grapefruits.
e. 23.50 grapefruits.
____ 13. In Problem 12, recall that Tommy Twit’s mother measures the departure of any bundle from her favorite
bundle for Tommy by the sum of the absolute values of the differences. Her favorite bundle for Tommy is (2,
7), that is, 2 cookies and 7 glasses of milk. Tommy’s mother’s indifference curve that passes through the
point (c, m) = (5, 4) also passes through
a. the point (8, 1).
b. the points (2, 1), (8, 7), and (5, 10).
c. the point (2, 7).
d. the points (5, 7), (2, 4), and (2, 10).
e. None of the above.

____ 14. In Problem 1, Charlie’s indifference curves have the equation , where larger constants
correspond to better indifference curves. Charlie strictly prefers the bundle (10, 15) to the bundle
a. (15, 10).
b. (11, 14).
c. (12, 13).
d. More than one of these options are correct.
e. None of the above are correct.
____ 15. In Problem 1, Charlie has the utility function U(xA, xB) = xAxB. His indifference curve passing through 24
apples and 6 bananas will also pass through the point where he consumes 4 apples and
a. 12 bananas.
b. 40 bananas.
 c. 24 bananas.
d. 43 bananas.
e. 36 bananas.
____ 16. In Problem 1, Charlie’s utility function is U(A, B) = AB, where A and B are the numbers of apples and
bananas, respectively, that he consumes. If Charlie is consuming 15 apples and 30 bananas, then if we put
apples on the horizontal axis and bananas on the vertical axis, the slope of his indifference curve at his current
consumption is
a. –16.
b. –2.
c. –4.
d. .
e. .

____ 17. In Problem 2, Ambrose has the utility function U(x1, x2) . If Ambrose were initially consuming
49 units of nuts (good 1) and 12 units of berries (good 2), then what is the largest number of berries that he
would be willing to give up in return for an additional 32 units of nuts?
a. 9
b. 21
c. 8
d. 4
e. 2
____ 18. Joe Bob from Problem 12 has a cousin Ike who consumes goods 1 and 2. Ike thinks that 4 units of good 1 is
always a perfect substitute for 2 units of good 2. Which of the following utility functions is the only one that
would not represent Ike’s preferences?
a. U(x1, x2) = 2x1 + 4x2 + 1000.
b. U(x1, x2) = 4x21 + 16x1x2 + 16x22.
c. U(x1, x2) = min{ 2x1, 4x2}.
d. U(x1, x2) = 20x1 + 40x2 – 10,000.
e. More than one of the above does not represent Ike’s preferences.
____ 19. In Problem 7, Harry Mazzola has the utility function U(x1, x2) = min{x1 + 2x2, 2x1 + x2}. He has $40 to spend
on corn chips and french fries. If the price of corn chips is $4 per unit and the price of french fries is $2 per
unit, then Harry will
a. definitely spend all of his income on corn chips.
b. definitely spend all of his income on french fries.
c. consume at least as many corn chips as french fries but might consume both.
d. consume at least as many french fries as corn chips but might consume both.
e. consume equal amounts of french fries and corn chips.
____ 20. Phil Rupp, from Problem 4, has a sister Ethel who has the utility function U(x, y) = min{ 4x + y, 5y}. Where x
is measured on the horizontal axis and y on the vertical axis, her indifference curves consist of a
a. vertical line segment and a horizontal line segment that meet in a kink along the line y =
4x.
b. vertical line segment and a horizontal line segment that meet in a kink along the line x =
4y.
c. horizontal line segment and a negatively sloped line segment that meet in a kink along the
line x = y.
d. positively sloped line segment and a negatively sloped line segment that meet along the
line x = y.
e. horizontal line segment and a positively sloped line segment that meet in a kink along the
line x = 4y.
____ 21. In Problem 1, Charlie has a utility function U(xA, xB) = xAxB, the price of apples is $1, and the price of bananas
is $2. If Charlie’s income were $320, how many units of bananas would he consume if he chose the bundle
that maximized his utility subject to his budget constraint?
a. 80
b. 40
c. 160
d. 16
e. 240
____ 22. Charlie’s utility function is U(xA, xB) = xAxB. If Charlie’s income were $40, the price of apples were $2, and the
price of bananas were $5, how many apples would there be in the best bundle that Charlie could afford?
a. 20
b. 6
c. 4
d. 5
e. 10
____ 23. In Problem 2, Clara’s utility function is U(X, Y) = (X + 2)(Y + 1). If Clara’s marginal rate of substitution is –5
and she is consuming 15 units of good X, how many units of good Y is she consuming?
a. 5
b. 85
c. 20
d. 84
e. 11

