Question 1

The composite-good convention allows indifference curve analysis to analyze preferences for one good against many other goods as long as:

Accepted Answer

A) all the goods belong to the same category. 
B) the prices of the other goods is kept constant. 
C) all the other goods are normal goods. 
D) income levels of consumers remain unchanged. 
A) all the goods belong to the same category. 
B) the prices of the other goods is kept constant. 
C) all the other goods are normal goods. 
D) income levels of consumers remain unchanged.

Question 2

With a composite good on the vertical axis,the slope of the budget line is _____.

Accepted Answer

A) the price of the composite good 
B) - 1 
C) the price of the good on the horizontal axis 
D) 0 
A) the price of the composite good 
B) - 1 
C) the price of the good on the horizontal axis 
D) 0

Question 3

A decline in income is shown on the budget line by:

Accepted Answer

A) a rotation of the budget line such that its horizontal intercept is larger than its vertical intercept. 
B) a parallel shift in the budget constraint toward the origin. 
C) a rotation in the budget line so it intersects the vertical axis closer to the origin. 
D) a change in the relative price ratio. 
A) a rotation of the budget line such that its horizontal intercept is larger than its vertical intercept. 
B) a parallel shift in the budget constraint toward the origin. 
C) a rotation in the budget line so it intersects the vertical axis closer to the origin. 
D) a change in the relative price ratio.

Question 4

Consider a graph with Yvonne's income on the Y-axis and Xavier's income on the X-axis.Yvonne has twice as much income as Xavier.If Yvonne cares about the material well-being of Oscar,and considers the latter's income as an economic good,the slope of the indifference curves representing Yvonne's preferences:

Accepted Answer

A) will be steeper,the more willing she is to transfer some of her income to Xavier. 
B) will be flatter,the more willing she is to transfer some of her income to Xavier. 
C) cannot be determined from the information given. 
D) will not change as Yvonne's willingness to donate to Xavier changes. 
A) will be steeper,the more willing she is to transfer some of her income to Xavier. 
B) will be flatter,the more willing she is to transfer some of her income to Xavier. 
C) cannot be determined from the information given. 
D) will not change as Yvonne's willingness to donate to Xavier changes.

Question 5

Consider a graph with hamburger on the X-axis and cheese crackers on the Y-axis.The outbreak of mad cow disease,which will change the price of hamburgers,will:

Accepted Answer

A) not change the slope of the budget line. 
B) lead to a parallel shift of the budget line depending on the change in price. 
C) change the y-intercept of the budget line. 
D) change the x-intercept of the budget line. 
A) not change the slope of the budget line. 
B) lead to a parallel shift of the budget line depending on the change in price. 
C) change the y-intercept of the budget line. 
D) change the x-intercept of the budget line.

Question 6

Prove that the slope of the budget line is equal to the negative of the price ratio.

Accepted Answer

Assume that the consumer has a disposabl

Question 7

Suppose you have hamburgers on the horizontal axis and root beer on the vertical axis.If the price of hamburgers increased,how would this be shown using the income constraint?

Accepted Answer

A) It would shift the constraint outward. 
B) It would shift the constraint inward. 
C) It would rotate the vertical intercept outward. 
D) It would rotate the horizontal intercept inward. 
A) It would shift the constraint outward. 
B) It would shift the constraint inward. 
C) It would rotate the vertical intercept outward. 
D) It would rotate the horizontal intercept inward.

Question 8

The assumption of transitivity of preferences states that _____.

Accepted Answer

A) a consumer can rank all possible consumption bundles 
B) consumers act rationally when choosing between consumption bundles 
C) more of a good is always better 
D) no two bundles can yield the same level of utility 
A) a consumer can rank all possible consumption bundles 
B) consumers act rationally when choosing between consumption bundles 
C) more of a good is always better 
D) no two bundles can yield the same level of utility

Question 9

Which of the following best explains the concept of a corner solution?

Accepted Answer

A) Peter likes peanut butter and jelly and consumes both in positive amounts. 
B) Jane prefers more cheese with her bagel than less. 
C) Tony feels that the price of BMW does not justify what he would have to give up to buy one. 
D) Rebecca likes both apples and pears equally and is willing to substitute one apple for one pear. 
A) Peter likes peanut butter and jelly and consumes both in positive amounts. 
B) Jane prefers more cheese with her bagel than less. 
C) Tony feels that the price of BMW does not justify what he would have to give up to buy one. 
D) Rebecca likes both apples and pears equally and is willing to substitute one apple for one pear.

Question 10

Suppose hamburgers are on the horizontal axis and root beer on the vertical axis.You have a budget allowance of $10,and the price of hamburgers is $4 and root beer is $2.The slope of your budget constraint is _____.

Accepted Answer

A) 0.5 
B) 2 
C) 2.5 
D) 5 
A) 0.5 
B) 2 
C) 2.5 
D) 5

Question 11

Figure 3-3 shows dollar outlays a composite good on the vertical axis and units of good X costing $5 a unit measured on the horizontal axis.Given the indifference curve and the budget line shown in Figure 3-3,which of the following is correct?

Accepted Answer

A) The slope of the budget line is $5 
B) The prices of other goods vary with income 
C) The slope of the budget line shows how much the consumer is willing to reduce dollar outlays on other goods to obtain one more unit of clothing 
D) The optimal point of consumption is at point E 
A) The slope of the budget line is $5 
B) The prices of other goods vary with income 
C) The slope of the budget line shows how much the consumer is willing to reduce dollar outlays on other goods to obtain one more unit of clothing 
D) The optimal point of consumption is at point E

Question 12

The set of indifference curves that show that a consumer remains equally well off by substituting one good for another at a constant rate must be _____.

Accepted Answer

A) negatively sloped 
B) parallel lines 
C) positively sloped 
D) concave 
A) negatively sloped 
B) parallel lines 
C) positively sloped 
D) concave

Question 13

Which of the following correctly describes an income-consumption curve?

Accepted Answer

A) It identifies consumer responses to decreases in prices which increase his or her real income. 
B) It identifies the rate at which a consumer is able to substitute one good for another as income changes. 
C) It identifies how a consumer's consumption pattern changes as real income changes while prices are constant. 
D) It identifies the income effect of price changes. 
A) It identifies consumer responses to decreases in prices which increase his or her real income. 
B) It identifies the rate at which a consumer is able to substitute one good for another as income changes. 
C) It identifies how a consumer's consumption pattern changes as real income changes while prices are constant. 
D) It identifies the income effect of price changes.

Question 14

At his current consumption of lobster and hamburgers,Ike's marginal utility from eating lobster is 30 and from hamburger is 5.If the price of a hamburger is $3,and the price of lobster is $20,Ike should:

Accepted Answer

A) purchase less lobster and hamburger in equal amounts. 
B) purchase more lobster and fewer hamburgers. 
C) purchase less lobster and more hamburgers. 
D) purchase more lobster and hamburger in equal amounts. 
A) purchase less lobster and hamburger in equal amounts. 
B) purchase more lobster and fewer hamburgers. 
C) purchase less lobster and more hamburgers. 
D) purchase more lobster and hamburger in equal amounts.

Question 15

A point lying inside the budget line indicates:

Accepted Answer

A) an unattainable market basket for the consumer. 
B) the consumer is not spending all of his or her income. 
C) the consumer has exhausted his income on consumption. 
D) that one of the goods consumed is an economic bad. 
A) an unattainable market basket for the consumer. 
B) the consumer is not spending all of his or her income. 
C) the consumer has exhausted his income on consumption. 
D) that one of the goods consumed is an economic bad.

Question 16

For the utility function U =3x5y and income constraint I =3x + 5y,the utility maximizing consumer will choose to consume:

Accepted Answer

A) all x. 
B) all y. 
C) one half of their income in good x and one half of their income in good y. 
D) unknown because there is no unique utility maximizing combination of x and y. 
A) all x. 
B) all y. 
C) one half of their income in good x and one half of their income in good y. 
D) unknown because there is no unique utility maximizing combination of x and y.

Question 17

Nonsatiation implies that marginal utility is:

Accepted Answer

A) always greater than or equal to zero. 
B) diminishing. 
C) always positive. 
D) negative from the first unit consumed. 
A) always greater than or equal to zero. 
B) diminishing. 
C) always positive. 
D) negative from the first unit consumed.

Question 18

An example of goods which are perfect complements in consumption is:

Accepted Answer

A) apples and oranges. 
B) left and right shoes. 
C) tomatoes and apples. 
D) nickels and dimes. 
A) apples and oranges. 
B) left and right shoes. 
C) tomatoes and apples. 
D) nickels and dimes.

Question 19

An income consumption curve (shown on an indifference map with Ben's income on the horizontal axis and Jerry's income on the vertical axis)is positively sloped.Given that the indifference curves on the map are downward sloping,which of the followings statements is true?

Accepted Answer

A) Jerry views charitable donations to Ben as an inferior good. 
B) Altruism cannot be accurately captured using indifference curves. 
C) Charitable giving to Ben is a normal good for Jerry. 
D) Jerry views Ben's income as an economic bad. 
A) Jerry views charitable donations to Ben as an inferior good. 
B) Altruism cannot be accurately captured using indifference curves. 
C) Charitable giving to Ben is a normal good for Jerry. 
D) Jerry views Ben's income as an economic bad.

