Question 1

Marginal utility measures:

Accepted Answer

A)  the slope of the indifference curve. 
B)  the additional satisfaction from consuming one more unit of a good. 
C)  the slope of the budget line. 
D)  the marginal rate of substitution. 
E)  none of the above 
A)  the slope of the indifference curve. 
B)  the additional satisfaction from consuming one more unit of a good. 
C)  the slope of the budget line. 
D)  the marginal rate of substitution. 
E)  none of the above

Question 2

Suppose a consumer only purchases food and clothing, and food is plotted along the horizontal axis of the consumer's indifference map. If the price of clothing increases and the price of food and income do not change, then the budget line changes by rotating:

Accepted Answer

A)  counter-clockwise about the fixed vertical axis intercept. 
B)  clockwise about the fixed vertical axis intercept. 
C)  counter-clockwise about the fixed horizontal axis intercept. 
D)  clockwise about the fixed horizontal axis intercept. 
E)  none of the above 
A)  counter-clockwise about the fixed vertical axis intercept. 
B)  clockwise about the fixed vertical axis intercept. 
C)  counter-clockwise about the fixed horizontal axis intercept. 
D)  clockwise about the fixed horizontal axis intercept. 
E)  none of the above

Question 3

Use the following statements to answer this question:
I. The equal marginal principle may be used to characterize the maximum utility consumption decision even if the diminishing MRS assumption does not hold.
II. The equal marginal principle implies that the MRS at the optimal consumption bundle is always equal to the price ratio.

Accepted Answer

A)  I and II are true. 
B)  I is true and II is false. 
C)  II is true and I is false. 
D)  I and II are false. 
A)  I and II are true. 
B)  I is true and II is false. 
C)  II is true and I is false. 
D)  I and II are false.

Question 4

The price of lemonade is $0.50; the price of popcorn is $1.00. If Fred has maximized his utility by purchasing lemonade and popcorn, his marginal rate of substitution will be:

Accepted Answer

A)  2 lemonades for each popcorn. 
B)  1 lemonades for each popcorn. 
C)  1/2 lemonade for each popcorn. 
D)  indeterminate unless more information on Fred's marginal utilities is provided. 
A)  2 lemonades for each popcorn. 
B)  1 lemonades for each popcorn. 
C)  1/2 lemonade for each popcorn. 
D)  indeterminate unless more information on Fred's marginal utilities is provided.

Question 5

Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food falls relative to that of clothing, the budget line will:

Accepted Answer

A)  become flatter. 
B)  become steeper. 
C)  shift outward. 
D)  become steeper or flatter depending on the relationship between prices and income. 
A)  become flatter. 
B)  become steeper. 
C)  shift outward. 
D)  become steeper or flatter depending on the relationship between prices and income.

Question 6

The revealed preference approach can provide more informative comparisons of market baskets if we also assume that the consumer's indifference curves are:

Accepted Answer

A)  concave. 
B)  convex. 
C)  incomplete. 
D)  intransitive. 
A)  concave. 
B)  convex. 
C)  incomplete. 
D)  intransitive.

Question 7

Each of the following consumers exhibit behavior that violates one of the basic assumptions of consumer preferences. Identify the assumption that is violated for each individual.
∙ Art says that he can watch 2 movies a week but couldn't be paid to watch another movie after that.
∙ Alex says that he prefers going to a movie over hiking. He also indicates that he prefers hiking to swimming. Alex then states that he would rather go swimming than go to a movie.
∙ Alicia says that she prefers hiking to watching a movie but can't determine her preferences for swimming.

Accepted Answer

Art violates the assumption th

Question 8

Consider the following three market baskets:
 
If baskets B and C are on the same indifference curve, and if preferences satisfy all four of the basic assumptions, then:

Accepted Answer

A)  A is preferred to C. 
B)  A is preferred to B. 
C)  Both A and B answer choices are correct. 
D)  none of the above 
A)  A is preferred to C. 
B)  A is preferred to B. 
C)  Both A and B answer choices are correct. 
D)  none of the above

Question 9

If a market basket is changed by adding more of at least one good, then rational consumers will:

Accepted Answer

A)  rank the market basket more highly after the change. 
B)  more likely prefer a different market basket. 
C)  rank the market basket as being just as desirable as before. 
D)  be unable to decide whether the first market basket is preferred to the second or vice versa. 
E)  have indifference curves that cross. 
A)  rank the market basket more highly after the change. 
B)  more likely prefer a different market basket. 
C)  rank the market basket as being just as desirable as before. 
D)  be unable to decide whether the first market basket is preferred to the second or vice versa. 
E)  have indifference curves that cross.

Question 10

The price of coffee is always equal to one-half the price of tea. When we plot the budget line for coffee and tea, coffee is plotted on the horizontal axis. What is the slope of this budget line?

