Moodle Quiz 2 Flashcards
When economists say that decision-makers are engaged in constrained optimisation, they mean that:
Question 1Select one:
decision-makers must make choices.
decision-makers are trying to do the best that they can.
decision-makers cannot have everything that they want.
All of these are correct
Constrained optimisation is a model for analysing choices.
Constrained optimisation is by definition constrained, meaning that decision-makers cannot have everything that they want.
Constrained optimisation is about optimisation, meaning that decision-makers are trying to do the best that they can.
The correct answer is:
All of these are correct
The budget constraint is a type of:
Question 2Select one:
iso-profit line.
iso-cost line.
iso-utility line.
iso-revenue line.
Your answer is correct.
The correct answer is: iso-cost line.
A consumer spends all of their income on only two goods: coffee (on the x-axis) and chocolate (on the y-axis). If the consumer’s income decreases, what will happen to their budget constraint?
Question 3Select one:
It will pivot inwards on the x-axis, and become steeper.
It will shift outwards parallel to the original budget constraint.
It will pivot outwards on the x-axis, and become flatter.
It will shift inwards parallel to the original budget constraint.
Your answer is correct.
The correct answer is: It will shift inwards parallel to the original budget constraint.
In the consumer choice model, we use indifference curves to represent the consumer’s:
Question 4Select one:
None of these is correct.
costs.
income.
preferences.
Your answer is correct.
The correct answer is:
preferences.
Consider a standard indifference curve for two goods, Good X and Good Y. Bundles of goods that are at the top left of a standard indifference curve will have:
Question 5Select one:
a.
a low marginal utility of Good X.
b.
All of these are correct.
c.
a high marginal utility of Good Y.
d.
a high marginal rate of substitution of Good Y for Good X.
Your answer is incorrect.
Bundles of goods that are at the top left of a standard indifference curve will have not much of Good X, and a lot of Good Y. The marginal utility of Good X will be high, and the marginal utility of Good Y will be low, because of diminishing marginal utility.
So, the ratio of marginal utilities (MUx/MUy) will be a large number. The ratio of the marginal utilities is the slope of the indifference curve. It is also the marginal rate of substitution.
So, bundles of goods that are at the top left of a standard indifference curve will have a high marginal rate of substitution of Good Y for Good X.
The correct answer is: a high marginal rate of substitution of Good Y for Good X.
Indifference curves for table tops and table legs will be:
Question 6Select one:
right angles.
straight lines.
Any of these could be correct, depending on the income of the decision-maker.
downward-sloping curves.
our answer is correct.
Table tops and table legs are perfect complements. Assuming a standard configuration for a table, each table top must be consumed with four table legs.
So, from any combination of one table top and four table legs, adding more table tops (by themselves) will not make the consumer better off, because they will still have the same number of complete tables. Similarly, from any combination of one table top and four table legs, adding more table legs (by themselves) will not make the consumer better off, because they will still have the same number of complete tables.
This leads to indifference curves that are right angles.
None of this depends on the income of the consumer, which affects the consumer’s budget constraint, but not their indifference curves.
The correct answer is: right angles.
A consumer is initially consuming a bundle of goods E0, which contains X0 of Good X and Y0 of Good Y. If the consumer’s income increases, then:
Question 8Select one:
the budget constraint will pivot outwards on the x-axis and become flatter, and the consumer will be able to move to a higher indifference curve by buying more of Good X.
the budget constraint will shift outwards parallel to the original budget constraint, and the consumer will be able to move to a higher indifference curve by buying more of one or both of the goods.
the budget constraint will pivot outwards on the y-axis and become steeper, and the consumer will be able to move to a higher indifference curve by buying more of Good Y.
the budget constraint will shift inwards parallel to the original budget constraint, and the consumer must move to a lower indifference curve and will buy less of one or both of the goods.
The correct answer is: the budget constraint will shift outwards parallel to the original budget constraint, and the consumer will be able to move to a higher indifference curve by buying more of one or both of the goods.
A decrease in the price of a normal good will have:
Question 9Select one:
An increase in quantity demanded from the substitution effect and a decrease in quantity demanded from the income effect.
An increase in quantity demanded from the substitution effect and an increase in quantity demanded from the income effect.
A negative substitution effect and a decrease in quantity demanded from the income effect.
A decrease in quantity demanded from the substitution effect and an increase in quantity demanded from the income effect.
Your answer is correct.
If the price of Good X decreases, then Good X becomes relatively cheaper, and the consumer will buy more of Good X. This is the substitution effect of the price change.
If the price of Good X decreases, then the consumer’s purchasing power increases (their real income increases). If Good X is a normal good, they will buy more of Good X. This is the income effect of the price change.
The correct answer is: An increase in quantity demanded from the substitution effect and an increase in quantity demanded from the income effect.
In the constrained optimisation model for a worker, if wages increase, then:
Question 10Select one:
the budget constraint will pivot upwards on the y-axis, and become steeper.
the worker may increase their consumption, increase their leisure time, or both.
All of these are correct.
the worker will be able to move to a higher indifference curve.
The correct answer is: All of these are correct.