Question 1

Points along a budget constraint describe:

Accepted Answer

A)  market baskets that cost the same amount of money. 
B)  market baskets that bring the consumer equal utility. 
C)  quantities of a good that the consumer is willing and able to buy at alternative market prices. 
D)  alternative prices that a producer might charge for a good. 
E)  alternative levels of utility that a consumer might get from consuming a given market basket. 
A)  market baskets that cost the same amount of money. 
B)  market baskets that bring the consumer equal utility. 
C)  quantities of a good that the consumer is willing and able to buy at alternative market prices. 
D)  alternative prices that a producer might charge for a good. 
E)  alternative levels of utility that a consumer might get from consuming a given market basket.

Question 2

Jane spends $210 per month on wine and beer.Her utility function is given by TU = 100WB,where W represents the number of bottles of wine that she buys and B represents the number of cases of beer that she buys.If wine costs $10 per bottle and beer costs $15 per case,she will maximize utility by buying:

Accepted Answer

A)  10.5 bottles of wine and 7 cases of beer. 
B)  2 bottles of wine and 3 cases of beer. 
C)  equal amounts of wine and beer. 
D)  10 bottles of wine and 13.33 cases of beer. 
E)  none of the above. 
A)  10.5 bottles of wine and 7 cases of beer. 
B)  2 bottles of wine and 3 cases of beer. 
C)  equal amounts of wine and beer. 
D)  10 bottles of wine and 13.33 cases of beer. 
E)  none of the above.

Question 3

A corner solution to a consumer choice problem suggests that:

Accepted Answer

A)  the consumer is not rational. 
B)  one product is not purchased at all. 
C)  both products are preferred, but one at a lower rate than the other. 
D)  neither product is a normal good. 
E)  all of the above 
A)  the consumer is not rational. 
B)  one product is not purchased at all. 
C)  both products are preferred, but one at a lower rate than the other. 
D)  neither product is a normal good. 
E)  all of the above

Question 4

The following diagram represents the demand for trips to a local swimming pool during the summer.If the price of a day of swimming is $5 per person,consumer surplus will be:

Accepted Answer

A)  $0. 
B)  $1,500. 
C)  $11,250. 
D)  $20,000. 
E)  none of the above. 
A)  $0. 
B)  $1,500. 
C)  $11,250. 
D)  $20,000. 
E)  none of the above.

Question 5

Consider the following budget constraints.These constraints represent the market baskets that Edith can afford to buy at alternative:

Accepted Answer

A)  prices of good X. 
B)  levels of income. 
C)  prices of good Y. 
D)  preferences over goods X and Y. 
E)  prices of goods X and Y. 
A)  prices of good X. 
B)  levels of income. 
C)  prices of good Y. 
D)  preferences over goods X and Y. 
E)  prices of goods X and Y.

Question 6

Indifference curves cannot cross because:

Accepted Answer

A)  consumers will always substitute 1 unit of a good for 1 unit of another good. 
B)  consumers prefer more to less. 
C)  a single consumption bundle would bring two different levels of utility. 
D)  all of the above. 
E)  b and c 
A)  consumers will always substitute 1 unit of a good for 1 unit of another good. 
B)  consumers prefer more to less. 
C)  a single consumption bundle would bring two different levels of utility. 
D)  all of the above. 
E)  b and c

Question 7

Sarah Jones believes that Coke and Pepsi are perfect substitutes.That is,she is equally happy with a Coke or a Pepsi and cannot tell the difference between them.Her indifference curves:

Accepted Answer

A)  are linear, with slope equal to -1. 
B)  are upward-sloping. 
C)  are linear, with slope equal to 1. 
D)  cross where she consumes equal amounts of Coke and Pepsi. 
E)  cannot be defined, since she likes both equally well. 
A)  are linear, with slope equal to -1. 
B)  are upward-sloping. 
C)  are linear, with slope equal to 1. 
D)  cross where she consumes equal amounts of Coke and Pepsi. 
E)  cannot be defined, since she likes both equally well.