Question 20

Suppose a consumer must pay $P per visit to the local museum for each of the first 5 visits but $2P per visit from the 6th visit on.With a composite consumption good on the Y-axis and visits to the museum on the X-axis,the budget line:

Accepted Answer

A) is vertical after 5 visits. 
B) becomes steeper after 5 visits. 
C) becomes flatter after 5 visits. 
D) shifts outward after 5 visits. 
A) is vertical after 5 visits. 
B) becomes steeper after 5 visits. 
C) becomes flatter after 5 visits. 
D) shifts outward after 5 visits.

The composite-good convention allows indifference curve analysis to analyze preferences for one good against many other goods as long as:

With a composite good on the vertical axis,the slope of the budget line is _____.

A decline in income is shown on the budget line by:

Consider a graph with hamburger on the X-axis and cheese crackers on the Y-axis.The outbreak of mad cow disease,which will change the price of hamburgers,will:

Prove that the slope of the budget line is equal to the negative of the price ratio.

Suppose you have hamburgers on the horizontal axis and root beer on the vertical axis.If the price of hamburgers increased,how would this be shown using the income constraint?

The assumption of transitivity of preferences states that _____.

Which of the following best explains the concept of a corner solution?

Suppose hamburgers are on the horizontal axis and root beer on the vertical axis.You have a budget allowance of $10,and the price of hamburgers is $4 and root beer is $2.The slope of your budget constraint is _____.

Figure 3-3 shows dollar outlays a composite good on the vertical axis and units of good X costing $5 a unit measured on the horizontal axis.Given the indifference curve and the budget line shown in Figure 3-3,which of the following is correct?

The set of indifference curves that show that a consumer remains equally well off by substituting one good for another at a constant rate must be _____.

Which of the following correctly describes an income-consumption curve?

At his current consumption of lobster and hamburgers,Ike's marginal utility from eating lobster is 30 and from hamburger is 5.If the price of a hamburger is $3,and the price of lobster is $20,Ike should:

A point lying inside the budget line indicates:

For the utility function U =3x5y and income constraint I =3x + 5y,the utility maximizing consumer will choose to consume:

Nonsatiation implies that marginal utility is:

An example of goods which are perfect complements in consumption is:

An income consumption curve (shown on an indifference map with Ben's income on the horizontal axis and Jerry's income on the vertical axis)is positively sloped.Given that the indifference curves on the map are downward sloping,which of the followings statements is true?

Suppose a consumer must pay $P per visit to the local museum for each of the first 5 visits but $2P per visit from the 6^th visit on.With a composite consumption good on the Y-axis and visits to the museum on the X-axis,the budget line:

An Introduction to Microeconomics

Supply and Demand

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

Exam 3: The Theory of Consumer Choice

The composite-good convention allows indifference curve analysis to analyze preferences for one good against many other goods as long as:

With a composite good on the vertical axis,the slope of the budget line is _____.

A decline in income is shown on the budget line by:

Consider a graph with hamburger on the X-axis and cheese crackers on the Y-axis.The outbreak of mad cow disease,which will change the price of hamburgers,will:

Prove that the slope of the budget line is equal to the negative of the price ratio.

Suppose you have hamburgers on the horizontal axis and root beer on the vertical axis.If the price of hamburgers increased,how would this be shown using the income constraint?

The assumption of transitivity of preferences states that _____.

Which of the following best explains the concept of a corner solution?

Suppose hamburgers are on the horizontal axis and root beer on the vertical axis.You have a budget allowance of $10,and the price of hamburgers is $4 and root beer is $2.The slope of your budget constraint is _____.

Figure 3-3 shows dollar outlays a composite good on the vertical axis and units of good X costing $5 a unit measured on the horizontal axis.Given the indifference curve and the budget line shown in Figure 3-3,which of the following is correct?

The set of indifference curves that show that a consumer remains equally well off by substituting one good for another at a constant rate must be _____.

Which of the following correctly describes an income-consumption curve?

At his current consumption of lobster and hamburgers,Ike's marginal utility from eating lobster is 30 and from hamburger is 5.If the price of a hamburger is $3,and the price of lobster is $20,Ike should:

A point lying inside the budget line indicates:

For the utility function U =3x5y and income constraint I =3x + 5y,the utility maximizing consumer will choose to consume:

Nonsatiation implies that marginal utility is:

An example of goods which are perfect complements in consumption is:

An income consumption curve (shown on an indifference map with Ben's income on the horizontal axis and Jerry's income on the vertical axis)is positively sloped.Given that the indifference curves on the map are downward sloping,which of the followings statements is true?

Suppose a consumer must pay $P per visit to the local museum for each of the first 5 visits but $2P per visit from the 6th visit on.With a composite consumption good on the Y-axis and visits to the museum on the X-axis,the budget line:

An Introduction to Microeconomics

Supply and Demand

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

Suppose a consumer must pay $P per visit to the local museum for each of the first 5 visits but $2P per visit from the 6^th visit on.With a composite consumption good on the Y-axis and visits to the museum on the X-axis,the budget line: