Question 1

Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $1.50. Joseph:

Accepted Answer

A)  is maximizing total utility. 
B)  should consume more apples and fewer oranges to maximize total utility. 
C)  should consume fewer apples and more oranges to maximize total utility. 
D)  may or may not be maximizing total utility.

Question 2

Use the following to answer questions:
Figure: Indifference Curves and Consumption Bundles 
-(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference Curves and Consumption Bundles. In the figure, the initial optimum is at a. The price of hot dogs now increases. The change in hot dog consumption due to the substitution effect is:

Accepted Answer

A)  H3 to H2. 
B)  H3 to H1. 
C)  H2 to H1. 
D)  H1 to H2.

Question 3

Use the following to answer questions:
Figure: Harold's Indifference Curves
The figure shows three of Harold's indifference curves for bread and cheese. 
-(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves. Given that the price of bread is $1 per loaf and the price of cheese is $2 per pound, as Harold's income increases from $10 to $14, we can determine that bread is a(n) _____ good and cheese is a(n) _____ good.

Accepted Answer

A)  inferior; inferior 
B)  normal; inferior 
C)  inferior; normal 
D)  normal; normal

Question 4

Combinations of two goods that yield equal levels of utility are shown on a(n) _____ curve.

Accepted Answer

A)  indifference 
B)  budget 
C)  marginal utility 
D)  utility-maximizing

Question 5

Patrick enjoys consuming chocolate but really detests broccoli. Describe the shape of Patrick's indifference curves for these two goods and explain your reasoning.

Accepted Answer

The answer of Patrick enjoys consuming chocolate but really detests...

Question 6

Use the following to answer question:
Figure: A Changing Budget Constraint for Strawberries and Shortcake 
-(Figure: A Changing Budget Constraint for Strawberries and Shortcake) Look at the figure A Changing Budget Constraint for Strawberries and Shortcake. Seb's original budget line is given by BL1 and his original indifference curve is given by I1. Which of the following would have caused his budget line to move to BL2?

Accepted Answer

A)  The price of strawberries increased. 
B)  The price of shortcake increased. 
C)  Seb's income decreased. 
D)  The price of strawberries decreased.

Question 7

Use the following to answer questions: 
-(Table: Consumer Equilibrium) Look at the table Consumer Equilibrium. Assume that the price of good X is $2 per unit, the price of good Y is $1 per unit, and you have $10 to spend on both goods. To maximize utility, you would consume _____ units of X and _____ units of Y.

Accepted Answer

A)  3; 4 
B)  2; 3 
C)  2; 6 
D)  5; no

Question 8

Explain the concept of the marginal rate of substitution. Provide an intuitive rather than mathematical reason it is believed to be diminishing as a consumer moves down an indifference curve.

Accepted Answer

The answer of Explain the concept of the marginal rate...

Question 9

Which of the following is NOT TRUE of indifference curves for ordinary goods?

Accepted Answer

A)  They never cross. 
B)  They slope downward. 
C)  They are convex from the origin. 
D)  Indifference curves farther from the origin have lower levels of utility.

Question 10

A Giffen good is one in which the _____ curve is _____ sloped.

Accepted Answer

A)  supply; negatively 
B)  demand; negatively 
C)  supply; positively 
D)  demand; positively

Question 11

Steven consumes staples and paper clips. He is maximizing his utility in consumption of both goods. The price of staples falls. Assuming that diminishing marginal utility applies to both goods, as he adjusts to this event, the marginal utility of staples will _____, and the marginal utility of paper clips will _____.

Accepted Answer

A)  rise; fall 
B)  rise; rise 
C)  fall; fall 
D)  fall; rise

Question 12

Use the following to answer questions:
Figure: Consumer Equilibrium III 
-(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. Given the figure, which of the following statements is TRUE?

Accepted Answer

A)  At the point of utility maximization, the rate at which Kurt is willing to exchange one good for another is less than the rate at which the goods can be exchanged in the market. 
B)  An increase in the prices of tamales and placemats would allow Kurt to attain point B. 
C)  At point E, Px = Py. 
D)  Point E is the point of utility maximization under current budget constraints.

Question 13

Use the following to answer questions:
Figure: Harold's Indifference Curves
The figure shows three of Harold's indifference curves for bread and cheese. 
-(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves. If the price of bread is $2 per loaf, the price of cheese is $2 per pound, and Harold has $10 to spend on bread and cheese, Harold's optimal consumption bundle is _____ loaves of bread and _____ pounds of cheese.

Accepted Answer

A)  6; 4 
B)  4; 3 
C)  3; 2 
D)  2; 8

Question 14

The substitution effect always entails a change in consumption in the _____ direction as (of) the change in _____.

Accepted Answer

A)  same; marginal utility 
B)  same; price 
C)  opposite; price 
D)  opposite; the budget

Question 15

Ersida purchases both baby food (F) and cloth diapers (C). The price of a jar of baby food is PF and the price of a box of cloth diapers is PC. Assume that the quantity of baby food is on the horizontal axis and the quantity of cloth diapers is on the vertical axis. At any point on an indifference curve, the marginal rate of substitution of food for cloth diapers can be represented by:

Accepted Answer

A)  MUF / MUC. 
B)  MUF × PF. 
C)  MUF / PF. 
D)  (MUF / MU
C)  × (PF / P
C) .

Question 16

If the combination of two goods occurs at a point of tangency between the budget line and an indifference curve:

Accepted Answer

A)  utility has been maximized. 
B)  some available income has not been spent. 
C)  utility can be decreased by consuming more of both goods. 
D)  utility can be increased by consuming more of one good and less of the other.

Question 17

Tonya's budget constraint for gasoline (G) and clothes (C) each month can be expressed with the equation G = 100 - 2C. If the price of clothing is $10, which of the following consumption bundles lies INSIDE Tonya's budget line?

Accepted Answer

A)  50 units of clothing and 100 units of gasoline 
B)  50 units of clothing and 0 units of gasoline 
C)  0 units of clothing and 100 units of gasoline 
D)  10 units of clothing and 5 units of gasoline

Question 18

Use the following to answer questions:
Scenario: Music Downloads and Streamed Movies
Phillip has an income of $300 per month, which he uses to purchase music downloads (MD) and streamed movies (SM). Each music download costs $1 and each streamed movie costs $5.
-(Scenario: Music Downloads and Streamed Movies) Read the scenario Music Downloads and Streamed Movies. Phillip's optimal consumption bundle will be one whose:

Accepted Answer

A)  budget line is tangent to his highest indifference curve. 
B)  budget line intersects his highest indifference curve. 
C)  budget line intersects the music download axis. 
D)  indifference curve intersects the streamed movies axis.

Question 19

The income effect refers to a change in:

Accepted Answer

A)  income because of a change in business investment. 
B)  money or nominal income because of a change in wages. 
C)  the quantity demanded of a good because of an implicit change in the buyer's income caused by a change in the price of a good or service. 
D)  the quantity demanded of a good because of a change in the buyer's money income.

Question 20

Use the following to answer questions: 
-(Table: Alaina's Utility from Consuming Cups of Coffee) Look at the table Alaina's Utility from Consuming Cups of Coffee. Given the information in the table, Alaina's total utility from drinking coffee:

Accepted Answer

A)  decreases as she consumes additional coffee. 
B)  increases at a decreasing rate as she consumes more coffee. 
C)  stays constant as she consumes more coffee. 
D)  equals zero.

Exam 10: The Rational Consumer

Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $1.50. Joseph:

Combinations of two goods that yield equal levels of utility are shown on a(n) _____ curve.

Patrick enjoys consuming chocolate but really detests broccoli. Describe the shape of Patrick's indifference curves for these two goods and explain your reasoning.

Explain the concept of the marginal rate of substitution. Provide an intuitive rather than mathematical reason it is believed to be diminishing as a consumer moves down an indifference curve.

Which of the following is NOT TRUE of indifference curves for ordinary goods?

A Giffen good is one in which the _ curve is _ sloped.

Use the following to answer questions: Figure: Consumer Equilibrium III -(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. Given the figure, which of the following statements is TRUE?

The substitution effect always entails a change in consumption in the _ direction as (of) the change in _.

If the combination of two goods occurs at a point of tangency between the budget line and an indifference curve:

Tonya's budget constraint for gasoline (G) and clothes (C) each month can be expressed with the equation G = 100 - 2C. If the price of clothing is $10, which of the following consumption bundles lies INSIDE Tonya's budget line?

The income effect refers to a change in:

Use the following to answer questions: -(Table: Alaina's Utility from Consuming Cups of Coffee) Look at the table Alaina's Utility from Consuming Cups of Coffee. Given the information in the table, Alaina's total utility from drinking coffee: