Deck 5: Theory of Consumer Behavior

Question 1

refer to the following:
The price of Y is $10.

-The marginal rate of substitution of X for Y at point C is:

A) 5
B) 2
C) 0.5
D) 0.3
E) none of the above

Answer 1

none of the above

Question 2

refer to the following figure:
The consumer's income is $800.

-What are the prices of goods X and Y?

A) = $10, = $8
B)

= $8,

= $10
C)

= $100,

= $80
D)

= $20,

= $60
E)

= $60,

= $20

Answer 2

= $8,

= $10

Question 3

refer to the following figure:
The consumer's income is $800.

-Why doesn't the consumer choose the combination of 30X and 56Y at point A?

A) MRS is less than

)
B) MRS is greater than

)
C)

Is greater than

)
D)

Is less than

)

Answer 3

MRS is greater than

)

Question 4

An individual's demand curve for X

A) shows how the utility-maximizing choice of X changes as the price of X changes.
B) shows how the individual's preferences change as the price of X changes.
C) shows that the income effect is always negative.
D) both a and b
E) both a and c

Question 5

If the price of a good decreases, the substitution effect

A) can increase or decrease the quantity of the good demanded.
B) shows the increase in the quantity of the good demanded, holding income constant.
C) shows the increase in the quantity of the good demanded, holding utility constant.
D) must be greater than the income effect.
E) is positive since the quantity of the good increases.

Question 6

If the price of a good decreases, the income effect

A) reinforces the substitution effect if the good is inferior.
B) offsets the substitution effect if the good is normal.
C) shows the change in the quantity demanded of the good, income held constant.
D) a and b
E) none of the above

Question 7

When the price of a good changes,

A) the income effect is always positive and the substitution effect is always negative.
B) both the substitution effect and the income effect can be either positive or negative.
C) the income effect can be positive or negative, but the substitution effect is always negative.
D) the income effect can be negative, but in such cases it will never overwhelm the substitution effect.
E) none of the above

Question 8

refer to the following figure that shows the effect of an INCREASE in the price of X.


-The substitution effect of the price change is the change in the consumption of X from

A) 5 to 3.
B) 6 to 3.
C) 6 to 5.
D) 6 to 8.
E) none of the above

Question 9

refer to the following figure that shows the effect of an INCREASE in the price of X.


-The income effect of the price change is the change in the consumption of X from

A) 5 to 3.
B) 6 to 3.
C) 6 to 5.
D) 6 to 8.
E) none of the above

Question 10

refer to the following figure that shows the effect of an INCREASE in the price of X.


-The total effect of the price change is the change in the consumption of X from

A) 5 to 3.
B) 6 to 3.
C) 6 to 5.
D) 6 to 8.
E) none of the above

Question 11

refer to the following figure that shows the effect of an INCREASE in the price of X.


-Good X is

A) normal.
B) inferior.
C) a Giffen good.
D) both b and c

Question 12

If a demand curve slopes upward, then

A) the good is inferior.
B) the income effect reinforces the substitution effect.
C) the income effect overwhelms the substitution effect.
D) both a and b
E) both a and c

Question 13

refer to the following figure:
The consumer's income is $2,600.

-Two points on this consumer's demand for good X are

A)

= $260, X = 140 and

= $130, X = 80.
B)

= $10, X = 260 and

= $20, X = 130.
C)

= $10, X = 140 and

= $10, X = 120.
D)

= $20, X = 80 and

= $10, X = 100.
E) = $10, X = 140 and = $20, X = 80.

Question 14

refer to the following figure:
The consumer's income is $2,600.

-The total effect of the increase in the price of X is

A) X falls 60 units.
B) X rises 60 units.
C) X falls 130 units.
D) X rises 130 units.
E) X falls 20 units.

Question 15

refer to the following figure:
The consumer's income is $2,600.

-The substitution effect of the increase in the price of X is (approximately)

A) X rises 20 units.
B) X falls 40 units.
C) X falls 130 units.
D) X falls 16 units.
E) X rises 40 units.

Question 16

refer to the following figure:
The consumer's income is $2,600.

-The income effect of the increase in the price of X is (approximately)

A) X falls 130 units.
B) X rises 60 units.
C) X falls 60 units.
D) X falls 20 units.
E) X rises 20 units.

Question 17

refer to the following figure:
The consumer's income is $2,600.

-In order to isolate the income and substitution effects what must have happened, temporarily, to the consumer's income (approximately)?

A) $1,200 added to income
B) $600 taken away from income
C) nothing, income is $2,600
D) $2,600 added to income
E) $1,800 taken away from income

Question 18

refer to the following graph:
?

-What is the price of Y?

A) $0.25
B) $4
C) $8
D) $6
E) none of the above

Question 19

If the price of good X rises and X is a normal good, then

A) the income effect will induce the consumer to demand less of X and the substitution effect will induce him to demand more.
B) the income effect will induce the consumer to demand more of X and the substitution effect will induce him to demand less.
C) the income and substitution effects will both induce the consumer to demand more of X.
D) the income and substitution effects will both induce the consumer to demand less of X.

Question 20

The Giffen Paradox results whenever

A) the substitution effect is positive.
B) the substitution effect is negative.
C) the income effect is positive.
D) the income effect is negative.
E) none of the above

Question 21

Demand curves slope downward because

A) the substitution effect, which is always positive, dominates or reinforces the income effect.
B) the substitution effect, which is always negative, dominates or reinforces the income effect.
C) the income effect, which is always positive, dominates or reinforces the substitution effect.
D) the income effect, which is always negative, dominates or reinforces the substitution effect.

Question 22

refer to the following graph:


-The consumer's demand curve for X is

A) D₁.
B) D₂.
C) D₃.
D) D₄.

Question 23

An individual's demand curve for X

A) shows that the income effect is always negative.
B) depends on how the individual's utility-maximizing choices change when the price of X changes.
C) depends on how the individual's money income changes when the price of X changes.
D) depends on how the individual's preferences change when the price of X changes.
E) both a and c

Question 24

refer to the following graphs:


The price of Y is $15 per unit.

-What is

A) 12
B) 15
C) 20
D) 25
E) none of the above

Question 25

refer to the following graphs:


The price of Y is $15 per unit.

-What is

A) 10
B) 12
C) 18
D) 20
E) none of the above

Question 26

If the total utility of five units of X is 45 units of utility and the marginal utility of the fifth unit is 3, then

A) the total utility of four units is 42 units.
B) the demand curve is likely to be upward sloping.
C) the good is a Giffen good.
D) the substitution effect is equal to 3.

Question 27

Fill-in-the-Blank
-Along an indifference curve ____________ is constant.

Question 28

Fill-in-the-Blank
-The rate at which a consumer is willing to substitute one good for another, holding utility constant, is given by the ____________ of an indifference curve. This rate is called the _________________________________.

Question 29

Fill-in-the-Blank
-If at a given combination of X and Y, a consumer's marginal rate of substitution is 4, this means that the consumer is willing to give up ______ units of Y for another X or ______ units of X for another Y.

Question 30

Fill-in-the-Blank
-If a consumer is choosing the levels of goods X and Y in order to maximize utility with a given budget the _________ equals the ____________ ratio of the goods.

Question 31

Fill-in-the-Blank
-The rate at which a consumer can substitute one good for another in the market is given by the ______ of the budget line and is equal to the __________ratio of the two goods.

Question 32

Sally consumes only two goods, A and B. The prices are P_A = $10 and P_B = $15. For the last units of each good the marginal utilities are MU_A = 30 and MU_B = 40. Sally should consume more ______ and less ______ because ____________ is greater than ____________. When Sally reaches equilibrium her MRS will be ______.

Question 33

A. Demand curves slope downward because the __________________ effect of a price change is negative and dominates the _____________________ effect, which can be either positive or negative. Thus the ______ effect is negative.
B. Market demand is the _____________ summation of the ______________ of all the consumers in the market.

Question 34

The following questions refer to the following graph of a consumer's indifference curve.

-What is the consumer's marginal rate of substitution between points A and C? ______. Moving between these points, the consumer is willing to give up ______ units of Y for another X or ______ units of X for another Y.

Question 35

The following questions refer to the following graph of a consumer's indifference curve.

-What is the consumer's marginal rate of substitution between points C and B? ______. Moving between these points the consumer is willing to give up ______ units of Y for another X or ______ units of X for another Y.

Question 36

The following questions refer to the following graph of a consumer's indifference curve.

-At point C the consumer's marginal rate of substitution at point is approximately ______. This means that the consumer is willing to substitute at a rate of ______ units of Y for one more X or ______ X for one Y.

Question 37

Use the following graph showing two budget lines, LR and LZ to answer the following questions. The consumer's income is $720.

-For budget line LR the price of Y is $______ and the price of X is $______. The equation for budget line LR is ________________________.

Question 38

Use the following graph showing two budget lines, LR and LZ to answer the following questions. The consumer's income is $720.

-For budget line LM the price of Y is $______ and the price of X is $______. The equation for budget line LM is _____________________.

Question 39

Use the following graph showing a consumer's budget line and some indifference curves to answer the following questions. The consumer's income is $600.

