Question 1

Larry spends all his $800 monthly income on pizza and milk. The price of pizza is $4 a slice, and the price of milk is $2 per litre. The relative price of milk is

Accepted Answer

A)  2 slices of pizza per litre. 
B)  0.5 slices of pizza per litre. 
C)  0.5 litres per slice of pizza. 
D)  $2 per litre.

Question 2

All points below a given indifference curve are

Accepted Answer

A)  preferred to any point on the indifference curve. 
B)  definitely affordable. 
C)  less preferred to any point on the indifference curve. 
D)  Both answers A and C are correct.

Question 3

A budget line shows the

Accepted Answer

A)  consumption possibilities for several sets of relative prices at a level of income. 
B)  complete set of preferences for a household at various incomes. 
C)  rate at which consumers wish to substitute one good for another. 
D)  consumption possibilities of a consumer at a given level of income and prices.

Question 4

A constant marginal rate of substitution between two goods implies that they are

Accepted Answer

A)  unattainable. 
B)  perfect substitutes. 
C)  independent goods. 
D)  perfect complements.

Question 5

Ernie has an income of $40 which he plans to spend on cookies and milk. The price of milk is $1 per litre, and the price of cookies is $2 per dozen. If Ernie buys 12 litres of milk, how many dozens of cookies will he buy if he spends all of his income?

Accepted Answer

A)  28 
B)  12 
C)  20 
D)  14

Question 6

Suppose the price of a good rises. The income effect

Accepted Answer

A)  is shown by increasing income at the new relative price in order to move from the old indifference curve to the new indifference curve after the price change. 
B)  shows the change in consumption that results from the change in relative price while keeping income constant. 
C)  is shown by decreasing income at the new relative price in order to move from the old indifference curve to the new indifference curve after the price change. 
D)  shows the change in consumption that results from the change in relative price while staying on the same indifference curve.

Question 7

Samara's income is $30 a month and she spends all of it on music downloads and petrol. The price of a music download is $1.50 and the price of a litre of petrol is $3. At Samara's best affordable point, her marginal rate of substitution is _______ per litre of petrol.

Accepted Answer

A)  0.5 of a download 
B)  1 download 
C)  1.5 downloads 
D)  2 downloads

Question 8

Bob plans to spend $60 per month on DVD movie rentals and CDs. The price of a movie rental is $3 and the price of a CD is $15. If Bob rents 5 DVDs per month, how many CDs can he buy?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4

Question 9

-In the figure above, the MRS at point A is _______ the MRS at point B.

Accepted Answer

A)  less than 
B)  equal to 
C)  greater than 
D)  not able to be compared to

Question 10

-The figure above shows Tanya's consumption possibilities. Tanya spends $100 per month on movies and restaurant meals. The price of a movie ticket is _______ and the price of a restaurant meal is _______.

Accepted Answer

A)  $20; $5 
B)  $7; $15 
C)  $5; $20 
D)  $10; $10

Question 11

If green bikes and brown bikes are perfect substitutes, the corresponding indifference curves

Accepted Answer

A)  are vertical. 
B)  have constant slope. 
C)  are horizontal. 
D)  intersect each other.

Question 12

The effect of a change in price on the quantity bought when the consumer remains indifferent between the original and the new situation is called the

Accepted Answer

A)  indifference effect. 
B)  substitution effect. 
C)  income effect. 
D)  demand effect.

Question 13

The marginal rate of substitution is

Accepted Answer

A)  the rate at which utility increases as the consumer increases purchases of a good, holding purchases of the other good constant. 
B)  the rate at which a consumer will exchange a good for income holding prices constant. 
C)  the rate at which the consumer will give up one good to get an additional unit of another good while remaining on the same indifference curve. 
D)  None of the above answers is correct.

Question 14

If Sue is consuming two normal goods and her income decreases, then her best affordable bundle of goods will contain _______ goods with _______ marginal rate of substitution as her bundle prior to her income change.

Accepted Answer

A)  the same amount of; a lower 
B)  less; a higher 
C)  less; the same 
D)  less; a lower

Question 15

-In the above figure, what is the magnitude of the marginal rate of substitution (MRS) at point a?

Accepted Answer

A)  The rate at which the consumer will give up magazines to purchase more CDs while preferring the new combination to the old. 
B)  1/2 
C)  2 
D)  The question cannot be answered without more information.

Question 16

-In the above figure, income is $8, the price of a soft drink is $1, and the initial price of a milkshake is
$2) If the price of a milkshake decreases to $1, the substitution effect is the movement from point _______  to point _______.

Accepted Answer

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

Question 17

-Consider the budget line in the above figure. If the consumer has income of $240, what is the relative price of movies?

Accepted Answer

A)  0.42 books 
B)  2.4 books 
C)  $24 per movie 
D)  $10 per movie

Question 18

-Consider the budget line in the above figure. If the consumer's income is $120, then the price of a movie is

Accepted Answer

A)  $12 per movie. 
B)  $24 per movie. 
C)  $5 per movie. 
D)  More information is needed to determine the price of a movie.

Question 19

Suppose the price of coffee is $3, the price of a bagel is $2 and a person's budget is $40. The budget line's equation is

Accepted Answer

A)  $2(Qbagel ) + $3(Qcoffee ) = $40. 
B)  Qbagel /$2 + Qcoffee /$3 = $40. 
C)  Qbagel + Qcoffee = $40/($3 + $2). 
D)  $2/Qbagel + $3/Qcoffee = $40.