____ 24. In Problem 3, Ambrose’s utility is U(x1, x2) = . If the price of nuts (good 1) is $1, the price of
berries (good 2) is $7, and his income is $238, how many units of nuts will Ambrose choose?
a. 6
b. 196
c. 392
d. 199
e. 98

____ 25. Ambrose’s utility function is . If the price of nuts (good 1) is $1, the price of berries (good 2) is
$10, and his income is $460, how many units of berries will Ambrose choose?
a. 401
b. 5
c. 6
d. 12
e. 9

____ 26. Ambrose’s utility function is . If the price of nuts (good 1) is $1, the price of berries (good 2) is
$5, and his income is $190, how many units of berries will Ambrose choose?
a. 36
b. 101
c. 18
d. 17
e. 21
____ 27. In Problem 6, Elmer’s utility function is U(x, y) = min{x, y2}. If the price of x is $20, the price of y is $20, and
Elmer chooses to consume 8 units of y, what must Elmer’s income be?
 a. $2,880
b. $320
c. $1,540
d. $1,440
e. There is not enough information to tell.
____ 28. In Problem 7, what bundle would Linus choose if the price of x is $2, the price of y is $4, and his income is
$24?
a. (0, 6)
b. (12, 0)
c. (12, 6)
d. (6, 3)
e. (6, 6)
____ 29. In Problem 1, if Charlie’s utility function were X5AXB, if apples cost 70 cents each, and if bananas cost 10
cents each, Charlie’s budget line would be tangent to one of his indifference curves whenever
a. 5XB = 7XA.
b. XB = XA.
c. XA = 5XB.
d. XB = 5XA.
e. 70XA + 10XB = M.

____ 30. Ambrose’s brother Francis has an income of $170 and a utility function U(x1, x2) = . The price
of good 1(nuts) is $5 and the price of good 2(berries) is $1. How many units of berries will Augustine
demand?
a. 31
b. 25
c. 45
d. 90
e. There is not enough information to determine the answer.
____ 31. In Problem 6, recall that Miss Muffett insists on consuming 2 units of whey per unit of curds. If the price of
curds is $5 and the price of whey is $6, then if Miss Muffett’s income is m, her demand for curds will be
a. .
b. .
c. 5C + 6W = m.
d. 5m.
e. .
____ 32. In Problem 8, recall that Casper’s utility function is 3x + y, where x is his consumption of cocoa and y is his
consumption of cheese. If the total cost of x units of cocoa is x2, the price of cheese is $8, and Casper’s
income is $184, how many units of cocoa will he consume?
a. 9
b. 12
c. 23
d. 11
e. 24
____ 33. In Problem 13, where x is whips and y is leather jackets, if Kinko’s utility function were U(x, y) = min{ 8x, 4x
+ 16y}, then if the price of whips were $20 and the price of leather jackets were $60, Kinko would demand
a. 6 times as many whips as leather jackets.
b. 5 times as many leather jackets as whips.
c. 3 times as many leather jackets as whips.
 d. 4 times as many whips as leather jackets.
e. only leather jackets.
____ 34. In Problem 7, suppose that it takes 2 square feet to grow a cockleshell and 5 square feet to grow a silver bell
in Mary’s garden. If her space had initially been 90 square feet and were increased to 120 square feet,
a. she would only increase her planting of silver bells.
b. she would plant more silver bells and more cockleshells.
c. she would only increase her planting of cockleshells.
d. cockleshells would be an inferior good.
e. she would increase her planting of cockleshells and decrease her planting of silver bells.
____ 35. In Problem 1, Charlie’s utility function is xAxB. The price of apples used to be $1 per unit, and the price of
bananas $2 per unit. His income was $40 per day. If the price of apples increased to $2.25 and the price of
bananas fell to $1.75, then in order to be able to just afford his old bundle, Charlie would have to have a daily
income of
a. $62.50.
b. $126.
c. $31.25.
d. $93.75.
e. $250.
____ 36. In Problem 1, Charlie’s utility function is xAxB. The price of apples used to be $1, the price of bananas used to
be $2, and his income used to be $40. If the price of apples increased to $7 and the price of bananas stayed
constant, the substitution effect on Charlie’s apple consumption would reduce his consumption by
a. 6 apples.
b. 13.57 apples.
c. 8.57 apples.
d. 17.14 apples.
e. None of the above.
____ 37. Neville, in Problem 2, has a friend named Marmaduke. Marmaduke has the same demand function for claret
as Neville, namely q = .02m – 2p, where m is income and p is price. Marmaduke’s income is $8,000 and he
initially had to pay a price of $40 per bottle of claret. The price of claret rose to $80. The substitution effect of
the price change
a. reduced his demand by 80.
b. increased his demand by 80.
c. reduced his demand by 16.
d. reduced his demand by 144.
e. reduced his demand by 26.
____ 38. Goods 1 and 2 are perfect complements, and a consumer always consumes them in the ratio of 2 units of good
2 per unit of good 1. If a consumer has an income of $720 and if the price of good 2 changes from $8 to $9,
while the price of good 1 stays at $1, then the income effect of the price change
a. is 9 times as strong as the substitution effect.
b. does not change demand for good 1.
c. accounts for the entire change in demand.
d. is exactly twice as strong as the substitution effect.
e. is 8 times as strong as the substitution effect.
____ 39. Suppose that Agatha in Problem 10 had $465 to spend on tickets for her trip. She needs to travel a total of
1,500 miles. Suppose that the price of first-class tickets is $.40 per mile and the price of second-class tickets is
$.10 per mile. How many miles will she travel by second class?
a. 450
b. 600
 c. 225
d. 550
e. 150
____ 40. In Problem 4, Maude thinks delphiniums and hollyhocks are perfect substitutes, one for one. If delphiniums
currently cost $3 per unit and hollyhocks cost $4 per unit and if the price of delphiniums rises to $6 per unit,
a. the income effect of the change in demand for delphiniums will be bigger than the
substitution effect.
b. there will be no change in the demand for hollyhocks.
c. the entire change in demand for delphiniums will be due to the substitution effect.
d. of the change in demand will be due to the income effect.
e. of the change in demand will be due to the income effect.
____ 41. In Problem 1, if Abishag owned 12 quinces and 20 kumquats and if the price of kumquats is 3 times the price
of quinces, how many kumquats could she afford if she spent all of her money on kumquats?
a. 48
b. 32
c. 20
d. 24
e. 21
____ 42. Suppose that Mario in Problem 2 consumes eggplants and tomatoes in the ratio of 1 bushel of eggplants per 1
bushel of tomatoes. His garden yields 30 bushels of eggplants and 10 bushels of tomatoes. He initially faced
prices of $10 per bushel for each vegetable, but the price of eggplants rose to $20 per bushel, while the price
of tomatoes stayed unchanged. After the price change, he would
a. increase his eggplant consumption by 3.33 bushels.
b. decrease his eggplant consumption by at least 3.33 bushels.
c. increase his consumption of eggplants by 5.33 bushels.
d. decrease his consumption of eggplants by 5.33 bushels.
e. decrease his tomato consumption by at least 1 bushel.
____ 43. Dr. J has 80 hours per week to divide between work and leisure. His wage rate if $5 per hour. Dr. J receives a
lump sum payment of $100 per week. Suppose that the first $50 per week of his labor income is untaxed, but
all labor income above $50 is taxed at a rate of 70%.
a. Dr. J’s budget line has a kink in it at the point where he takes 80 units of leisure.
b. Dr. J’s budget line has a kink where his income is $150 and his leisure is 70 hours.
c. The slope of Dr. J’s budget line is everywhere –1.50.
d. Dr. J’s budget line has no kinks in the part of it that corresponds to a positive labor supply.
e. Dr. J’s budget line has a piece that is a horizontal straight line.
____ 44. Dudley, in Problem 15, has a utility function U(C, R) = C – (12 – R)2, where R is leisure and C is consumption
per day. He has 16 hours per day to divide between work and leisure. If Dudley has a nonlabor income of $15
per day and is paid a wage of $8 per hour, how many hours of leisure will he choose per day?
a. 5
b. 6
c. 7
d. 9
e. 8
____ 45. Mr. Cog in Problem 7 has 18 hours a day to divide between labor and leisure. If he has 13 dollars of nonlabor
income per day and gets a wage rate of 17 dollars per hour when he works, his budget equation, expressing
combinations of consumption and leisure that he can afford to have, can be written as
a. 17R + C = 13.
b. 17R + C = 319.
 c. R + = 421.
d. C = 319 + 17R.
e. C = 358 + 17R.
____ 46. Mr. Cog in Problem 7 has 18 hours per day to divide between labor and leisure. If he has a nonlabor income
of 44 dollars per day and a wage rate of 14 dollars per hour, he will choose a combination of labor and leisure
that allows him to spend
a. 296 dollars per day on consumption.
b. 138 dollars per day on consumption.
c. 170 dollars per day on consumption.
d. 148 dollars per day on consumption.
e. 222 dollars per day on consumption.
Review_Questions_Mid-Term-1
Answer Section

