3. Multiple choice questions. Please choose only one answer clearly. (a) At her

Question

3. Multiple choice questions. Please choose only one answer clearly.

(a) At her current consumption level, Lisa gets 4 times more marginal utility from an additional bottle of water than from an additional bottle of soda. If the price of soda is $2.00/bottle, then she is maximizing utility if the price of a bottle of water is

A) $8.00

B) $4.00

C) $2.00

D) $1.00

E) $0.50

(b) For the two-good case (good A and B), the optimum consumption rule requires that

A) per unit gain from A must equal per unit gain from B.

B) total utility from A must equal total utility from B.

C) per unit gain ratio between A and B must equal per unit cost ratio between A and B.

D) the extra utility from the last dollar spent on one good is greater than the extra utility from the first dollar spent on the other good.

E) the ratio of total utility to price be equal for the two goods.

For questions (c) and (d): When tuition at State U was $11,000 per semester, many classes were unfilled. When tuition decreased to $9,000 per semester, the number of students who wanted to enroll in each class equaled the number of seats available.

(c) When tuition was $11,000,

A) there was excess demand.

B) there was greater consumer surplus.

C) there was greater producer surplus.

D) the market for State U was inefficient.

E) State U could not cover its operating costs.

(d) By decreasing tuition to $9,000, State U

A) eliminated the excess demand that existed when tuition was $11,000.

B) quantity supplied equals quality demanded.

C) became a centrally planned economy.

D) violated the rule that, in equilibrium, there is no tendency to change.

E) changes in demand equals changes in quantity demanded.

Explanation / Answer

Ans 3
a) A) $8.00
b)C) per unit gain ratio between A and B must equal per unit cost ratio between A and B
c)D) the market for State U was inefficient.
d)
B) quantity supplied equals quality demanded.

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