-The price of Y is $______ and the price of X is $______. The consumer should buy _____ unit of X and ______ units of Y. In equilibrium the marginal rate of substitution is _____.

Question 40

Use the following graph showing a consumer's budget line and some indifference curves to answer the following questions. The consumer's income is $600.

-If the consumer is buying the combination at point A, the MRS is ________________ (greater, less) than the price _________, so the consumer should buy more ______ and less ______ in order to increase utility. The consumer would buy no combination on indifference curve III because _______________.

Question 41

Use the following graph showing a consumer's budget line and some indifference curves to answer the following questions. The consumer's income is $600.

-If the consumer is buying the combination at point B, the MRS is ______ than the price ____________, so the consumer should buy more ______ and less ______ to increase utility. At point B, is ____________ than the .

Question 42

The following figure shows a portion of a consumer's indifference map and budget lines. The price of good Y is $17 and the consumer's income is $7,650.
Let the consumer begin in utility-maximizing equilibrium at point A on indifference curve II. Next the price of good X changes so that the consumer moves to a new utility-maximizing equilibrium at point B on indifference curve I.
-Two points on this consumer's demand for good X are P_X= $_________ and X = _________; and P_X = $_________ and X = _________.

Question 43

The following figure shows a portion of a consumer's indifference map and budget lines. The price of good Y is $17 and the consumer's income is $7,650.
Let the consumer begin in utility-maximizing equilibrium at point A on indifference curve II. Next the price of good X changes so that the consumer moves to a new utility-maximizing equilibrium at point B on indifference curve I.
-The substitution effect of the change in the price of X is _________; the income effect is _________; the total effect is _________.

Question 44

The following figure shows a portion of a consumer's indifference map and budget lines. The price of good Y is $17 and the consumer's income is $7,650.
Let the consumer begin in utility-maximizing equilibrium at point A on indifference curve II. Next the price of good X changes so that the consumer moves to a new utility-maximizing equilibrium at point B on indifference curve I.
-Good X is a(an) ____________ good.

Question 45

The following figure shows a portion of a consumer's indifference map and budget lines. The price of good Y is $7 and the consumer's income is $700.
Let the consumer begin in utility maximizing equilibrium at point A on indifference curve I. Next the price of good X changes so that the consumer moves to a new utility maximizing equilibrium at point B on indifference curve II.
-Two points on this consumer's demand for good X are P_X = $______ and X = ______; and P_X = $______ and X = ______.

Question 46

The following figure shows a portion of a consumer's indifference map and budget lines. The price of good Y is $7 and the consumer's income is $700.
Let the consumer begin in utility maximizing equilibrium at point A on indifference curve I. Next the price of good X changes so that the consumer moves to a new utility maximizing equilibrium at point B on indifference curve II.
-The substitution effect of the change in the price of X is ______; the income effect is ______; the total effect is ______.

Question 47

The following figure shows a portion of a consumer's indifference map and budget lines. The price of good Y is $7 and the consumer's income is $700.
Let the consumer begin in utility maximizing equilibrium at point A on indifference curve I. Next the price of good X changes so that the consumer moves to a new utility maximizing equilibrium at point B on indifference curve II.
-Good X is a(an) ______ good.

Question 48

The marginal rate of substitution of X for Y is 3, the price of X is $4, and the price of Y is $2.
-The consumer is willing to give up ______ units of Y to obtain another X. The consumer is willing to give up ______ units of X to obtain another Y.

Question 49

The marginal rate of substitution of X for Y is 3, the price of X is $4, and the price of Y is $2.
-The consumer must give up ______ units of Y to obtain another X. The consumer must give up ______ units of X to obtain another Y. At what rate is the consumer able to substitute X for Y in the market? ______.

Question 50

The marginal rate of substitution of X for Y is 3, the price of X is $4, and the price of Y is $2.
-Is the consumer making the utility maximizing choice? ______. If not, the consumer should purchase more ______ and less ______.

Question 51

F A. The rate at which a consumer is able to substitute one good for another is determined by the ______. The rate at which a consumer is willing to substitute one good for another is given by the ______.
B. If a consumer is choosing a bundle of goods that maximizes utility subject to a budget constraint the ratio of ______ to ______ is the same for every good and the ______ equals the ______ ratio for every pair of goods.
C. A consumer's demand curve for a good shows the ______ choice of the good at each ______.

Question 52

F Mary is consuming 3 hot dogs and 2 Cokes at the Bucs game. The marginal utility of the third hot dog is 60 utils and the marginal utility of the second Coke is 180 utils. The price of a hot dog is $1 and the price of a Coke is $4. From the information given, we can see that Mary consumed too many ________________ (hot dogs, Cokes) and too few ________________ (hot dogs, Cokes).