Question 8

An indifference map can be used to find a demand curve for a consumer.Given an initial equilibrium point,to find a demand curve for good X,change the:

Accepted Answer

A)  consumer's income and draw a new budget constraint. 
B)  price of Y and draw a new budget constraint. 
C)  consumer's preferences. 
D)  price of X and draw a new budget constraint. 
E)  price of a substitute and draw a new budget constraint. 
A)  consumer's income and draw a new budget constraint. 
B)  price of Y and draw a new budget constraint. 
C)  consumer's preferences. 
D)  price of X and draw a new budget constraint. 
E)  price of a substitute and draw a new budget constraint.

Question 9

The market demand curve is:

Accepted Answer

A)  the vertical summation of the individual demand curves. 
B)  the horizontal summation of the individual demand curves. 
C)  the sum of the prices that each consumer is willing to pay for each quantity of output. 
D)  the sum of the quantities that each consumer is willing to buy at each price. 
E)  b and d 
A)  the vertical summation of the individual demand curves. 
B)  the horizontal summation of the individual demand curves. 
C)  the sum of the prices that each consumer is willing to pay for each quantity of output. 
D)  the sum of the quantities that each consumer is willing to buy at each price. 
E)  b and d

Question 10

The consumer's optimal consumption of X and Y occurs where the consumer:

Accepted Answer

A)  reaches the highest indifference curve that intersects the budget constraint. 
B)  reaches the highest budget constraint that is tangent to the indifference curve. 
C)  reaches the lowest indifference curve that intersects the budget constraint at any point. 
D)  reaches the highest indifference curve that is just tangent to the budget constraint. 
E)  is satiated with X and Y. 
A)  reaches the highest indifference curve that intersects the budget constraint. 
B)  reaches the highest budget constraint that is tangent to the indifference curve. 
C)  reaches the lowest indifference curve that intersects the budget constraint at any point. 
D)  reaches the highest indifference curve that is just tangent to the budget constraint. 
E)  is satiated with X and Y.

Question 11

Fred consumes quantities of butter and margarine; his utility function is given by U = 5M + 2B.If Fred has $10 to spend on butter and margarine,and if butter costs $2 per pound and margarine costs $1 per pound,what is his optimal bundle of butter and margarine?

Accepted Answer

A)  3 butter and 4 margarine. 
B)  5 butter and 0 margarine. 
C)  0 butter and 10 margarine. 
D)  2 butter and 6 margarine. 
E)  None of the above. 
A)  3 butter and 4 margarine. 
B)  5 butter and 0 margarine. 
C)  0 butter and 10 margarine. 
D)  2 butter and 6 margarine. 
E)  None of the above.

Question 12

The following diagram represents the demand for trips to a local swimming pool during the summer.If the city subsidizes the swimming pool so that swimming is free,consumer surplus will be:

Accepted Answer

A)  $0. 
B)  $1,500. 
C)  $11,250. 
D)  $20,000. 
E)  none of the above. 
A)  $0. 
B)  $1,500. 
C)  $11,250. 
D)  $20,000. 
E)  none of the above.

Question 13

Mary's indifference map and budget constraint for goods X and Y are shown below.If Mary spends all her money on X and Y,which bundle will she choose to maximize her utility?

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  E. 
A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  E.

Question 14

A consumer's budget constraint changes slope whenever:

Accepted Answer

A)  the consumer buys a different combination of goods. 
B)  relative prices change. 
C)  the consumer's income increases. 
D)  an indifference curve is tangent to it. 
E)  absolute prices change. 
A)  the consumer buys a different combination of goods. 
B)  relative prices change. 
C)  the consumer's income increases. 
D)  an indifference curve is tangent to it. 
E)  absolute prices change.

Question 15

Nancy has $100 to spend on books and compact disks.Books cost $10 and compact disks cost $20.The slope of Nancy's budget constraint (where the quantity of books is on the horizontal axis)is:

Accepted Answer

A)  -0.5. 
B)  -2. 
C)  -5. 
D)  -10. 
E)  none of the above. 
A)  -0.5. 
B)  -2. 
C)  -5. 
D)  -10. 
E)  none of the above.

