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Diminishing marginal rates of substitution. b. Transitivity of preferences. c. More is preferred to less. d. Completeness. Consider the following three market baskets: Table 3. 1 | |Food |Clothing | |A |6 |3 | |B |8 |5 | |C |5 |8 | 12. Refer to Table 3. 1. If preferences satisfy all four of the usual assumptions: a. A is on the same indifference curve as B. b. B is on the same indifference curve as C. c. A is preferred to C. d. B is preferred to A e. both (a) and (b) are correct. 13.

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Consider the following three market baskets: | |Food |Clothing | |A |15 |18 | |B |13 |19 | |C |14 |17 | If baskets B and C are on the same indifference curve, and if preferences satisfy all four of the usual assumptions, then: a. A is preferred to C. b. A is preferred to B. c. both (a) and (b) are correct. d. none of the above. 14. Mikey is very picky and insists that his mom make his breakfast with equal parts of cereal and apple juice – any other combination and it ends up on the floor.

Cereal costs 4 cents per tablespoon and apple juice costs 6 cents per tablespoon. If Mikey’s mom budgets \$8 per month for Mikey’s breakfast, how much cereal and juice does she buy? a. 40 tablespoons each of cereal and juice. b. 80 tablespoons each of cereal and juice. c. 40 tablespoons of cereal and 75 tablespoons of juice. d. 100 tablespoons of cereal and 67 tablespoons of juice. 15. Use the following two statements to answer this question: I. If utility is ordinal, a market basket that provides 30 utils provides twice the satisfaction of a market basket that provides 15 utils. II.

When economists first studied utility it was believed that utility was cardinal, but it was later discovered that ordinal preferences are sufficient to explain how most individual decisions are made. a. Both I and II are true. b. I is true, and II is false. c. I is false, and II is true. d. Both I and II are false. 16. If X and Y are perfect substitutes, which of the following assumptions about indifference curves is not satisfied? a. completeness. b. transitivity. c. more is preferred to less. d. diminishing MRS. e. none of the above (All of the above assumptions are satisfied). 17. Use the following two statements to answer this question:

I. According to the three basic assumptions regarding people’s preferences, a person will always prefer to earn a living through honest work rather than a life of crime. II. When we say that preferences are complete, we mean that if a consumer prefers market basket A to market basket B, and prefers market basket B to market basket C, then the consumer prefers market basket A to market basket C. a. Both I and II are true. b. I is true and II is false. c. I is false and II is true. d. Both I and II are false. 18. If Jill’s MRS of popcorn for candy is 2 (popcorn is on the horizontal axis), Jill would willingly give up: a. , but no more than 2, units of popcorn for an additional unit of candy. b. 2, but no more than 2, units of candy for an additional unit of popcorn. c. 1, but no more than 1, unit of candy for an additional 2 units of popcorn. d. 2, but no more than 2, units of popcorn for an additional 2 units of candy. 19. A consumer has \$100 per day to spend on product A, which has a unit price of \$7, and product B, which has a unit price of \$15. What is the slope of the budget line if good A is on the horizontal axis and good B is on the vertical axis? a. -7/15. b. -7/100. c. -15/7. d. 7/15. 20. Theodore’s budget line has changed from A to B.

Which of the following explains the change in Theodore’s budget line? [pic] a. The price of food and the price of clothing increased. b. The price of food increased, and the price of clothing decreased. c. The price of food decreased, and the price of clothing increased. d. The price of food and the price of clothing decreased. e. None of the above. 21. If the quantity of good a (Qa) is plotted along the horizontal axis, the quantity of good b (Qb) is plotted along the vertical axis, the price of good a is Pa, the price of good b is Pb and the consumer’s income is I, then the slope of the consumer’s budget constraint is: . -Qa/Qb b. -Qb/Qa c. -Pa/Pb d. -Pb/Pa e. I/Pa or I/Pb 22. An increase in income, holding prices constant, can be represented as: a. a change in the slope of the budget line. b. a parallel outward shift in the budget line. c. an outward shift in the budget line with its slope becoming flatter. d. a parallel inward shift in the budget line. 23. Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food falls relative to that of clothing, the budget line will: a. become flatter. b. become steeper. c. shift outward. d. ecome steeper or flatter depending on the relationship between prices and income. 24. If prices and income in a two-good society double, what will happen to the budget line? a. The intercepts of the budget line will increase. b. The intercepts of the budget line will decrease. c. The slope of the budget line may either increase or decrease. d. Insufficient information is given to determine what effect the change will have on the budget line but we know society is worse-off. e. There will be no effect on the budget line. 25. An individual consumes only two goods, X and Y.