CHAPTER 9-Buying and Selling

Transcription

1 CHAPTER 9-Buying and Selling MULTIPLE CHOICE 1. Marsha Mellow is very flexible. She consumes x and y. She says, Give me x or give me y, I don t care. I can t tell the difference between them. She is currently endowed with 14 units of x and 3 units of y. The price of x is 3 times the price of y. Marsha can trade x and y at the going prices but has no other source of income. How many units of y will Marsha consume? a. 48 b. 17 d. 3 e Nick insists on consuming 3 times as much of y as he consumes of x (so he always has y = 3x). He will consume these goods in no other ratio. The price of x is 2 times the price of y. Nick has an endowment of 20 x s and 75 y s which he can trade at the going prices. He has no other source of income. What is Nick s gross demand for x? a. 21 b. 115 c. 23 d. 95 e. We can t determine the answer without knowing the price of x. 3. Diana consumes commodities x and y and her utility function is U(x, y) = xy 2. Good x costs $2 per unit and good y costs $1 per unit. If she is endowed with 3 units of x and 6 units of y, how many units of good y will she consume? a. 11 b. 3 c. 8 d Holly consumes x and y. The price of x is 4 and the price of y is 4. Holly s only source of income is her endowment of 6 units of x and 6 units of y which she can buy or sell at the going prices. She plans to consume 7 units of x and 5 units of y. If the prices change to $7 for x and $7 for y, a. she is better off. b. she is worse off. c. she is neither better off nor worse off. d. she is better off if she has nonconvex preferences. e. We can t tell whether she is better off or worse off unless we know her utility function.

2 5. Aristotle earns 5 dollars per hour. He has 110 hours per week available for either labor or leisure. In the old days he paid no taxes and received nothing from the government. Now he gets a $200 payment per week from the government but he must pay half of his labor income in taxes. (His before-tax wages are the same as they were before, and he has no other source of income than wages and payments from the government.) He notices that with the government payment and his taxes, he can exactly afford the combination of leisure and consumption goods that he used to choose. How many hours per week did he work in the old days? a. 100 b. 20 d Rhoda takes a job with a construction company. She earns $5 an hour for the first 40 hours of each week and then gets double-time for overtime. That is, she is paid $10 an hour for every hour beyond 40 hours a week that she works. Rhoda has 70 hours a week available to divide between construction work and leisure. She has no other source of income, and her utility function is U = cr, where c is her income to spend on goods and r is the number of hours of leisure that she has per week. She is allowed to work as many hours as she wants to. How many hours will she work? a. 50 b. 30 d Irene earns 8 dollars an hour. She has no nonlabor income. She has 30 hours a week available for either labor or leisure. Her utility function is U(c, r) = cr 2, where c is dollars worth of goods and r is hours of leisure. How many hours per week will she work? a. 8 b. 13 c. 15 d Will is paid $10 an hour for the first 40 hours per week that he works. He can also work as many hours overtime as he wishes to. He is paid $15 an hour for every hour that he works beyond 40 hours a week. Leisure is a normal good for Will and he is currently working some overtime. If his hourly wage for the first 40 hours per week that he works rises to $12 and his wages for overtime remain at $15 per hour, he will choose to work a. fewer hours per week. b. more hours per week. c. the same number of hours per week. d. more hours per week if and only if his income exceeds his labor income. e. more hours per day if and only if he works less than 20 hours overtime per week.

