Chapter 2 AND 3 T or F Flashcards
If there are two goods with positive prices and the price of one good is reduced, while incomeand other prices remain constant, then the size of the budget set is reduced
Fasle
If good 1 is measured on the horizontal axis and good 2 is measured on the vertical axis, and if the price of good 1 is
p1 and the price of good 2 is p2, then the slope of the budget line is −p2/p1
.
False
If all prices are doubled and money income is left the same, the budget set does not change because relative prices don’t change.
T
If there are two goods, and if one good has a negative price and the other has a positive price, then the slope of the budget line will be positive.
T
If all prices double and income triples, then the budget line will become steeper.
F
If Good 1 is on the horizontal axis and Good 2 is on the vertical axis, then an increase in the price of Good 1 will not change the horizontal intercept of the budget line.
F
If there are two goods and the prices of both goods rise, then the budget line must become steeper.
F
There are two goods. You know how much of good 1 a consumer can afford if she spends all of her income on good 1. If you know the ratio of the prices of the two goods, then you could draw the consumer’s budget line without any more information.
T
A consumer prefers more to less of every good. Her income rises, and the price of one of the goods falls while other prices stay constant. These changes must have made her better ofF
T
There are 3 goods. The price of good 1 is −1-1; the price of good 2 is +1+1; and the price of good 3 is +2+2. It is physically possible for a consumer to consume any commodity bundle with non-negative amounts of each good. A consumer who has income of 10 could afford to consume some commodity bundles that include 5 units of good 1 and 6 units of good 2.
T
A decrease in income pivots the budget line around the bundle initially consumed.
F
If preferences are transitive, more is always preferred to less.
F
A person with reflexive preferences is someone who does not shop carefully.
F
If someone has the utility function U = 1000 + 2 min{x, y} then x and y are perfect complements for that person.
T
A consumer with convex preferences who is indifferent between the bundles (1, 2) and (9, 6) will like the bundle (5, 4) at least as well as either of the first two bundles.
T
A consumer with convex preferences who is indifferent between the bundles (2, 3) and (10, 9) will like the bundle (6, 6) at least as well as either of the first two bundles
T
If there are two goods, if a consumer prefers more of each good to less, and if she has diminishing marginal rate of substitution, then her preferences are convex
T
If preferences are convex, then for any commodity bundle x, the set of commodity bundles that are worse than x is a convex set
F
Bill Katz prefers more of good 1 to less and he prefers less of good 2 to more. Bill has convex preferences. If we draw his indifference curves with good 1 on the horizontal axis and good 2 on the vertical axis, then his indifference curves have positive slope but get steeper as they rise.
F
The marginal rate of substitution measures the distance between one indifference curve and the next one.
F
Ambrose has an indifference curve with equation x₂ = 20 − 4x₁/2 when Ambrose is consuming the bundle (4, 16); his marginal rate of substitution is −5/4.
F
Nancy’s psychology teacher will give her a course grade that is the maximum of her scores on three midterm examinations. Nancy has convex preferences over the possible combinations of midterm scores.
F
If Melody has more classical records than rock and roll records, she is willing to exchange exactly 1 classical record for 2 rock and roll records, but if she has more rock and roll records than classical records, then she is willing to exchange exactly 1 rock and roll record for 2 classical records. Melody has convex preferences
F
Josephine buys 3 quarts of milk and 2 pounds of butter when milk sells for $2 a quart and butter sells for $1 a pound. Wilma buys 2 quarts of milk and 3 pounds of butter at the same prices. Josephine’s marginal rate of substitution between milk and butter is greater than Wilma’s.
F
A consumer who is unable to detect small differences in the amount of water in her beer could have a transitive strict preference relation but is unlikely to have a transitive indifference relation
T
