Question 1

Josh is a house painter who always purchases two paintbrushes for every gallon of paint, regardless of the relative prices. In a graph, these indifference curves would appear as:

Accepted Answer

A)  straight downward-sloping lines. 
B)  downward-sloping lines with a diminishing marginal rate of substitution. 
C)  right angles. 
D)  upward-sloping straight lines.

Question 2

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 $0.10. 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 3

Use the following to answer questions:
Figure: Indifference Curve Map I 
-(Figure: Indifference Curve Map I) Look at the figure Indifference Curve Map I. It shows that:

Accepted Answer

A)  bundles B and D provide the same level of utility. 
B)  bundle A is preferred to bundle B. 
C)  bundle D is preferred to bundle C, which is preferred to bundles A and B. 
D)  bundle C provides the highest level of utility.

Question 4

Which of the following statements is FALSE?

Accepted Answer

A)  A Giffen good must be an inferior good. 
B)  A Giffen good must be such that the income effect and the substitution effect move in opposite directions, and the income effect outweighs the substitution effect. 
C)  A Giffen good must be such that the substitution effect outweighs the income effect for an inferior good. 
D)  A Giffen good must have an upward-sloping demand curve.

Question 5

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. Suppose Phillip's income falls by half, and the prices for both music downloads and streamed movies also fall by half. As a result of this, Phillip:

Accepted Answer

A)  can buy fewer music downloads if he spends all of his income on music downloads. 
B)  can buy fewer streamed movies if he spends all of his income on streamed movies. 
C)  will not notice any change in his budget line. 
D)  will undergo a parallel shift out of his budget line.

Question 6

Ladan has $500 each semester to spend on textbooks and sandwiches. Textbooks are $100 each and sandwiches are $5 each. Assume that diminishing marginal utility applies to both goods. She has purchased 3 textbooks this semester and 40 sandwiches. She tells you that her marginal utility from the next textbook is about 100 utils and the marginal utility from the next sandwich is about 15 utils. Has Ladan successfully maximized her utility this semester? Should she adjust her spending next semester?

Accepted Answer

The answer of Ladan has $500 each semester to spend...

Question 7

In terms of indifference curves, the optimal consumption bundle is determined by the:

Accepted Answer

A)  intersection of a budget line and an indifference curve. 
B)  tangency of a budget line and an indifference curve. 
C)  tangency of a price consumption curve and an income consumption curve. 
D)  intersection of an income consumption curve and a price consumption curve.

Question 8

Indifference curves that exhibit a diminishing marginal rate of substitution are:

Accepted Answer

A)  concave to the origin. 
B)  upward-sloping over part of their length. 
C)  downward-sloping straight lines. 
D)  convex to the origin.

Question 9

If the price of a cookie is $1 and the price of a brownie is $2, the price of cookies in terms of brownies is:

Accepted Answer

A)  0.5. 
B)  1.0. 
C)  2.0. 
D)  undefined.

Question 10

How much _____ Susan obtains from eating green beans is a measure of the utility of green beans for her.

Accepted Answer

A)  efficiency 
B)  usefulness 
C)  cost 
D)  satisfaction

Question 11

Use the following to answer questions:
Figure: Consumer Equilibrium II 
-(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Ashyra consumes at point I. Ashyra could gain more utility by choosing point _____, all other things held equal.

Accepted Answer

A)  J 
B)  G 
C)  K 
D)  The consumer doesn't have enough income to gain more utility.

Question 12

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 $1 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

Exam 10: The Rational Consumer