Deck 4: Consumer Choice

Question 1

An indifference curve represents bundles of goods that a consumer

A)views as equally desirable.
B)ranks from most preferred to least preferred.
C)prefers to any other bundle of goods.
D)All of the above.

Answer 1

views as equally desirable.

Question 2

Measuring "y" on the vertical axis and "x" on the horizontal axis, convexity of indifference curves implies that the MRS of "y" for "x"

A)is decreasing as "x" increases.
B)is increasing as "x" increases.
C)is constant as "x" increases.
D)cannot be calculated for large levels of "x."

Answer 2

is decreasing as "x" increases.

Question 3

If two goods are perfect substitutes, then the indifference curves for those two goods would be

A)upward sloping and concave to the origin.
B)downward sloping and convex to the origin.
C)downward sloping and straight.
D)L-shaped.

Answer 3

downward sloping and straight.

Question 4

If more is better, how can you explain that more pollution doesn't violate this principle?

Question 5

Perfect substitutes

A)always have indifference curves with slopes of -1.
B)always have indifference curves with slopes of 1.
C)have fixed rates of trading off one good for another.
D)have horizontal indifference curves.

Question 6

There is an indifference curve through every bundle because of the assumption of

A)transitivity.
B)completeness.
C)rationality.
D)nonsatiation.

Question 7

Convexity of indifference curves implies that consumers are willing to

A)give up more "y" to get an extra "x" the more "x" they have.
B)give up more "y" to get an extra "x" the less "x" they have.
C)settle for less of both "x" and "y."
D)acquire more "x" only if they do not have to give up any "y."

Question 8

If a consumer weakly prefers pizza to hot dogs, and weakly prefers hot dogs to chicken, then he ________ pizza ________ chicken.

A)likes; less than
B)likes; at least as much as
C)dislikes; more than
D)dislikes; and is indifferent about

Question 9

For which of the following pairs of goods would most people likely have convex indifference curves?

A)nickels and dimes
B)left shoes and right shoes
C)movie tickets and concert tickets
D)None of the above.

Question 10

Utility is the set of numerical values that

A)yields an absolute level of pleasure from a bundle of goods.
B)reflects the relative ranking of various bundles of goods.
C)describes how much more a consumer prefers one bundle to another.
D)yields a cardinal ranking of bundles.

Question 11

Consumers allocate their budgets among bundles because

A)more is not always better.
B)bundles are the most efficient way to package goods and services.
C)consumers face choices and trade-offs.
D)they want to minimize trips to the store.

Question 12

The principle that "More is better" results in indifference curves

A)sloping down.
B)not intersecting.
C)reflecting greater preferences the further they are from the origin.
D)All of the above.

Question 13

Indifference curves close to the origin are ________ those farther from the origin because of ________.

A)better than; transitivity
B)worse than; nonsatiation
C)better than; completeness
D)worse than; transitivity

Question 14

If two indifference curves were to intersect at a point, this would violate the assumption of

A)transitivity.
B)completeness.
C)Both A and B above.
D)None of the above.

Question 15

Indifference curves cannot intersect.

Question 16

If a consumer prefers apples to bananas and prefers bananas to citrus fruit, in order to satisfy assumptions about preferences she has to prefer

A)bananas to apples.
B)citrus fruit to bananas.
C)apples to citrus fruit.
D)citrus fruit to apples.

Question 17

A consumer's willingness to trade one good for another can be expressed by the consumer's

A)indifference curve.
B)marginal rate of substitution.
C)Both A and B above.
D)None of the above.

Question 18

The indifference curves for left shoes and right shoes would most likely be

A)upward sloping and concave to the origin.
B)downward sloping and convex to the origin.
C)downward sloping and straight lines.
D)L-shaped.

Question 19

The assumption of completeness means that

A)the consumer can rank all possible consumption bundles.
B)more of a good is always better.
C)the consumers can rank all affordable consumption bundles.
D)all preferences conditions are met.

Question 20

Indifference curves are downward sloping because of the assumption of

A)completeness.
B)transitivity.
C)more is better.
D)All of the above.

Question 21

If Isabella buys two goods and the prices of both goods decrease by 50%,

A)the budget constraint will be unchanged.
B)the slope of the budget constraint will increase.
C)the slope of the budget constraint will decrease.
D)the budget constraint will shift outward in a parallel fashion.

Question 22

If Fred's marginal rate of substitution of salad for pizza equals 5, then

A)he would give up 5 pizzas to get the next salad.
B)he would give up 5 salads to get the next pizza.
C)he will eat five times as much pizza as salad.
D)he will eat five times as much salad as pizza.

Question 23

Adrian's utilities of two consumption bundles are 50 and 100 respectively. This implies that

A)Adrian prefers the first bundle.
B)Adrian prefers the second bundle.
C)Adrian likes the second bundle twice as much.
D)Adrian likes the first bundle twice as much.

Question 24

Joe's income is $500, the price of food (F, y-axis)is $2 per unit, and the price of shelter (S, x-axis)is $100. Which of the following represents his marginal rate of transformation of food for shelter?

A)-5
B)-50
C)-.02
D)None of the above.

Question 25

Joe's income is $500, the price of food (F, y-axis)is $2, and the price of shelter (S, x-axis)is $100. Which of the following bundles is in Joe's opportunity set?

A)50 units of food, 5 units of shelter
B)200 units of food, 2 units of shelter
C)100 units of food, 1 unit of shelter
D)150 units of food, 3 units of shelter

Question 26

If two bundles are on the same indifference curve, then

A)the consumer derives the same level of utility from each.
B)the consumer derives the same level of ordinal utility from each but not the same level of cardinal utility.
C)no comparison can be made between the two bundles since utility cannot really be measured.
D)the MRS between the two bundles equals one.

Question 27

If Toby buys two goods and the prices of both goods increase by 50%,

A)the budget constraint will be unchanged.
B)the slope of the budget constraint stay the same.
C)the slope of the budget constraint will decrease.
D)the budget constraint will shift outward in a parallel fashion.

Question 28

Joe's budget constraint equals 500 = 2F + 100S, where $500 is Joe's income, $2 is the price of food (F, y-axis)and $100 is the price of shelter (S, x-axis). How much food can Joe buy if he buys one unit of shelter?

A)2 units
B)200 units
C)250 units
D)400 units

Question 29

If the price of one good increases while the price of the other good and the consumer's income remain unchanged, what will happen to the budget line?

A)The budget line rotates inward from the intercept on the axis of the good that did not change in price.
B)The budget line rotates outward from the intercept on the axis of the good that did not change in price.
C)The budget line shifts inward without a change in slope.
D)The budget line shifts outward without a change in slope.

Question 30

If the consumer's income increases while the prices of both goods remain unchanged, what will happen to the budget line?

A)The budget line rotates inward from the intercept on the horizontal axis.
B)The budget line rotates outward from the intercept on the vertical axis.
C)The budget line shifts inward without a change in slope.
D)The budget line shifts outward without a change in slope.

Question 31

The marginal rate of transformation of y for x represents

A)the slope of the budget constraint.
B)the rate at which the consumer must give up y to get one more x.
C)-P_x/P_y.
D)All of the above.

Question 32

What is the difference between ordinal and cardinal measurement?

Question 33

The marginal rate of transformation of y for x represents

A)the slope of the budget constraint.
B)the rate at which the consumer must give up x to get one more y.
C)-P_y/P_x.
D)All of the above.

Question 34

Betty consumes good x and good y. If the price of x = $3 and the price of y = $4, then

A)an extra unit of x costs 4/3 units of y.
B)an extra unit of y costs 4/3 units of x.
C)an extra unit of x costs 3/4 units of y.
D)Both B and C.

Question 35

If the utility function (U)between food (F)and clothing (C)can be represented as U = , the marginal utility of food

A)is not positive.
B)does not diminish as food increases.
C)is not affected by the amount clothing.
D)increases as one obtains more clothing.

Question 36

The rate at which a consumer must give up y to get one more x is equal to

A)-P_x/P_y.
B)-P_y/P_x.
C)-MU_x/MU_Y
D)MU_y/MU_x.

