1.
The demand and utility theory:
c) Studies the way in which income will be distributed by an individual who will act with
economic rationality among the different consumption possibilities available to him, that is,
assuming that he will seek to maximize his total utility.
2. About the utility:
c) In the general case, the total utility is an increasing function, so more of a good is worse.
3. The theory of consumer behavior is based on three basic assumptions:
c) Completeness, transitivity, insatiability.
4. An indifference curve is:
c) A combination of goods that provide the same level of utility to the consumer.
5. The marginal rate of substitution:
a) Is the amount of a good a consumer is willing to give up in order to obtain an additional
unit of another good (maintaining the same level of utility).
6. The graph below shows and indifference curve of:
a) Perfectly substitute goods.
7. The graph below shows an indifference curve of
c) Totally indifferent goods (an indifferent good and a normal good).
8. The graph below shows an indifference curve of:
c) Totally indifferent goods (an indifferent good and a normal good).
9. The budget constraint:
d) Options b) and c) are correct
10. The optimal consumption decision will be reached:
a) In the tangency point between the indifference curve and budget constraint. At this point,
the marginal rate of substitution 𝑀𝑅𝑆 = 𝑃𝑥/𝑃y
11. Consumers:
a) Will choose to maximize their utility without exceeding their budget constraint.
12. The Engel curve:
a) Shows how the demand of a good varies when there are changes in the income
13. The substitution effect shows:
a) The change in the quantity demanded attributed to the relative price of substitute goods
14. The income effect shows:
b) The change in the quantity demanded attributed to the income limitations.
15. The Hicks method procedure to distinguish between substitution and income
effect:
a) It measures substitution effect by considering that the consumer have the same level of
utility as before using a virtual budget constraint (that is parallel to the end one). Income
effect is deduced from Total Effect = Substitution Effect + Income Effect.
16. Suppose that a consumer has a budget constraint: 𝐼 = 𝑃𝑥 · 𝑥 + 𝑃𝑦 · 𝑦 where 𝐼 = 800, 𝑃𝑥 =
2, 𝑃𝑦 = 4
d) The statement regarding the consumer's purchase of 400 units of x and 100 units of y is
incorrect. If the consumer spends all their income on x, they can buy 800/2=400 units of x.
Similarly, if they spend all their income on y, they can buy 800/4=200 units of y. The correct
combination within the budget constraint is 400 units of x and 200 units of y.
e) If the income of the consumer is increased to 𝐼 = 1200, the consumer can buy 400 units of
𝑥 and 100 units of 𝑦, as the new income allows for this purchase.
17. Suppose that a consumer has a budget constraint: 𝐼 = 𝑃𝑥 · 𝑥 + 𝑃𝑦 · 𝑦 where 𝐼 = 20, 𝑃𝑥 =
1, 𝑃𝑦 = 2.
18. Suppose that a consumer has a budget constraint: 𝐼 = 𝑃𝑥 · 𝑥 + 𝑃𝑦 · 𝑦 where 𝐼 = 1000, 𝑃𝑥
= 100, 𝑃𝑦 = 2.
19. Suppose that a consumer has a budget constraint: 𝐼 = 𝑃𝑥 · 𝑥 + 𝑃𝑦 · 𝑦 where 𝐼 = 1000, 𝑃𝑥
= 100, 𝑃𝑦 = 20.