3 9. Henri is paid $9 an hour for the first 40 hours per week that he works. He can also work as many hours overtime as he wishes to. He is paid $15 an hour for every hour that he works beyond 40 hours a week. Leisure is a normal good for Henri and he is currently working some overtime. If his hourly wage for the first 40 hours per week that he works rises to $11 and his wages for overtime remain at $15 per hour, he will choose to work a. more hours per week. b. more hours per week if and only if his income exceeds his labor income. c. the same number of hours per week. d. fewer hours per week. e. more hours per day if and only if he works less than 20 hours overtime per week. 10. There are no taxes on the first $500 that Debra earns per week, but on income above $500 per week, she must pay a 60% tax. Debra s job pays $10 per hour. Her utility function is U(c, r) = rc 2, where r is hours of leisure and c is dollars worth of consumption. She has 100 hours to divide between work and leisure. How many hours per week will she choose to work? a b. 50 c. 40 d e Susan s utility function is U(x, y) = (x + y)r 2, where x and y are the quantities of goods X and Y that she consumes and R is the number of hours of leisure that she has per day. Good X costs 4 dollars per unit and good Y costs 2 dollars per unit. Her wage rate is 8 dollars per hour and she has 15 hours per day to allocate between labor and leisure. She will a. consume equal amounts of goods X and Y. b. consume 10 units of good X. c. consume 20 units of good Y. d. work 10 hours a day. e. consume twice as much of good X as of good Y. 12. Gladys Goodhands is an insurance agent. She must choose one and only one of two possible alternative jobs. She can either work for a large national insurance company for which she must work exactly 40 hours a week and will receive a salary of S dollars per week, or she can work as an independent insurance agent, in which case she can work exactly as many hours per week as she wishes and will earn w dollars for every hour that she works. Gladys satisfies the weak axiom of revealed preference and she cares only about how much money she makes and about how much leisure time she has. a. If, she will prefer to work for the large national insurance company. b. If and she decides to work independently, then it must be that she chooses to work more than 40 hours a week. c. If and she decides to work independently, then it must be that she chooses to work less than 40 hours a week. d. If, she will be indifferent between working for the large insurance company and working independently.

4 13. Tomoko receives a lump sum child support payment of $200 per week. She has 80 hours a week to divide between labor and leisure. She earns $5 an hour. The first $100 per week of her labor income is untaxed, but all labor income that she earns above $100 is taxed at the rate 50%. If we graph her budget line with leisure on the horizontal axis and consumption on the vertical axis, her budget line has a. no kinks in the part that corresponds to positive labor supply. b. a kink in it where her income is $300 and her leisure is 60 units. c. a kink in it at the point where she takes 70 units of leisure. d. a slope of 2.50 everywhere. e. a piece that is a horizontal straight line. 14. If Abishag owns 18 quinces and 5 kumquats and if the price of kumquats is 6 times the price of quinces, how many kumquats can she afford if she buys as many kumquats as she can? a. 5 b. 23 c. 16 d. 8 e Mario 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 $30 per bushel, while the price of tomatoes stayed unchanged. After the price change, he would a. decrease his consumption of eggplants by 7 bushels. b. increase his consumption of eggplants by 7 bushels. c. decrease his eggplant consumption by at least 5 bushels. d. increase his eggplant consumption by 5 bushels. e. decrease his tomato consumption by at least 1 bushel. 16. Dudley 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 $35 per day and is paid a wage of $6 per hour, how many hours of leisure will he choose per day? a. 10 b. 8 c. 7 d. 6 e Mr. Cog has 18 hours per day to divide between labor and leisure. His utility function is U(C, R) = CR, where C is dollars per year spent on consumption and R is hours of leisure. If he has 19 dollars of nonlabor income per day and gets a wage rate of 15 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. 15R + C = 19. b. 15R + C = 289. c. R + = 379. d. C = R. e. C = R.

5 18. Mr. Cog has 18 hours per day to divide between labor and leisure. His utility function is U(C, R) = CR, where C is dollars per year spent on consumption and R is hours of leisure. If he has a nonlabor income of 40 dollars per day and a wage rate of 8 dollars per hour, he will choose a combination of labor and leisure that allows him to spend a. 184 dollars per day on consumption. b. 82 dollars per day on consumption. c. 112 dollars per day on consumption. d. 92 dollars per day on consumption. e. 138 dollars per day on consumption.