Accepted Answer

A)  -1/2 
B)  1/2 
C)  -2 
D)  2 
A)  -1/2 
B)  1/2 
C)  -2 
D)  2

Question 11

The principle of revealed preference would say that if Xavier chooses market basket A over market basket B then:

Accepted Answer

A)  if A is more expensive than B, then Xavier must prefer A over B. 
B)  if A is more expensive than B, then Xavier must prefer B over A. 
C)  if A is less expensive than B, then Xavier must prefer A over B. 
D)  if A is less expensive than B, then Xavier must prefer B over A. 
A)  if A is more expensive than B, then Xavier must prefer A over B. 
B)  if A is more expensive than B, then Xavier must prefer B over A. 
C)  if A is less expensive than B, then Xavier must prefer A over B. 
D)  if A is less expensive than B, then Xavier must prefer B over A.

Question 12

The endpoints (horizontal and vertical intercepts) of the budget line:

Accepted Answer

A)  measure its slope. 
B)  measure the rate at which one good can be substituted for another. 
C)  measure the rate at which a consumer is willing to trade one good for another. 
D)  represent the quantity of each good that could be purchased if all of the budget were allocated to that good. 
E)  indicate the highest level of satisfaction the consumer can achieve. 
A)  measure its slope. 
B)  measure the rate at which one good can be substituted for another. 
C)  measure the rate at which a consumer is willing to trade one good for another. 
D)  represent the quantity of each good that could be purchased if all of the budget were allocated to that good. 
E)  indicate the highest level of satisfaction the consumer can achieve.

Question 13

Bill currently uses his entire budget to purchase 5 cans of Pepsi and 3 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 4, and his marginal utility from hamburgers is 6. Bill could increase his utility by:

Accepted Answer

A)  increasing Pepsi consumption and reducing hamburger consumption. 
B)  increasing hamburger consumption and reducing Pepsi consumption. 
C)  maintaining his current consumption choices. 
D)  We do not have enough information to answer this question. 
A)  increasing Pepsi consumption and reducing hamburger consumption. 
B)  increasing hamburger consumption and reducing Pepsi consumption. 
C)  maintaining his current consumption choices. 
D)  We do not have enough information to answer this question.

Question 14

Use the following two statements to answer this question:
I. According to the three basic assumptions regarding people's preferences, a person will always prefer to earn a living through honest work rather than a life of crime.
II. When we say that preferences are complete, we mean that if a consumer prefers market basket A to market basket B, and prefers market basket B to market basket C, then the consumer prefers market basket A to market basket C.

Accepted Answer

A)  Both I and II are true. 
B)  I is true and II is false. 
C)  I is false and II is true. 
D)  Both I and II are false. 
A)  Both I and II are true. 
B)  I is true and II is false. 
C)  I is false and II is true. 
D)  Both I and II are false.

Question 15

Alvin's preferences for good X and good Y are shown in the diagram below.   Figure 3.1
-Refer to Figure 3.1. Which of the following is true concerning Alvin's marginal rate of substitution?

Accepted Answer

A)  It is diminishing. 
B)  It is positive but varies along the indifference curve. 
C)  It is constant. 
D)  It is zero. 
A)  It is diminishing. 
B)  It is positive but varies along the indifference curve. 
C)  It is constant. 
D)  It is zero.

Question 16

The purpose of a chain-weighted price index is to account for:

Accepted Answer

A)  the costs of purchasing wholesale products like chains and industrial goods. 
B)  the changes in the quantities of goods and services purchased over time. 
C)  linkages in price changes among industrialized countries. 
D)  none of the above 
A)  the costs of purchasing wholesale products like chains and industrial goods. 
B)  the changes in the quantities of goods and services purchased over time. 
C)  linkages in price changes among industrialized countries. 
D)  none of the above

Question 17

Natasha derives utility from attending rock concerts (r) and from drinking colas (c) as follows:
U(c,r) = c.9r.1 
The marginal utility of cola (MUc) and the marginal utility of rock concerts (MUr) are given as follows:
MUc = .9c-.1r.1 MUr = .1c.9r-.9
a. If the price of cola (Pc) is $1 and the price of concert tickets (Pr) is $30 and Natasha's income is $300, how many colas and tickets should Natasha buy to maximize utility?
b. Suppose that the promoters of rock concerts require each fan to buy 4 tickets or none at all. Under this constraint and given the prices and income in (a), how many colas and tickets should Natasha buy to maximize utility?
c. Is Natasha better off under the conditions in (a) or (b)? Explain your answer.