Question 16

Fred loves tomatoes.He makes soups,sauces,and stews with them; stuffs them; roasts them; and grills them.Fred has discovered a farmer's market where the price of a bushel of tomatoes depends on how many bushels are purchased.The first bushel is $15; the second,$12; the third,$10; and four or more,$9 each.Fred has $82 to spend on tomatoes and on "all other things" during the coming week.All other things sell for $1 per unit.Assume that all other things are measured on the vertical axis.What is the horizontal intercept of Fred's budget constraint?

Accepted Answer

A)  14. 
B)  7.5. 
C)  8. 
D)  6. 
E)  5. 
A)  14. 
B)  7.5. 
C)  8. 
D)  6. 
E)  5.

Question 17

Assume that the utility function of wine for a certain consumer is given by TU = 96Q - 3Q2.If wine is free,to maximize utility,the amount the consumer should consume is:

Accepted Answer

A)  6 bottles of wine. 
B)  16 bottles of wine. 
C)  90 bottles of wine. 
D)  93 bottles of wine. 
E)  unknown; there is insufficient information to determine this. 
A)  6 bottles of wine. 
B)  16 bottles of wine. 
C)  90 bottles of wine. 
D)  93 bottles of wine. 
E)  unknown; there is insufficient information to determine this.

Question 18

Consumer surplus is important to firms because:

Accepted Answer

A)  it represents value consumers receive that they do not pay for. 
B)  market prices must incorporate consumer surplus. 
C)  they must pay taxes based on the level of consumer surplus. 
D)  if firms can capture it, they can increase their profitability. 
E)  a and d 
A)  it represents value consumers receive that they do not pay for. 
B)  market prices must incorporate consumer surplus. 
C)  they must pay taxes based on the level of consumer surplus. 
D)  if firms can capture it, they can increase their profitability. 
E)  a and d

Question 19

Using the indifference map below,two points on a demand curve for good Y are:

Accepted Answer

A)  (8, $5) and (10, $5). 
B)  (3, $10) and (5, $20). 
C)  (3, $20) and (8, $5). 
D)  (3, $20) and (5, $10). 
E)  The answer cannot be determined from the information given. 
A)  (8, $5) and (10, $5). 
B)  (3, $10) and (5, $20). 
C)  (3, $20) and (8, $5). 
D)  (3, $20) and (5, $10). 
E)  The answer cannot be determined from the information given.

Question 20

The following table describes Ben's preferences over cake and ice cream.The utility from consumption of one good is independent of the consumption of the other.The price of cake is $10 per unit,and the price of ice cream is $4 per unit.  
Ben's total utility at his optimal consumption bundle will be:

Accepted Answer

A)  56. 
B)  200. 
C)  270. 
D)  310. 
E)  none of the above. 
A)  56. 
B)  200. 
C)  270. 
D)  310. 
E)  none of the above.

Points along a budget constraint describe:

A corner solution to a consumer choice problem suggests that:

The following diagram represents the demand for trips to a local swimming pool during the summer.If the price of a day of swimming is $5 per person,consumer surplus will be:

Consider the following budget constraints.These constraints represent the market baskets that Edith can afford to buy at alternative:

Indifference curves cannot cross because:

Sarah Jones believes that Coke and Pepsi are perfect substitutes.That is,she is equally happy with a Coke or a Pepsi and cannot tell the difference between them.Her indifference curves:

An indifference map can be used to find a demand curve for a consumer.Given an initial equilibrium point,to find a demand curve for good X,change the:

The market demand curve is:

The consumer's optimal consumption of X and Y occurs where the consumer:

Fred consumes quantities of butter and margarine; his utility function is given by U = 5M + 2B.If Fred has $10 to spend on butter and margarine,and if butter costs $2 per pound and margarine costs $1 per pound,what is his optimal bundle of butter and margarine?

The following diagram represents the demand for trips to a local swimming pool during the summer.If the city subsidizes the swimming pool so that swimming is free,consumer surplus will be:

Mary's indifference map and budget constraint for goods X and Y are shown below.If Mary spends all her money on X and Y,which bundle will she choose to maximize her utility?

A consumer's budget constraint changes slope whenever:

Nancy has $100 to spend on books and compact disks.Books cost $10 and compact disks cost $20.The slope of Nancy's budget constraint (where the quantity of books is on the horizontal axis)is:

Assume that the utility function of wine for a certain consumer is given by TU = 96Q - 3Q².If wine is free,to maximize utility,the amount the consumer should consume is:

Consumer surplus is important to firms because:

Using the indifference map below,two points on a demand curve for good Y are:

The following table describes Ben's preferences over cake and ice cream.The utility from consumption of one good is independent of the consumption of the other.The price of cake is $10 per unit,and the price of ice cream is $4 per unit. Ben's total utility at his optimal consumption bundle will be:

Introduction

Demand Theory

Estimating Demand Functions

Production Theory

The Analysis of Costs

Perfect Competition

Monopoly and Monopolistic Competition

Managerial Use of Price Discrimination

Bundling and Intrafirm Pricing

Oligopoly

Game Theory

Auctions

Risk Analysis

Principalagent Issues and Managerial Compensation

Adverse Selection

Government and Business

Optimization Techniques

Appendix Problems

Filters

Exam 3: Consumer Behavior and Rational Choice

Points along a budget constraint describe:

A corner solution to a consumer choice problem suggests that:

The following diagram represents the demand for trips to a local swimming pool during the summer.If the price of a day of swimming is $5 per person,consumer surplus will be:

Consider the following budget constraints.These constraints represent the market baskets that Edith can afford to buy at alternative:

Indifference curves cannot cross because:

Sarah Jones believes that Coke and Pepsi are perfect substitutes.That is,she is equally happy with a Coke or a Pepsi and cannot tell the difference between them.Her indifference curves:

An indifference map can be used to find a demand curve for a consumer.Given an initial equilibrium point,to find a demand curve for good X,change the:

The market demand curve is:

The consumer's optimal consumption of X and Y occurs where the consumer:

Fred consumes quantities of butter and margarine; his utility function is given by U = 5M + 2B.If Fred has $10 to spend on butter and margarine,and if butter costs $2 per pound and margarine costs $1 per pound,what is his optimal bundle of butter and margarine?

The following diagram represents the demand for trips to a local swimming pool during the summer.If the city subsidizes the swimming pool so that swimming is free,consumer surplus will be:

Mary's indifference map and budget constraint for goods X and Y are shown below.If Mary spends all her money on X and Y,which bundle will she choose to maximize her utility?

A consumer's budget constraint changes slope whenever:

Nancy has $100 to spend on books and compact disks.Books cost $10 and compact disks cost $20.The slope of Nancy's budget constraint (where the quantity of books is on the horizontal axis)is:

Assume that the utility function of wine for a certain consumer is given by TU = 96Q - 3Q2.If wine is free,to maximize utility,the amount the consumer should consume is:

Consumer surplus is important to firms because:

Using the indifference map below,two points on a demand curve for good Y are:

The following table describes Ben's preferences over cake and ice cream.The utility from consumption of one good is independent of the consumption of the other.The price of cake is $10 per unit,and the price of ice cream is $4 per unit. Ben's total utility at his optimal consumption bundle will be:

Introduction

Demand Theory

Estimating Demand Functions

Production Theory

The Analysis of Costs

Perfect Competition

Monopoly and Monopolistic Competition

Managerial Use of Price Discrimination

Bundling and Intrafirm Pricing

Oligopoly

Game Theory

Auctions

Risk Analysis

Principalagent Issues and Managerial Compensation

Adverse Selection

Government and Business

Optimization Techniques

Appendix Problems

Filters

Assume that the utility function of wine for a certain consumer is given by TU = 96Q - 3Q².If wine is free,to maximize utility,the amount the consumer should consume is: