Deck 6: Consumer Choice and Demand

Question 1

The assumption that people are rational

A) is not valid because people are emotional.
B) is fairly accurate for most cases.
C) applies only to educated consumers.
D) contradicts the findings of psychology.

Answer 1

B

Question 2

The category that represents the largest share of household spending in the United States is

A) health care.
B) food.
C) transportation.
D) housing.

Answer 2

D

Question 3

A budget line shows

A) production possibilities.
B) consumption possibilities.
C) societal demands for goods.
D) unlimited income.

Answer 3

B

Question 4

The slope of the budget line is

A) negative because of the marginal rate of substitution.
B) positive, since income and prices are positively related.
C) zero, since both prices and income are assumed to be constant.
D) negative, since to purchase more of one good means giving up some of the other good.

Question 5

Suppose the price of a taco is $1 and the price of a soft drink is $2. If Mehmet has $5, then he can buy

A) four tacos and two soft drinks.
B) three tacos and two soft drinks.
C) four tacos and one soft drink.
D) three tacos and one soft drink.

Question 6

Xiao has a budget of $150 to spend on T-shirts and jeans. The jeans she likes cost $56, and T-shirts cost $10. The combination of three T-shirts and three pairs of jeans would fall

A) inside the budget line.
B) on the budget line.
C) outside the budget line.
D) somewhere that cannot be determined in relation to the budget line because not enough information is provided.

Question 7

Jordan brought $20 to the movie theater to spend on popcorn and candy bars. Popcorn costs $5 a bucket and a candy bar costs $3. If he buys two buckets of popcorn, what would be the largest number of candy bars that he can purchase?

A) two
B) three
C) four
D) five

Question 8

A budget line is linear because

A) to purchase more of one good means giving up some of the other good.
B) the marginal rate of substitution increases.
C) the prices of the two goods are held constant.
D) the purchasing power of income increases when prices fall.

Question 9

Tena has $50 per week to spend on lunches. Egg rolls cost $2 each and a plate of chow mein costs $7. Tena wants to buy five plates of chow mein and ten egg rolls per week. This combination of chow mein and egg rolls each week is

A) obtainable, but she would be spending every bit of her lunch money.
B) obtainable, but she could buy more egg rolls.
C) obtainable, but she could buy more chow mein.
D) unobtainable.

Question 10

Suppose the price of a hamburger is $4 and the price of a soft drink is $1. If Jill has $10, then she can buy

A) two hamburgers and two soft drinks.
B) three hamburgers and three soft drinks.
C) two hamburgers and three soft drinks.
D) three hamburgers and two soft drinks.

Question 11

Assume that you have $60 a week to spend on fresh-squeezed fruit juice and chips. A bottle of fresh-squeezed fruit juice costs $6 and a bag of chips costs $3. If you buy seven bottles of juice, how many bags of chips can you purchase?

A) six
B) three
C) five
D) nine

Question 12

Suppose you have $100 to spend on two goods: $20 for DVDs or $10 for books. Which combination of the two goods is NOT on the budget line?

A) eight books, one DVD
B) four books, three DVDs
C) seven books, three DVDs
D) two books, four DVDs

Question 13

Suppose you have $100 to spend on two goods: computer games, which cost $25 each, and audiobooks, which cost $10 each. The combination of two computer games and four audiobooks would fall

A) inside the budget line.
B) on the budget line.
C) outside the budget line.
D) cannot be determined based on the information.

Question 14

(Figure: Bowling and Chinese Buffet) Bill can consume ten Chinese buffets or go bowling five times per month (or any other specific other combinations). This graph represents Bill's

A) utility curve.
B) demand curve.
C) indifference curve.
D) budget line.

Question 15

(Figure: Bowling and Chinese Buffet) The price of a Chinese buffet dinner is $10 and an evening of bowling costs $20. Bill has $100 per month to spend on these two goods. Assuming Bill is a utility-maximizing consumer, if he wants to eat at the Chinese buffet six times this month, he can go bowling only _____ time(s) this month.

A) one
B) two
C) three
D) four

Question 16

(Figure: Bowling and Chinese Buffet) The price of a Chinese buffet dinner is $10 and an evening of bowling costs $20. Bill has $100 per month to spend on these two goods. If Bill wants to go bowling four times this month, he can eat at his favorite Chinese buffet only _____ times this month.

A) two
B) four
C) six
D) eight

Question 17

(Figure: Bowling and Chinese Buffet) If the price of a Chinese buffet increases, the budget line will rotate

A) out and become flatter.
B) out and have the same slope.
C) in and have the same slope.
D) in and become steeper.

Question 18

(Figure: Bowling and Chinese Buffet) If the price of bowling increases, the budget line will rotate

A) out and become steeper.
B) out and have the same slope.
C) in and become flatter.
D) in and become steeper.

Question 19

(Figure: Movie Tickets and Gasoline) How many movies can you see if you purchase only 6 gallons of gas this weekend?

A) zero
B) one
C) two
D) three

Question 20

(Figure: Movie Tickets and Gasoline) If the price of gasoline decreases, the budget line will rotate

A) out and become flatter.
B) out and become steeper.
C) in and become flatter.
D) in and become steeper.

Question 21

(Figure: Movie Tickets and Gasoline) Based on the graph, which statement is TRUE?

A) One gallon of gasoline is more expensive than a movie ticket.
B) There are more gas stations than movie theaters.
C) Consumers prefer having more gasoline than seeing movies.
D) A movie ticket is more expensive than a gallon of gasoline.

Question 22

(Figure: Quarts of Milk and Jars of Honey) Assuming that the current budget line is line 1, if the price of milk in the figure decreases, the budget line shifts from ______ to ______.

A) 3; 1
B) 3; 2
C) 2; 1
D) 1; 2

Question 23

(Figure: Quarts of Milk and Jars of Honey) A shift in the budget line in the figure from 3 to 2 is caused by a(n)

A) increase in the price of honey.
B) decrease in the price of honey.
C) increase in the price of milk.
D) decrease in the price of milk.

Question 24

(Figure: Quarts of Milk and Jars of Honey) A shift in the budget line in the figure from 1 to 3 is caused by a(n)

A) increase in the price of honey.
B) decrease in the price of honey.
C) increase in the price of milk.
D) decrease in the price of milk.

Question 25

When income decreases, the budget line

A) rotates inward.
B) rotates outward.
C) shifts outward.
D) shifts inward.

Question 26

When income increases, the budget line

A) rotates inward.
B) rotates outward.
C) shifts outward.
D) shifts inward.

Question 27

Moving along the budget line

A) total utility is held constant.
B) quantities are held constant.
C) income and prices are held constant, but quantities change.
D) prices are held constant, but income and total utility change.

Question 28

Which event would cause the budget line to shift outward?

A) increase in income
B) decrease in income
C) increase in the price of one of the goods
D) decrease in the price of one of the goods

Question 29

Hannah has $30 to spend on chips and salsa each month. If the price of chips decreases while the price of salsa stays the same, her budget line will

A) shift outward.
B) shift inward.
C) pivot outward.
D) pivot inward.

Question 30

Hannah has $30 to spend on chips and salsa each month. If the price of chips stays the same while the price of salsa increases, her budget line will

A) shift outward.
B) shift inward.
C) pivot outward.
D) pivot inward.

Question 31

Aaron buys peanut butter and jelly. An increase in the price of both goods has a similar effect to a(n) _____ in income, making the budget line shift _____.

A) increase; outward
B) increase; inward
C) decrease; outward
D) decrease; inward

Question 32

Aaron buys peanut butter and jelly. A decrease in the price of both goods has a similar effect to a(n) _____ in income, making the budget line _____.

A) increase; shift outward
B) increase; pivot outward
C) decrease; shift inward
D) decrease; rotate inward

Question 33

The U.S. Bureau of Economic Analysis recently announced that personal incomes increased 1.3% last month. Assuming no change in prices, budget lines in the United States will

A) pivot inward.
B) pivot outward.
C) shift inward.
D) shift outward.

Question 34

All other things equal, if a consumer's budget increases, the budget line shifts to the _____ and a consumer can reach a _____ level of consumption.

A) right; lower
B) right; higher
C) left; lower
D) left; higher

Question 35

Assuming no change in income, if the prices of the two goods the consumer buys increase, the

A) budget line shifts closer to the origin.
B) budget line shifts to the right.
C) indifference curve shifts to the right.
D) budget line rotates to the right.

Question 36

All other things equal, if the prices of the two goods the consumer buys decrease, the

A) budget line shifts closer to the origin.
B) budget line shifts to the right.
C) indifference curve shifts to the right.
D) budget line rotates to the right.

Question 37

When the economy slides into a recession, budget lines

A) pivot inward.
B) pivot outward.
C) shift inward.
D) shift outward.

Question 38

If the United States experiences an inflationary episode in which prices of goods and services rise faster than incomes, budget lines for U.S. consumers will

A) pivot inward.
B) pivot outward.
C) shift inward.
D) shift outward.

Question 39

What effect will higher prices for cars and lower prices for homes have on the budget line?

A) The budget line will shift outward.
B) Both intercepts will change, but the slope will not change.
C) The slope and both intercepts will change.
D) The intercept associated with car ownership will decrease, but the intercept associated with home ownership will remain the same.

Question 40

Jiro and his wife Mariko are both employed. When Jiro loses his job, what happens to the household's budget line?

A) It shifts outward.
B) It shifts inward.
C) It rotates and has a new slope, with no change in Mariko's ability to consume. But it shows less ability for Jiro to consume.
D) It remains in the same place with no change.

Question 41

Which of these is TRUE regarding a household's budget line?

A) It reflects the preferences of the household.
B) Its slope is the ratio of income to the price of the cheaper good.
C) Its slope changes when income changes.
D) Its slope depends on the prices of the goods.

Question 42

Which statement correctly uses the concept of a household budget constraint to explain the high level of consumer spending on days such as Black Friday in the United States or Singles' Day in China?

A) Employers typically give employees big bonuses on those shopping days, so income increases and the budget line shifts outward.
B) Consumers gain more utility from goods on those shopping days because they have greater need for the goods at that time of year.
C) There is no change in the household budget line on those shopping days, but the price decreases cause consumer utility to increase on these days.
D) Sellers reduce the prices of many products on those shopping days, effectively shifting the household budget line outward temporarily.

Question 43

Assume there is a budget line with bagels on the vertical axis and bananas on the horizontal axis. What happens to the budget line when the price of bagels rises and the price of bananas falls?

A) There is a parallel outward shift of the budget line.
B) There is a parallel inward shift of the budget line.
C) The budget line changes to have a steeper slope.
D) The budget line changes to have a flatter slope.

Question 44

Assume there is a budget line with bagels on the vertical axis and bananas on the horizontal axis. What happens to the budget line when the price of bagels falls and the price of bananas rises?

A) There is a parallel outward shift of the budget line.
B) There is a parallel inward shift of the budget line.
C) The budget line changes to have a steeper slope.
D) The budget line changes to have a flatter slope.

Question 45

Assume there is a budget line with bagels on the vertical axis and bananas on the horizontal axis. What happens to the budget line when the price of bagels rises by 10% and the price of bananas rises by 20%?

A) There is a parallel outward shift of the budget line.
B) There is a parallel inward shift of the budget line.
C) The budget line changes to have a steeper slope.
D) The budget line changes to have a flatter slope.

Question 46

Assume there is a budget line with bagels on the vertical axis and bananas on the horizontal axis. What happens to the budget line when the price of bagels falls by 10% and the price of bananas falls by 20%?

A) There is a parallel outward shift of the budget line.
B) There is a parallel inward shift of the budget line.
C) The budget line changes to have a steeper slope.
D) The budget line changes to have a flatter slope.

Question 47

For a person whose income is based on a commission (earning a percentage of the value of their sales), then

A) the household budget line must have a very steep slope.
B) the household budget line is more uncertain from month to month than if income were a fixed monthly amount.
C) it is best to think optimistically and assume that a high level of income will exist.
D) the lower the salary, the flatter the slope of the budget line will be.

Question 48

Maria has a budget of $2,000 per year to spend on travel (assuming the price per trip is equal to $400) and clothes (assuming the price per outfit is equal to $100). What happens to Maria's budget line if her budgeted income rises to $2,100?

A) Her budget constraint will change its slope, indicating a greater ability to go on trips but a more limited ability to buy clothes.
B) Her budget constraint will rotate outward from its intersection with the travel axis.
C) Her budget constraint will rotate outward from its intersection with the clothing axis.
D) The higher income will shift her curve outward with greater ability to buy both types of goods.

Question 49

When economists refer to _____, they are referring to a hypothetical measure of consumer satisfaction.

A) surplus
B) indifference
C) marginal cost
D) utility

Question 50

Utility measurement is

A) statistically derived.
B) based on the metric system.
C) hypothetical.
D) driven by market price.

Question 51

Utility measures

A) the amount of satisfaction gained from the consumption of a good or service.
B) the market value of a product.
C) how easy it is to substitute one good for another.
D) the resource value of a good or service.

Question 52

_____ is the satisfaction received from consuming one additional unit of a good or service.

A) Net utility
B) Total utility
C) Marginal utility
D) Consumption

Question 53

In the theory of utilitarianism, economists assume that

A) consumers will maximize their income subject to a budget constraint.
B) while consumers are mostly rational, they occasionally indulge in impulse buying.
C) people will spend their incomes so as to maximize their happiness.
D) utility measures usefulness.

Question 54

To an economist, utility is

A) identical to profit.
B) a measurement of consumer satisfaction.
C) measured in kilowatt hours.
D) the usefulness of a product.

Question 55

The two theories of consumer choice used by economists are

A) indifference curve analysis and utility theory.
B) utility theory and cross elasticity.
C) indifference curve analysis and Keynesian analysis.
D) total utility and marginal utility.

Question 56

Jeremy Bentham believed that governments should

A) promote the greatest happiness for the greatest number.
B) own the means of production.
C) stay out of the marketplace.
D) be run by economists.

Question 57

Marginal utility is NOT

A) measured in utils.
B) a measure of satisfaction.
C) the same for all units of a commodity consumed.
D) used to explain how consumers make decisions.

Question 58

A util is

A) a hypothetical unit of satisfaction.
B) equal to $1.
C) a measure of income.
D) one unit of electricity.

Question 59

Joni receives 8 utils from drinking her first glass of water and 5 utils from watching her favorite television show. Which statement is TRUE?

A) All else constant, Joni would prefer to drink a glass of water than watch TV.
B) Joni should never watch television.
C) Because tap water has no price, its utility value must be zero and Joni is irrational.
D) Joni's preferences are irrational because water is a necessity.

Question 60

The main difference between marginal utility and total utility is that

A) marginal utility looks at the satisfaction of the total bundle of goods, and total utility looks at the total quantity consumed.
B) marginal utility looks at the satisfaction of an additional unit consumed, while total utility looks at the satisfaction from the total quantity consumed.
C) total utility looks at societal satisfaction, while marginal utility looks at the satisfaction of an individual person.
D) consumers maximize marginal utility only.

Question 61

Why does the marginal utility associated with the consumption of a product decline as we increase our consumption?

A) opportunity cost
B) presence of substitutes
C) satiation
D) presence of complements

Question 62

For purposes of utility analysis, marginal means

A) total.
B) additional.
C) inferior.
D) constrained.

Question 63

Marginal utility

A) is always positive.
B) is the same for all units of a commodity consumed.
C) declines with each additional unit consumed.
D) is the sum of all the total utilities.

Question 64

Phi eats a hamburger and becomes sick. At this point, Phi's

A) marginal utility is negative.
B) total utility is increasing, but at a decreasing rate.
C) total utility is negative.
D) total utility is at a maximum.

Question 65

Kama gets 180 total utils from taking three yoga classes per month. The additional utility derived from taking a fourth yoga class per month is 40 utils. Based on this information, which statement is TRUE?

A) The total utility from taking four yoga classes is 140 utils.
B) The marginal utility from his fifth yoga class is greater than 40 utils but less than 220 utils.
C) The marginal utility of his third yoga class is greater than 40 utils.
D) The marginal utility from his second yoga class is less than 40 utils.

Question 66

If Casey receives 50 utils from his first burrito, 13 utils from his second burrito, and 8 utils from his third burrito, then his

A) marginal utility from a fourth burrito will be negative.
B) total utility is declining.
C) marginal utility from a fourth burrito will be greater than 8 utils.
D) total utility is 71 utils.

Question 67

Bob loves to eat blue jellybeans. He gets 50 units of utility for the first jellybean, 40 units of utility for the second, 30 units of utility for the third, 20 units of utility for the fourth, and 10 units of utility for the fifth. For the first jellybean, the marginal utility is _____, and the total utility for eating five jellybeans is _____.

A) 50; 150
B) 50; 140
C) 140; 50
D) 50; 20

Question 68

Jeremy's level of satisfaction from consuming the first cookie was 25 utils. The second cookie increased the level of satisfaction by 20 utils. Jeremy's total level of satisfaction after three cookies was 60. Thus, the marginal utility for the third cookie is

A) 15.
B) 60.
C) 45.
D) 25.

Question 69

Which statement is FALSE?

A) To calculate total utility, sum the marginal utilities of the individual units consumed.
B) Marginal utility is usually smaller than total utility.
C) Marginal utility generally diminishes as more of a good is consumed.
D) The consumer is assumed to maximize marginal utility.

Question 70

As a person consumes more of a good or service, the person's _____ will increase. At the same time, this person's _____ will decrease with each additional unit.

A) marginal utility; total utility
B) total utility; marginal utility
C) marginal utility; cost
D) cost; total utility

Question 71

Total utility

A) is the level of satisfaction a consumer receives from consuming the first good only.
B) is the level of satisfaction a consumer receives from consuming the last good only.
C) is the total satisfaction a consumer receives from consuming a certain amount of a good.
D) remains constant for every unit consumed.

Question 72

Marginal utility

A) remains constant.
B) is the level of satisfaction received from consuming an additional unit.
C) is found by taking the change in total utility and dividing it by the price.
D) is always positive.

Question 73

A dehydrated person has two glasses of water. Compared with the person's first glass of water, total utility after the second glass will

A) increase and marginal utility will decrease.
B) increase and marginal utility will increase.
C) decrease and marginal utility will increase.
D) decrease and marginal utility will decrease.

Question 74

At an all-you-can eat buffet, a person will stop eating when

A) total utility increases at a diminishing rate.
B) marginal utility increases at a diminishing rate.
C) marginal utility is equal to zero.
D) total utility is equal to zero.

Question 75

If a person plans to consume a fifth chicken wing, then

A) marginal utility is increasing.
B) total utility is decreasing.
C) total utility is increasing.
D) marginal utility is zero.

Question 76

(Table) The table shows the total utility and marginal utility for ice cream consumption. In the table, the value for B is
$\begin{array}{|c|c|c|}\hline Q & T U & M U \\\hline 0 & 0 & - \\\hline 1 & 25 & \mathrm{~A} \\\hline 2 & \mathrm{~B} & 15 \\\hline 3 & 53 & \mathrm{C} \\\hline 4 & \mathrm{D} & 10 \\\hline 5 & 71 & \mathrm{E} \\\hline\end{array}$

A) 35.
B) 40.
C) 45.
D) 50.

Question 77

(Table) The table shows the total utility and marginal utility for ice cream consumption. In the table, the value for A is
$\begin{array}{|c|c|c|}\hline Q & T U & M U \\\hline 0 & 0 & - \\\hline 1 & 25 & \mathrm{~A} \\\hline 2 & \mathrm{~B} & 15 \\\hline 3 & 53 & \mathrm{C} \\\hline 4 & \mathrm{D} & 10 \\\hline 5 & 71 & \mathrm{E} \\\hline\end{array}$

A) 25.
B) 40.
C) 45.
D) 0.

Question 78

(Table) The table shows the total utility and marginal utility for ice cream consumption. In the table, the value for C is
$\begin{array}{|c|c|c|}\hline Q & T U & M U \\\hline 0 & 0 & - \\\hline 1 & 25 & \mathrm{~A} \\\hline 2 & \mathrm{~B} & 15 \\\hline 3 & 53 & \mathrm{C} \\\hline 4 & \mathrm{D} & 10 \\\hline 5 & 71 & \mathrm{E} \\\hline\end{array}$

A) 63.
B) 68.
C) 28.
D) 13.

Question 79

(Table) The table shows the total utility and marginal utility for ice cream consumption. In the table, the value for D is
$\begin{array}{|c|c|c|}\hline Q & T U & M U \\\hline 0 & 0 & - \\\hline 1 & 25 & \mathrm{~A} \\\hline 2 & \mathrm{~B} & 15 \\\hline 3 & 53 & \mathrm{C} \\\hline 4 & \mathrm{D} & 10 \\\hline 5 & 71 & \mathrm{E} \\\hline\end{array}$

A) 63.
B) 61.
C) 81.
D) 43.

Question 80

(Table) The table shows the total utility and marginal utility for ice cream consumption. In the table, the value for E is
$\begin{array}{|c|c|c|}\hline Q & T U & M U \\\hline 0 & 0 & - \\\hline 1 & 25 & \mathrm{~A} \\\hline 2 & \mathrm{~B} & 15 \\\hline 3 & 53 & \mathrm{C} \\\hline 4 & \mathrm{D} & 10 \\\hline 5 & 71 & \mathrm{E} \\\hline\end{array}$

A) 11.
B) 61.
C) 81.
D) 8.