Question 37

If Fred's marginal utility of pizza equals 10 and his marginal utility of salad equals 2, then

A)he would give up 5 pizzas to get the next salad.
B)he would give up 5 salads to get the next pizza.
C)he will eat five times as much pizza as salad.
D)he will eat five times as much salad as pizza.

Question 38

Lisa eats both pizzas and burritos. If the price of a pizza increases, Lisa's opportunity set

A)becomes larger.
B)becomes smaller.
C)is unchanged.
D)cannot be determined without more information.

Question 39

Joe's income is $500, the price of food (F, y-axis)is $2 per unit, and the price of shelter (S, x-axis)is $100. Which of the following represents his budget constraint?

A)500 = 2F + 100S
B)F = 250 - 50S
C)S = 5 - .02F
D)All of the above.

Question 40

Clifford lives by the motto "Eat, drink, and be merry today, for tomorrow doesn't matter." If today's consumption is represented by "x" and tomorrow's consumption is represented by "y," then which of the following best represents Clifford's utility function?

A)U = x - y
B)U = x/y
C)U = x
D)U = y

Question 41

The above figure shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. Bobby's demand for snacks is

A)unit elastic.
B)elastic.
C)inelastic.
D)perfectly elastic.

Question 42

What is the intuition that an expansion of an individual's budget set represents a gain?

A)More options are preferred to less.
B)Money is the root of all happiness.
C)Information is power.
D)Scarcity is avoidable with prosperity.

Question 43

An optimum that occurs as a corner solution

A)includes only one good.
B)cannot be an equilibrium.
C)cannot exhaust the budget constraint.
D)includes the exact same amounts of each good.

Question 44

With respect to consuming food and shelter, two consumers face the same prices and both claim to be in equilibrium. We therefore know that

A)they both have the same marginal utility for food.
B)they both have the same marginal utility for shelter.
C)they both have the same MRS of food for shelter.
D)All of the above.

Question 45

As the price of a good rises, the consumer will experience

A)a desire to consume a different bundle.
B)a decrease in utility.
C)a downward or leftward movement on the indifference map.
D)All of the above.

Question 46

The above figure shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks assuming he has $20 to spend on these goods. Which of the following points are on Bobby's price-consumption curve?

A)10 snacks and 20 juices
B)10 snacks and 0 juices
C)10 snacks and 5 juices
D)10 snacks and 15 juices

Question 47

The above figure shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. As the price of snacks rises, the price for juice

A)stays the same.
B)increases.
C)decreases
D)might change, but there is not enough information to determine.

Question 48

An interior solution to a consumer's utility maximization problem implies

A)consuming a positive amount of one good and a negative amount of the other good.
B)consuming negative amounts of all goods.
C)consuming optimal amounts of all goods.
D)consuming less than an optimal amount of at least one good.

Question 49

If the consumer's income decreases while the prices of both goods remain unchanged, what will happen to the budget line?

A)The budget line rotates inward from the intercept on the horizontal axis.
B)The budget line rotates outward from the intercept on the vertical axis.
C)The budget line shifts inward without a change in slope.
D)The budget line shifts outward without a change in slope.

Question 50

A consumer buys food (F)and shelter (S). If the consumer's income rises and there is no change in the prices of F or S, the marginal rate of transformation of F for S will

A)increase.
B)decrease.
C)stay the same.
D)change, but there is not enough information to know how.

Question 51

The consumer is in equilibrium when

A)MRT = MRS.
B)P_x/P_y = MU_x/MU_y.
C)the budget line is tangent to the indifference curve at the bundle chosen.
D)All of the above.

Question 52

By selecting a bundle where MRS = MRT, the consumer is saying

A)"I value my last unit of each good equally."
B)"I am willing to trade one good for the other at the same rate that I am required to do so."
C)"I will equate the amounts spent on all goods consumed."
D)All of the above.

Question 53

Economists assume consumers select a bundle of goods that maximizes their well-being subject to

A)their budget constraint.
B)their wealth.
C)relative prices.
D)their marginal rate of substitution.

Question 54

An individual's demand curve for a good can be derived by measuring the quantities selected as

A)the price of the good changes.
B)the prices of substitute goods change.
C)income changes.
D)All of the above.

Question 55

A consumer's utility-maximizing bundle contains positive amounts of both goods. This implies

A)there is an interior solution.
B)there is a corner solution.
C)MRT does not equal MRS.
D)the budget constraint is not tangent to the indifference curve.

Question 56

Assume the price of beer is $4, the price of pizza is $10 and the consumer's income is $250. Which consumption bundle will NOT be the consumers choice?

A)5 beers, 5 pizzas
B)0 beers, 25 pizzas
C)25 beers, 15 pizzas
D)None of the bundles will be chosen.

Question 57

By selecting a bundle where MRS = MRT, the consumer is

A)achieving a corner solution.
B)reaching the highest possible indifference curve she can afford.
C)not behaving in an optimal way.
D)All of the above.

Question 58

The above figure shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. As the price of snacks rises, Bobby's utility

A)stays the same.
B)increases.
C)decreases.
D)might change, but there is not enough information to determine.

Question 59

The above figure shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks assuming he has $20 to spend on these goods. Which of the following points are on Bobby's demand curve for snacks?

A)p = 2, q = 10
B)p = 2, q = 13
C)p = 2, q = 5
D)p = 1, q = 20

Question 60

If a company offers a "buy one, get one free" (BOGO)promotion

A)consumers will buy enough units of the good to get the free units.
B)the consumer's budget constraint will not be a straight line.
C)the company would be better off just reducing the price by 50%.
D)All of the above.

Question 61

An increase in the price of a good causes

A)a change in the slope of the budget line.
B)an increase in the consumption of that good.
C)a rightward shift of the demand curve for that good.
D)a parallel rightward shift of the budget line.

Question 62

In behavioral economics, the term salience refers to

A)relevance to the problem being investigated.
B)people only considering information when it is conveyed in a subtle manner.
C)how an experiment is designed.
D)people considering information when it is presented in an "eye grabbing" manner.

Question 63

Which is a behavioral economics justification for limiting advertising directed towards children?

A)Children have no money.
B)Children pester their parents too much.
C)Children have no memory.
D)Children do not always have transitive preferences.

Question 64

In behavioral economics, salience is best exemplified by

A)consumers responding differently when posted prices increase rather than when prices increase because of sales tax increases.
B)consumers responding the same regardless of how prices change.
C)the end of a controlled experiment.
D)consumers responding differently when income increases permanently rather than temporarily.

Question 65

Bounded rationality suggests that

A)individuals might make "incorrect" decisions because they are unable to consider all possible options.
B)individuals would rather have less choice to more choice.
C)rational decisions can only be made when choices are restricted.
D)individuals are happier when their choices are restricted or "bounded."

Question 66

In Spain, people are considered organ donors unless they explicitly indicate they do not want to be. In the United States, people are only considered organ donors if they explicitly indicate they wish to be. Behavioral economics would suggest that everything else equal,

A)the opt-in system of Spain would generate more organ donors. as a percentage of the adult population.
B)the opt-in system of the United States would generate more organ donors as a percentage of the adult population.
C)the opt-out system of Spain would generate more organ donors. as a percentage of the adult population.
D)the opt-out system of the United States would generate more organ donors as a percentage of the adult population.

Question 67

In behavioral economics, the endowment effect refers to the fact that

A)most people believe that most wealthy people inherit their wealth.
B)many people would be indifferent between being endowed with money or knowledge.
C)many people place a higher value on what they own than the same item they are considering purchasing.
D)most people respond to tax incentives to provide an endowment for their children.

Question 68

As the price of a good falls, the consumer will experience

A)a desire to consume a different bundle.
B)an increase in utility.
C)an upward or rightward movement on the indifference map.
D)All of the above.

Question 69

A decrease in the price of a good causes

A)a change in the slope of the budget line.
B)a decrease in the consumption of that good.
C)a leftward shift of the demand curve for that good.
D)a parallel leftward shift of the budget line.

Question 70

Behavioral economics extends traditional economic models by

A)including insights from psychology and human cognition models.
B)modeling behavior rather than prices.
C)admitting that individuals are irrational.
D)admitting that incentives are very important.

Question 71

Which of the following might explain the evidence of an endowment effect in behavioral economics?

A)government regulation
B)knowledge and experience
C)the federal tax code
D)class envy