Statiscial Analysis
Microeconomics
Summer 2011
Problem Set 1
Due on July 28th in class
TRUE-FALSE (2’*7=14’)
（B）1. If good 1 is measured on the horizontal axis and good 2 is measured on the vertical axis and if the price of good 1 is p1 and the price of good 2 is p2, then the slope of the budget line is -p2/p1.
a. True b. False
（B）2. If all prices double and income triples, then the budget line will become steeper.
a. True b. False
（B）3. If Melody has more classical records than rock and roll records, she is willing to exchange exactly 1 classical record for 2 rock and roll records, but if she has more rock and roll records than classical records, then she is willing to exchange exactly 1 rock and roll record for 2 classical records. Melody has convex preferences.
a. True b. False
（A）4. Maximilian consumes two goods, x and y. His utility function is U(x, y) = max{x, y}. Therefore x and y are perfect substitutes for Max.
a. True b. False
（B）5. Max Gross has the utility function U(x, y) = max{x, y}. If the price of x is the same as the price of y, Max will buy equal amounts of x and y.
a. True b. False
6. If a consumer doesn’t consume any snails but does consume Big Macs, then his marginal rate of substitution between snails and Big Macs when his snail consumption is zero must be equal to the ratio of the price of snails to the price of Big Macs.
a. True b. False
（A） 7.Prudence was maximizing her utility subject to her budget constraint. Then prices changed. After the price changes she was better off. Therefore the new bundle costs more at the old prices than the old bundle did.
a. True b. False
MULTIPLE CHOICE (4’*16=64’)
（AB）1. Clara spends her entire budget and consumes 5 units of x and 13 units of y. The price of x is twice the price of y. Her income doubles and the price of y doubles, but the price of x stays the same. If she continues to buy 13 units of y, what is the largest number of units of x that she can
Summer 2011
Problem Set 1
Due on July 28th in class
TRUE-FALSE (2’*7=14’)
（B）1. If good 1 is measured on the horizontal axis and good 2 is measured on the vertical axis and if the price of good 1 is p1 and the price of good 2 is p2, then the slope of the budget line is -p2/p1.
a. True b. False
（B）2. If all prices double and income triples, then the budget line will become steeper.
a. True b. False
（B）3. If Melody has more classical records than rock and roll records, she is willing to exchange exactly 1 classical record for 2 rock and roll records, but if she has more rock and roll records than classical records, then she is willing to exchange exactly 1 rock and roll record for 2 classical records. Melody has convex preferences.
a. True b. False
（A）4. Maximilian consumes two goods, x and y. His utility function is U(x, y) = max{x, y}. Therefore x and y are perfect substitutes for Max.
a. True b. False
（B）5. Max Gross has the utility function U(x, y) = max{x, y}. If the price of x is the same as the price of y, Max will buy equal amounts of x and y.
a. True b. False
6. If a consumer doesn’t consume any snails but does consume Big Macs, then his marginal rate of substitution between snails and Big Macs when his snail consumption is zero must be equal to the ratio of the price of snails to the price of Big Macs.
a. True b. False
（A） 7.Prudence was maximizing her utility subject to her budget constraint. Then prices changed. After the price changes she was better off. Therefore the new bundle costs more at the old prices than the old bundle did.
a. True b. False
MULTIPLE CHOICE (4’*16=64’)
（AB）1. Clara spends her entire budget and consumes 5 units of x and 13 units of y. The price of x is twice the price of y. Her income doubles and the price of y doubles, but the price of x stays the same. If she continues to buy 13 units of y, what is the largest number of units of x that she can