For Questions 3-4, consider a society with four households with income indicated

Question

For Questions 3-4, consider a society with four households with income indicated:

HH1 = $10,000, HH2 = $15,000, HH3 = $20,000, HH4 = $25,000

The basic basket of goods used to calculate the poverty line includes two goods:

200 units of Good X which has a price of $40/unit, and 1000 units of Good Y which has a price of $8/unit.

3. What is the poverty line?

a) $48

b) $1,200

c) $8,000

d) $16,000

4. What is the poverty rate?

a) 2 percent

b) 300 percent

c) 50 percent

d) $16,000

11. A consumer that is optimizing would be likely to:

a) Purchase as much of each good as possible

b) Find the bundle of goods on the highest indifference curve among those on his budget constraint

c) Be as efficient as possible

d) Spend as little as possible

12. Consider a consumer that purchase only two goods: Pizza and Soda. What is the budget constraint of the consumer if it has income of $100, the price of a pizza is $10, and the price of a soda is $2?

13. If Point X and Point Y are on the same indifference curve:

a) The bundle represented by point X is preferred to the bundle represented by point Y

b) The bundle represented by point X is equally preferred to the bundle represented by point Y

c) The bundle represented by point Y is preferred to the bundle represented by point X

d) It is not possible to tell which bundle is preferred

14. If Point X is on a higher indifference curve than Point Y:

a) The bundle represented by point X is preferred to the bundle represented by point Y

b) The bundle represented by point X is equally preferred to the bundle represented by point Y

c) The bundle represented by point Y is preferred to the bundle represented by point X

d) It is not possible to tell which bundle is preferred

Explanation / Answer

3. Poverty line would be $16000.

4. 2 households are below the poverty line out of total 4. Thus poverty rate is 50%

11. b) Find the bundle of goods on the highest indifference curve among those on his budget constraint

12. Budget constraint is: 10Qz + 2Qs =100

Qz = quantity of pizza

Qs = quantity of soda

13. b) The bundle represented by point X is equally preferred to the bundle represented by point Y

14. a) The bundle represented by point X is preferred to the bundle represented by point Y

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