Question 20

-Consider the indifference maps shown above. If X and Y are perfect substitutes, your indifference curves between them would look like those in

Accepted Answer

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

Exam 12: Consumer Choices and Constraints

Larry spends all his $800 monthly income on pizza and milk. The price of pizza is $4 a slice, and the price of milk is $2 per litre. The relative price of milk is

All points below a given indifference curve are

A budget line shows the

A constant marginal rate of substitution between two goods implies that they are

Ernie has an income of $40 which he plans to spend on cookies and milk. The price of milk is $1 per litre, and the price of cookies is $2 per dozen. If Ernie buys 12 litres of milk, how many dozens of cookies will he buy if he spends all of his income?

Suppose the price of a good rises. The income effect

Samara's income is $30 a month and she spends all of it on music downloads and petrol. The price of a music download is $1.50 and the price of a litre of petrol is $3. At Samara's best affordable point, her marginal rate of substitution is _______ per litre of petrol.

Bob plans to spend $60 per month on DVD movie rentals and CDs. The price of a movie rental is $3 and the price of a CD is $15. If Bob rents 5 DVDs per month, how many CDs can he buy?

-In the figure above, the MRS at point A is _______ the MRS at point B.

-The figure above shows Tanya's consumption possibilities. Tanya spends $100 per month on movies and restaurant meals. The price of a movie ticket is _ and the price of a restaurant meal is _.

If green bikes and brown bikes are perfect substitutes, the corresponding indifference curves

The effect of a change in price on the quantity bought when the consumer remains indifferent between the original and the new situation is called the

The marginal rate of substitution is

If Sue is consuming two normal goods and her income decreases, then her best affordable bundle of goods will contain _ goods with _ marginal rate of substitution as her bundle prior to her income change.

-In the above figure, what is the magnitude of the marginal rate of substitution (MRS) at point a?

-In the above figure, income is $8, the price of a soft drink is $1, and the initial price of a milkshake is $2) If the price of a milkshake decreases to $1, the substitution effect is the movement from point _ to point _.

-Consider the budget line in the above figure. If the consumer has income of $240, what is the relative price of movies?

-Consider the budget line in the above figure. If the consumer's income is $120, then the price of a movie is

Suppose the price of coffee is $3, the price of a bagel is $2 and a person's budget is $40. The budget line's equation is

-Consider the indifference maps shown above. If X and Y are perfect substitutes, your indifference curves between them would look like those in

Exam 12: Consumer Choices and Constraints

Larry spends all his $800 monthly income on pizza and milk. The price of pizza is $4 a slice, and the price of milk is $2 per litre. The relative price of milk is

All points below a given indifference curve are

A budget line shows the

A constant marginal rate of substitution between two goods implies that they are

Ernie has an income of $40 which he plans to spend on cookies and milk. The price of milk is $1 per litre, and the price of cookies is $2 per dozen. If Ernie buys 12 litres of milk, how many dozens of cookies will he buy if he spends all of his income?

Suppose the price of a good rises. The income effect

Samara's income is $30 a month and she spends all of it on music downloads and petrol. The price of a music download is $1.50 and the price of a litre of petrol is $3. At Samara's best affordable point, her marginal rate of substitution is _______ per litre of petrol.

Bob plans to spend $60 per month on DVD movie rentals and CDs. The price of a movie rental is $3 and the price of a CD is $15. If Bob rents 5 DVDs per month, how many CDs can he buy?

-In the figure above, the MRS at point A is _______ the MRS at point B.

-The figure above shows Tanya's consumption possibilities. Tanya spends $100 per month on movies and restaurant meals. The price of a movie ticket is _______ and the price of a restaurant meal is _______.

If green bikes and brown bikes are perfect substitutes, the corresponding indifference curves

The effect of a change in price on the quantity bought when the consumer remains indifferent between the original and the new situation is called the

The marginal rate of substitution is

If Sue is consuming two normal goods and her income decreases, then her best affordable bundle of goods will contain _______ goods with _______ marginal rate of substitution as her bundle prior to her income change.

-In the above figure, what is the magnitude of the marginal rate of substitution (MRS) at point a?

-In the above figure, income is $8, the price of a soft drink is $1, and the initial price of a milkshake is $2) If the price of a milkshake decreases to $1, the substitution effect is the movement from point _______ to point _______.

-Consider the budget line in the above figure. If the consumer has income of $240, what is the relative price of movies?

-Consider the budget line in the above figure. If the consumer's income is $120, then the price of a movie is

Suppose the price of coffee is $3, the price of a bagel is $2 and a person's budget is $40. The budget line's equation is

-Consider the indifference maps shown above. If X and Y are perfect substitutes, your indifference curves between them would look like those in

-The figure above shows Tanya's consumption possibilities. Tanya spends $100 per month on movies and restaurant meals. The price of a movie ticket is _ and the price of a restaurant meal is _.

If Sue is consuming two normal goods and her income decreases, then her best affordable bundle of goods will contain _ goods with _ marginal rate of substitution as her bundle prior to her income change.

-In the above figure, income is $8, the price of a soft drink is $1, and the initial price of a milkshake is $2) If the price of a milkshake decreases to $1, the substitution effect is the movement from point _ to point _.