MULTIPLE CHOICE

1. ANS: C PTS: 1
2. ANS: A PTS: 1 DIF: 1
3. ANS: B PTS: 1
4. ANS: D PTS: 1
5. ANS: C PTS: 1
6. ANS: C PTS: 1
7. ANS: A PTS: 1
8. ANS: B PTS: 1 DIF: 2
9. ANS: E PTS: 1
10. ANS: C PTS: 1 DIF: 2
11. ANS: A PTS: 1 DIF: 2
12. ANS: D PTS: 1 DIF: 2
13. ANS: B PTS: 1 DIF: 2
14. ANS: E PTS: 1
15. ANS: E PTS: 1 DIF: 1
16. ANS: B PTS: 1
17. ANS: C PTS: 1 DIF: 2
18. ANS: C PTS: 1 DIF: 2
19. ANS: D PTS: 1
20. ANS: C PTS: 1
21. ANS: A PTS: 1
22. ANS: E PTS: 1
23. ANS: D PTS: 1
24. ANS: B PTS: 1
25. ANS: C PTS: 1
26. ANS: C PTS: 1
27. ANS: D PTS: 1
28. ANS: A PTS: 1
29. ANS: A PTS: 1
30. ANS: C PTS: 1
31. ANS: E PTS: 1
32. ANS: B PTS: 1
33. ANS: D PTS: 1 DIF: 3
34. ANS: B PTS: 1
35. ANS: A PTS: 1
36. ANS: C PTS: 1
37. ANS: C PTS: 1 DIF: 2
38. ANS: C PTS: 1 DIF: 1
39. ANS: A PTS: 1
40. ANS: C PTS: 1 DIF: 2
41. ANS: D PTS: 1
42. ANS: A PTS: 1 DIF: 2
43. ANS: B PTS: 1 DIF: 2
44. ANS: E PTS: 1 DIF: 1
45. ANS: B PTS: 1 DIF: 1
46. ANS: D PTS: 1