1) Refer to Goods X and Y. Suppose the consumer is spending all of his income buying some of both goods. If the marginal value of X is greater than the relative price of X, how can the consumer improve his level of satisfaction?

A. By purchasing more of both goods.

B. By purchasing more of good X and less of good Y.

C. By purchasing more of good Y and less of good X.

D. The consumer cannot improve his level of satisfaction because he is at the optimum.

2) Refer to Goods X and Y. Suppose the consumer is at an optimum, spending all his income on good X. How are the marginal value of X and the relative price of X related at this corner solution?

A. The marginal value of X and the relative price of X must be equal.

B. The marginal value of X must be less than or equal to the relative price of X.

C. The marginal value of X must be greater than or equal to the relative price of X.

D. There is no definite relationship between the marginal value and the relative price of X.

3) Consider an income tax and a head tax, the sizes of which have been set so that the government collects the same amount of money under each tax. Which tax does the consumer prefer?

A. The consumer is indifferent between the two taxes, since he pays the same amount of money under each tax.

B. The consumer prefers the head tax, because it does not lower the relative wage as does the income tax.

C. The consumer prefers the income tax, because it can be avoided by increasing the amount of leisure time consumed.

D. The consumer may prefer either tax, depending on whether the income tax increases or decreases the number of hours of work at the optimum.