CHAPTER 5 T OR F Flashcards
At a boundary optimum, a consumer’s indifference curve must be tangent to her budget line.
F
Max Gross has the utility function ( U (x, y) = \max{x, y} ). If the price of ( x ) is the same as the price of ( y ), Max will buy equal amounts of ( x ) and ( y ).
F
If a consumer does not have convex preferences, then a point of tangency between her indifference curve and her budget line must be an optimal consumption point.
F
Sharon spends all of her income on peaches and strawberries. Peaches are a normal good for her. Her income increased by 20 percent and prices did not change. Her consumption of strawberries could not have increased by more than 20 percent.
T
Clara’s utility function is ( U (x, y) = (x + 2)(y + 1) ). If her consumption of both ( x ) and ( y ) are doubled, then her marginal rate of substitution between ( x ) and ( y ) remains constant.
F
Charlie’s utility function is ( U (x, y) = xy^2 ). His marginal rate of substitution between ( x ) and ( y ) does not change if you double the amount of both goods.
T
Ambrose’s utility function is ( U (x, y) = x+ 4y^{1/2} ). The price of ( x ) is 1 and the price of ( y ) is 2. If his income rises from 100 to 150, his consumption of ( y ) increases by more than 10% but less than 50%.
T
Linus has utility function ( U (x, y) = x+2y ). If the price of ( x ) is 1 and the price of ( y ) is ( \frac{1}{2} ), then Linus must consume equal amounts of both goods in order to maximize his utility.
F
Mary Granola’s utility function is ( U (x, y) = \min{x + 2y, y + 2x} ). Mary maximizes her utility subject to a budget constraint. If she chooses the bundle ( (5,6) ), then it must be that the price of ( x ) is exactly twice the price of ( y ).
T
Millie’s utility function is ( U (x, y) = \min{x, y} ). She maximizes her utility subject to a budget constraint. The price of ( x ) is the same as the price of ( y ). If the price of ( x ) rises and the price of ( y ) and her income remain constant, then her consumption of ( y ) will certainly decrease.
T
Other things being equal, a lump sum tax is at least as good for a consumer as a sales tax that collects the same revenue from him.
T
If a consumer doesn’t consume any snails, but does consume Big Macs, then his marginal rate of substitution between snails and Big Macs when his snail consumption is zero must be equal to the ratio of the price of snails to the price of Big Macs.
F
