Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics
PROBLEM SET 5
Multiple Choice Questions
1 - ) A budget line;
a. describes the demand for two products.
b. describes the quantity of a product demanded at each and every price.
c. ranks bundles of products according to a consumer’s preferences.
d. separates quantities of goods that a household can afford to buy at current income and
prices from those that it cannot afford.
2- ) Refer to the figure below. Suppose that the income of the consumer equals $20. Use the
information on the graph to determine the prices of goods Y and X.
a. Py = $2, Px = $3
b. Not sufficient information to answer the question.
c. Py = $2, Px=$4
d. Py = $20, Px=$12
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Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics
Refer to the information provided in Figure 6.5 below to answer the questions that follow.
3 - ) Refer to Figure 6.5. Molly's budget constraint is BD. If the price of CDs decreases, her
new budget constraint becomes
a. AD
b. AO
c. CD
d. EF
4 - ) Refer to Figure 6.5. Molly's budget constraint is CD. If her income increases, her new
budget constraint is
a. AD
b. BD
c. EF
d. not shown on the graph
Assuming that the price of cola is $1 each, and burgers cost $2 each fill the table below.
Then, answer the following two questions according to the table.
Number
Total
of Colas
MUc
MU / $
Number of
Total
Utility
Burgers
Utility
1
6
1
10
2
10
2
14
3
13
3
15
4
15
4
15
5
16
5
7
MUb
5 - ) Which of the two goods demonstrates the law of diminishing marginal utility?
a. Cola only.
b. Burgers only.
c. Both cola and burgers.
d. Neither cola nor burgers.
2
MU / $
Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics
6 - ) If the consumer has only $8 to spend, what would be the optimal consumption of both
goods for this consumer?
a. 4 colas and 2 burgers.
b. 5 colas and 1 burger.
c. 2 colas and 3 burgers.
d. 4 colas and 4 burgers.
7 - ) Using the table below, the total utility from 3 units of good X would be:
Qx
MUx
a. 0
1
50
b. 50
2
20
c. 20
3
0
d. None of the above
8 - ) If MUa / Pa=1.5 and MUb / Pb=3 for a consumer who is spending her entire budget, then
to maximize utility she should
a. buy more of product A and less of product B.
b. buy more of product B and less of product A.
c. not change her situation.
d. None of the above.
9 - ) A fall in the price of Pepsi that causes a household to shift its purchasing pattern away
from substitutes and toward Pepsi is the
a. income effect of a price change.
b. substitution effect of a price change.
c. complementary effect of a price change.
d. diminishing marginal utility effect of a price change.
10 - ) Assume leisure is a normal good. The substitution effect of a wage decrease implies a
__________ demand for leisure and a __________ labor supply.
a. lower; higher
b. higher; lower
c. higher; higher
d. lower; lower
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Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics
Essay Questions
1 - ) Suppose that Leyla’s monthly income is 200 $/month and she spends her income on two
goods: Entertainment and books. The price of entertainment is Pe=$20 and price of books
Pb=$10. Answer the following questions.
a. Suppose she spends all her money on these two goods. Sketch her budget constraint. Show
at least 4 points on this constraint which are attainable (Put books on the horizontal axis).
b. Last month she went to entertainment 5 times and bought 10 units of books. Is this
attainable for her? Show it on the figure you sketched in ‘a’.
c. Suppose the price of entertainment increased to $25. Sketch her new budget line. Can you
tell from this information how she could allocate her budget between the two goods in order
to maximize her utility?
d. Suppose that Leyla’s income doubled. Show her new budget line on a separate graph.
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Izmir University of Economics
Department of Economics
Econ 101 - Principles of Microeconomics
2 - ) The table presented below gives a hypothetical total utility schedule for Ali. Calculate
Ali’s marginal utility schedule and explain the relationship between total utility and marginal
utility.
Number of Apples
Total Utility
Marginal Utility
0
0
-
1
100
2
200
3
275
4
325
5
350
6
360
7
360
8
350
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