Accepted Answer

a.
To maximize utility, Natasha (1) must

Question 18

Denise is shopping for lobsters and eclairs. When she faces budget line b1, she chooses market basket A over market basket B. When she faces budget line b2, she chooses basket B over basket C. Which assumption of consumer theory helps us determine Denise's preference ordering over basket A and basket C?

Accepted Answer

A)  Completeness 
B)  More is better than less 
C)  Transitivity 
D)  Convexity 
A)  Completeness 
B)  More is better than less 
C)  Transitivity 
D)  Convexity

Question 19

Please consider the following figure:   The consumer chooses A on budget line I1 and B on budget line I2. Which of the following statements is NOT true?

Accepted Answer

A)  B is preferred to C. 
B)  A is preferred to B. 
C)  C is preferred to A. 
D)  All of the statements are correct. 
A)  B is preferred to C. 
B)  A is preferred to B. 
C)  C is preferred to A. 
D)  All of the statements are correct.

Question 20

Alvin's preferences for good X and good Y are shown in the diagram below.   Figure 3.2
-Refer to Figure 3.2. Which assumption concerning preferences do Alvin's indifference curves violate?

Accepted Answer

A)  Diminishing marginal rates of substitution 
B)  Transitivity of preferences 
C)  More is preferred to less 
D)  Completeness 
E)  both A and C 
A)  Diminishing marginal rates of substitution 
B)  Transitivity of preferences 
C)  More is preferred to less 
D)  Completeness 
E)  both A and C

Marginal utility measures:

Suppose a consumer only purchases food and clothing, and food is plotted along the horizontal axis of the consumer's indifference map. If the price of clothing increases and the price of food and income do not change, then the budget line changes by rotating:

The price of lemonade is $0.50; the price of popcorn is $1.00. If Fred has maximized his utility by purchasing lemonade and popcorn, his marginal rate of substitution will be:

Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food falls relative to that of clothing, the budget line will:

The revealed preference approach can provide more informative comparisons of market baskets if we also assume that the consumer's indifference curves are:

Consider the following three market baskets: If baskets B and C are on the same indifference curve, and if preferences satisfy all four of the basic assumptions, then:

If a market basket is changed by adding more of at least one good, then rational consumers will:

The price of coffee is always equal to one-half the price of tea. When we plot the budget line for coffee and tea, coffee is plotted on the horizontal axis. What is the slope of this budget line?

The principle of revealed preference would say that if Xavier chooses market basket A over market basket B then:

The endpoints (horizontal and vertical intercepts) of the budget line:

Bill currently uses his entire budget to purchase 5 cans of Pepsi and 3 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 4, and his marginal utility from hamburgers is 6. Bill could increase his utility by:

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.1 -Refer to Figure 3.1. Which of the following is true concerning Alvin's marginal rate of substitution?

The purpose of a chain-weighted price index is to account for:

Please consider the following figure: The consumer chooses A on budget line I1 and B on budget line I2. Which of the following statements is NOT true?

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.2 -Refer to Figure 3.2. Which assumption concerning preferences do Alvin's indifference curves violate?

Preliminaries

The Basics of Supply and Demand

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters

Exam 3: Consumer Behavior

Marginal utility measures:

Suppose a consumer only purchases food and clothing, and food is plotted along the horizontal axis of the consumer's indifference map. If the price of clothing increases and the price of food and income do not change, then the budget line changes by rotating:

The price of lemonade is $0.50; the price of popcorn is $1.00. If Fred has maximized his utility by purchasing lemonade and popcorn, his marginal rate of substitution will be:

Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food falls relative to that of clothing, the budget line will:

The revealed preference approach can provide more informative comparisons of market baskets if we also assume that the consumer's indifference curves are:

Consider the following three market baskets: If baskets B and C are on the same indifference curve, and if preferences satisfy all four of the basic assumptions, then:

If a market basket is changed by adding more of at least one good, then rational consumers will:

The price of coffee is always equal to one-half the price of tea. When we plot the budget line for coffee and tea, coffee is plotted on the horizontal axis. What is the slope of this budget line?

The principle of revealed preference would say that if Xavier chooses market basket A over market basket B then:

The endpoints (horizontal and vertical intercepts) of the budget line:

Bill currently uses his entire budget to purchase 5 cans of Pepsi and 3 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 4, and his marginal utility from hamburgers is 6. Bill could increase his utility by:

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.1 -Refer to Figure 3.1. Which of the following is true concerning Alvin's marginal rate of substitution?

The purpose of a chain-weighted price index is to account for:

Please consider the following figure: The consumer chooses A on budget line I1 and B on budget line I2. Which of the following statements is NOT true?

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.2 -Refer to Figure 3.2. Which assumption concerning preferences do Alvin's indifference curves violate?

Preliminaries

The Basics of Supply and Demand

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters