Question 1

The concept of diminishing marginal rate of substitution indicates that

Accepted Answer

A)  along an indifference curve, a consumer prefers the consumption combinations moving to the northwest along the curve. 
B)  individuals are willing to give up an increasing amount of good Y in order to obtain one more unit of good X as the consumption of good X increases. 
C)  individuals are willing to give up a decreasing amount of good Y in order to obtain one more unit of good X as the consumption of good X increases. 
D)  None of the above answers is correct.

Question 2

If the relative price of pizza in terms of movies is 3, this means that

Accepted Answer

A)  3 pizzas can be traded for 9 movies. 
B)  the opportunity cost of a pizza is 3 movies. 
C)  in terms of the dollars that must be spent to buy the product, pizza is more expensive than movies. 
D)  All of the above answers are correct.

Question 3

If the combination of goods consumed at point C is preferred to combination D, then

Accepted Answer

A)  point C is on a lower indifference curve. 
B)  point C is on the same indifference curve but at a point where the vertical axis value is greater than point D's vertical axis value. 
C)  point C is on the same indifference curve but at a point where the horizontal axis value is greater than point D's horizontal axis value. 
D)  point C is on a higher indifference curve.

Question 4

-Consider the indifference maps shown above. If eyeglass frames and eyeglass lenses were perfect complements, your indifference curves between them would look like those in

Accepted Answer

A)  Figure A. 
B)  Figure B. 
C)  Figure C. 
D)  Figure D.

Question 5

The price effect is equal to the

Accepted Answer

A)  substitution effect minus the income effect. 
B)  substitution effect plus the income effect. 
C)  substitution effect. 
D)  marginal rate of substitution minus relative prices.

Question 6

Mary has $10 to spend each week on coffee, Qc and magazines, Qm. The price of a coffee is $1, and the price of a magazine is $2. Mary's budget equation is _______.

Accepted Answer

A)  Qm = 10 - 2 × Qc 
B)  Qm + Qc = 20 
C)  Qm = 10 - Qc 
D)  $1 × Qc + $2 × Qm = $10

Question 7

-In the above figure, at the best affordable point, the marginal rate of substitution is

Accepted Answer

A)  1.33 hamburgers per magazine. 
B)  0.5 of a hamburger per magazine. 
C)  1 hamburger per magazine. 
D)  8 hamburgers per magazine.

Question 8

Indifference curves are drawn on a diagram with the

Accepted Answer

A)  price of one good on the vertical axis and the price of another good on the horizontal axis. 
B)  price of a good on the vertical axis and its quantity on the horizontal axis. 
C)  quantity of one good on the vertical axis and the quantity of another good on the horizontal axis. 
D)  quantity of a good on the vertical axis and its price on the horizontal axis.

Question 9

As Sam moves rightward along his indifference curve, his marginal rate of substitution

Accepted Answer

A)  remains constant. 
B)  is increasing. 
C)  is diminishing. 
D)  shows the change in his income.

Question 10

All points above a given indifference curve are

Accepted Answer

A)  preferred to any point on the indifference curve. 
B)  definitely not affordable. 
C)  inferior to any point on the indifference curve. 
D)  Both answers B and C are correct.

Question 11

If two consumption points are not on the same indifference curve, then one point is _______.

Accepted Answer

A)  a substitute for the other point 
B)  preferred to the other 
C)  unaffordable and the other is affordable 
D)  more expensive than the other

Question 12

-Given the budget line in the above figure, if income is $60, then the price of a pizza is _______ and the price of a CD is _______.

Accepted Answer

A)  $5; $20 
B)  $10; $15 
C)  $15; 15 
D)  $6; $4

Question 13

Which of the following is NOT a divisible good?

Accepted Answer

A)  Petrol 
B)  Movies 
C)  Electricity 
D)  Tap water

Question 14

Which two goods will most likely have indifference curves that are straight lines?

Accepted Answer

A)  Blue and red balloons 
B)  Pizza and hair spray 
C)  Beef and chicken 
D)  Left and right shoes

Question 15

A curve/line that shows combinations of goods among which a consumer would not desire one combination of goods over another combination of goods on that curve/line is called

Accepted Answer

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

Question 16

Except for perfect complements and perfect substitutes, an indifference curve has a _______ slope and becomes _______ moving to the right.

Accepted Answer

A)  negative; steeper 
B)  positive; flatter 
C)  positive; steeper 
D)  negative; flatter

Question 17

Budget lines are drawn on a diagram with the

Accepted Answer

A)  quantity of one good on the vertical axis and the quantity of another good on the horizontal axis. 
B)  price of the good on the vertical axis and its quantity on the horizontal axis. 
C)  price of one good on the vertical axis and the price of another good on the horizontal axis. 
D)  quantity of the good on the vertical axis and its price on the horizontal axis.

Question 18

-In the above figure, if income is $8, the initial price of a soft drink is $1, and the initial price of a milkshake is $2, a decrease in the price of a milkshake to $1 will move the consumer from point _______ to point _______.

Accepted Answer

A)  a; b 
B)  a; d 
C)  a; c 
D)  b; c

Question 19

-In the above figure, point B

Accepted Answer

A)  is superior to point A. 
B)  is as good as point A. 
C)  is inferior to point A. 
D)  could be superior to, inferior to, or as good as point A but there is no way of telling which.

Question 20

The effect of a change in price on the quantity bought, keeping the consumer on the same indifference curve, is called the

Accepted Answer

A)  price effect. 
B)  substitution effect. 
C)  income effect. 
D)  real effect.

Exam 12: Consumer Choices and Constraints