REVIEW QUESTIONS BASED ON CHAPTERS 2 AND 3
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1. At the saturation point for commodity X, the MUx is 
(a). positive (b). negative (c). zero (d). any of the above.

2. If the MU of the last unit of X consumed is twice the MU of the last unit 
of Y consumed, the consumer is in equilibrium only if
(a). the price of X is twice the price of Y.
(b). the price of X is equal to the price of Y.
(c). the price of X is one half of the price of Y.
(d). any of the above is possible.

3. At equilibrium, the utility a consumer gets from consuming the last 
unit of each commodity is the same.
(a). True (b). False (c). True of false depending on the individual's income
(d). True or false depending on commodity prices.

4. If the MUx/MUy for individual A is greater than the MUx/MUy for individual
B, then individual A could gain by giving up
(a). X in exchange for more Y from B.
(b). Y in exchange for more X from B.
(c). either X or Y.
(d). we can not say without additional information.

5. When the price of an inferior good falls, all else equal,
(a). the substitution and the income effects reinforce each other in causing
an increase in the quantity demanded of the inferior good.
(b). the substitution and the income effects reinforce each other in causing
a decrease in the quantity demanded of the inferior good.
(c). the substitution effect tends to increase the quantity of the good 
demanded, while the income effect tends to reduce it.
(d) the substitution effect tends to increase the quantity of the good  
demanded, while the income effect tends to increase it.

6.The necessary and sufficient condition for a good to have a 
positively sloped demand curve is that 
(a). The good be inferior (b). the substitution effect exceed the income 
effect (c). the income effect exceed the substitution effect (d) the good 
be inferior and the income effect exceed the opposite substitution effect.

The equation of a downward-sloping, convex indifference curve is

			Y = 36/X

and that for the consumer's budget is 

			Y = 12 - X

Find the utility-maximizing quantities of x and y.
Prove that at the utility-maximizing bundle, the slopes of the 
indifference curve and the budget line are equal.

7. Derive Engel Curves for (a) Perfect substitutes (b) Perfect complements
(c). Quasilinear preferences.

8. Given the following income-quantity relationship
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Point	A	B	C	D	F	G	H	L
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Income
$'000	4	6	8	10	12	14	16	18
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Qty
(lbs)	100	200	300	350	380	390	350	250
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(a). Sketch the Engel curve.
(b). Over what range of income is the commodity a luxury, a necessity or 
an inferior good?

9. Arc elasticity gives a better estimate of point elasticity of a 
curvilinear demand curve as
(a). the size of the arc becomes smaller.
(b). the curvature of the demand curve over the arc becomes less.
(c). both of the above.
(d). none of the above.

10(a). Show that when Qx = 600/Px, total expenditures on X remain 
unchanged as Px falls.
(b). From (a) derive the value of price elasticity of demand along the 
demand curve.

TO BE CONTINUED!!