Module M14 Quiz: Consumer Choice and Demand
25 questions ยท Intermediate ยท Multiple choice, calculation, and short answer
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Attempt each question before clicking Show Answer.
Question 1
Lesson L01 ยท Demand
What condition holds at the optimal bundle?
Type: Multiple Choice
- A) MRS=1
- B) MRS=MU1/MU2
- C) MRS=p1/p2
- D) MRS=m/p1
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Answer: C) MRS=p1/p2
Tangency condition requires MRS = price ratio
Question 2
Lesson L01 ยท 10)
Find optimal (x1,x2) for U=x1x2, p1=2, p2=3, m=60
Type: Calculation
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Answer:
(15
Question 3
Lesson L01 ยท When Mrs โ Price Ratio At Zero Consumption Of One Good
Why might corner solutions occur even with convex preferences?
Type: Short Answer
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Answer:
Question 4
Lesson L01 ยท Demand
For U=x1^0.3x2^0.7, what fraction of income is spent on good 1?
Type: Multiple Choice
- A) 30%
- B) 50%
- C) 70%
- D) 100%
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Answer: A) 30%
Fraction equals the exponent (0.3 โ 30%)
Question 5
Lesson L01 ยท Demand
What's the Lagrangian for max U=x1x2 s.t. p1x1+p2x2โคm?
Type: Multiple Choice
- A) x1x2 - ฮป(p1x1+p2x2)
- B) x1x2 + ฮป(m-p1x1-p2x2)
- C) p1x1+p2x2 - ฮปx1x2
- D) m - p1x1 - p2x2 + ฮปx1x2
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Answer: B) x1x2 + ฮป(m-p1x1-p2x2)
Lagrangian adds ฮป times the constraint in 'โค' form
Question 6
Lesson L02 ยท Demand
When does a corner solution occur?
Type: Multiple Choice
- A) MRS=p1/p2
- B) MRS>p1/p2 at x2=0
- C) MRS<p1/p2 at x1=0
- D) Both b and c
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Answer: D) Both b and c
Corner solutions occur when MRS โ price ratio at zero consumption
Question 7
Lesson L02 ยท 30)
Find the corner solution for U=2x1+x2, p1=3, p2=1, m=30
Type: Calculation
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Answer:
(0
Question 8
Lesson L02 ยท Because Their Constant Mrs Will Almost Never Equal The Price Ratio
Explain why perfect substitutes always yield corner solutions
Type: Short Answer
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Answer:
Question 9
Lesson L02 ยท Demand
Which utility function might yield an interior solution with p1=4, p2=2?
Type: Multiple Choice
- A) U=4x1+2x2
- B) U=min{4x1,2x2}
- C) U=x1^0.5x2^0.5
- D) U=x1+x2
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Answer: C) U=x1^0.5x2^0.5
Cobb-Douglas utility guarantees interior solutions
Question 10
Lesson L02 ยท Demand
What happens to optimal x1 if p1 increases and preferences are perfect substitutes?
Type: Multiple Choice
- A) x1 increases
- B) x1 decreases
- C) No change
- D) Depends on MRS vs price ratio
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Answer: B) x1 decreases
Higher p1 makes good 1 less attractive if substitutes exist
Question 11
Lesson L03 ยท Demand
What's the demand function for x1 if U=x1^0.4x2^0.6?
Type: Multiple Choice
- A) x1=0.4m/p1
- B) x1=0.6m/p1
- C) x1=m/(p1+p2)
- D) x1=p1/0.4m
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Answer: A) x1=0.4m/p1
Cobb-Douglas demand: x1=am/p1 where a is the exponent
Question 12
Lesson L03 ยท From Foc: 1/X2 = ฮ And ฮ=1/P2 โ X2=1*
Derive x2* for U=x1+lnx2, p1=2, p2=1, m=20
Type: Calculation
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Answer:
1
Question 13
Lesson L03 ยท Because Only Relative Prices And Real Income Matter, Not Nominal Values
Why are demand functions homogeneous of degree zero?
Type: Short Answer
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Answer:
Question 14
Lesson L03 ยท Demand
If demand is x1=10/p1, what's the price elasticity?
Type: Multiple Choice
- A) 0
- B) -1
- C) -2
- D) -10
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Answer: B) -1
For x1=Ap1^-1, elasticity is -1
Question 15
Lesson L03 ยท Demand
What does the price-consumption curve show?
Type: Multiple Choice
- A) x1 vs income
- B) x1 vs x2 as p1 changes
- C) x1 vs p1
- D) x1 vs utility
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Answer: B) x1 vs x2 as p1 changes
PCC traces optimal bundles as one price changes
Question 16
Lesson L04 ยท Demand
The Slutsky equation decomposes price effects into:
Type: Multiple Choice
- A) Income and substitution effects
- B) Normal and inferior effects
- C) Price and quantity effects
- D) Utility and demand effects
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Answer: A) Income and substitution effects
Slutsky: Total effect = Substitution effect + Income effect
Question 17
Lesson L04 ยท Demand
For a normal good, if p1 falls, the income effect is:
Type: Multiple Choice
- A) Positive for x1
- B) Negative for x1
- C) Zero
- D) Undefined
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Answer: A) Positive for x1
For normal goods, income effect reinforces substitution effect
Question 18
Lesson L04 ยท Because The Income Effect Must Oppose And Dominate The Substitution Effect
Explain why Giffen goods must be inferior
Type: Short Answer
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Answer:
Question 19
Lesson L04 ยท Demand
Which effect is always negative for own-price changes?
Type: Multiple Choice
- A) Income effect
- B) Substitution effect
- C) Total effect
- D) Price effect
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Answer: B) Substitution effect
Substitution effect always opposes the price change
Question 20
Lesson L04 ยท Se = X1^H(P1') X1 = (20/โ2) 10 โ 5*
For U=x1x2, p1=2โ4, p2=1, m=40, calculate the SE
Type: Calculation
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Answer:
-5
Question 21
Lesson L05 ยท Demand
If bundle A is chosen over B when both are affordable, we say:
Type: Multiple Choice
- A) A is revealed preferred to B
- B) B is revealed preferred to A
- C) A and B are indifferent
- D) Preferences are incomplete
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Answer: A) A is revealed preferred to B
Directly Revealed Preferred (DRP) definition
Question 22
Lesson L05 ยท Jan: Cost(3,2)=22<23; Jul: Cost(2,3)=22<23 โ Both Bundles Affordable In Both Periods
Check WARP for: Jan (p1=4,p2=5, chose (2,3)); Jul (p1=5,p2=4, chose (3,2))
Type: Calculation
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Answer:
Violation
Question 23
Lesson L05 ยท Weak Axiom Of Revealed Preference
What does WARP stand for?
Type: Short Answer
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Answer:
Question 24
Lesson L05 ยท Demand
Which index uses current quantities to measure welfare?
Type: Multiple Choice
- A) Laspeyres
- B) Paasche
- C) Fisher
- D) Marshall
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Answer: B) Paasche
Paasche index uses current quantities (Laspeyres uses base)
Question 25
Lesson L05 ยท Demand
Revealed preference theory avoids using:
Type: Multiple Choice
- A) Budget constraints
- B) Utility functions
- C) Price data
- D) Consumption choices
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Answer: B) Utility functions
It infers preferences directly from choices, not utility