D. Total utility must be constant.

E. Quantity demanded for x + quantity demanded for y must be constant.

17. In October Mr. Pupkin, a diabetic, spent all his income on 25 ampoules of insulin and 6 crates of noodles. Next month, he bought 19 ampoules of insulin and 5 crates of noodles. Which of the following most likely explains his choice?

A. Price of insulin decreased.

B. Price of noodles decreased.

C. Mr. Pupkin’s income increased

D. Mr. Pupkin was offered free insulin injections at a local hospital several times a month.

E. Mr. Pupkin received some free noodles from a charity foundation.

Note: Question 17 was not marked, because there was a typo in the question. The second sentence should have stated: “Next month, he bought 19 ampoules of insulin and 7 crates of noodles.”

18. The famous XIX^th-century paradox states that water, which is absolutely necessary for human survival, costs many times less than diamonds, which are hardly important for man’s everyday life. The explanation is that, whereas ____ of water is much greater than ____ of diamonds, ____ of water is many times lower than ____ of diamonds.

A. marginal utility; marginal utility; total utility; total utility.

B. total utility; total utility; price; price.

C. total utility, total utility; marginal utility; marginal utility.

D. total utility; marginal utility; marginal utility; total utility.

E. marginal utility; total utility; total utility; marginal utility.

F. none of the above

19. Mary Soccermom always spends all her money on two goods: cakes and romantic novels. If cakes are an inferior good, romantic novels must be:

A. a Giffen good.

B. a necessity.

C. a normal good.

D. an inferior good.

E. we cannot say for sure.

20. If consumer tastes exhibit a diminishing marginal rate of substitution of hamburgers for pizza (i.e., if indifference curves have the usual shape), for all consumption bundles that belong to the same indifference curve:

A. Marginal utility of hamburgers decreases as we consume more pizza.

B. Marginal utility of pizza increases as we consume more hamburgers.

C. The more hamburgers we consume, the more pizzas we would give up for one additional hamburger.

D. Average utility of pizza falls, the more pizza we consume.

E. More than one answer is correct.

21. For inferior goods:

A. Budget share must be lower than for normal goods.

B. Income effect dominates substitution effect.

C. Substitution effect dominates income effect.

D. Price elasticity of demand may be positive.

E. Demand curve must be price inelastic.

Answer the following two questions on the basis of the following table:

Demand Schedule for X (Py = 10)	Demand Schedule for X (Py = 20)
Px	Quantity (X)	Px	Quantity (X)

22. From the table abode, the cross elasticity if demand between X and Y is:

A) positive

B) negative

C) zero

D) impossible to determine without more information

E) positive at low prices, negative at high prices

If P_x = 2 and Py = 10 then Qx=20, but if Py goes up to 20 then Qx falls to 10 (Px remains unchanged). Thus cross-price elasticity is negative.

23. From the table above, it can be observed that X and Y are:

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