Deck 4: Consumer Choice

Question 1

Answer 1

C

Question 2

Answer 2

A

Question 3

Answer 3

C

Question 4

Question 5

A set of baskets that a consumer can purchase with a limited amount of income is called what?

A)Consumer choice
B)Consumer purchase
C)Budget Constraint
D)Budget line

Question 6

Question 7

Question 8

Question 9

The budget lineL

A)represents the set of all baskets the consumer can afford.
B)represents the set of all baskets the consumer can afford while spending all available income.
C)represents the set of all baskets that give the consumer the same level of utility while holding spending constant.
D)represents the set of all baskets in which the consumer purchases only one of the goods.

Question 10

Suppose a consumer purchases two goods, and, and that the price of doubles, the consumer's income doubles, and the price of remains unchanged. If good is plotted on the horizontal axis, the budget line:

A)will remain unchanged.
B)will become steeper.
C)will become flatter.
D)will shift out from the origin parallel to the original budget line.

Question 11

If a consumer purchases two goods, food (measured along the x-axis)and housing (measured along the axis), then what happens to the slope of the consumer's budget constraint if the price of food falls?

Question 12

Question 13

Question 14

Identify the statement that is false.

Question 15

Suppose that the quantity of pizzas consumed per month is on the x-axis and the quantity of tacos consumed per month is on the y-axis, an increase in the price of pizza holding the price of tacos constant will:

A)cause the budget line to shift inward toward the origin in a parallel fashion.
B)cause the y-intercept to remain the same, but the x-intercept will move closer to the origin.
C)cause the budget line to shift outward from the origin in a parallel fashion.
D)cause the x-intercept to shift away from the origin.

Question 16

Suppose all prices double and income triples. The budget line:

A)will become steeper.
B)will become flatter.
C)will shift in toward the origin.
D)will shift out from the origin.

Question 17

Suppose the price of is $20 and the price of is $10 and that good is plotted on the horizontal axis. If the price of doubles and the price of triples, leaving the consumer's income unchanged, the budget line:

A)will become steeper.
B)will become flatter.
C)will shift in toward the origin.
D)will shift out from the origin.

Question 18

Suppose the price of is $20 per unit, the price of is $10 per unit, and the consumer's income is $1000 per month. The equation of the budget line is

Question 19

Suppose the price of A is $20 per unit, the price of B is $10 per unit, and the consumer's income is $1000 per month. Which of the following baskets is not on the consumer's budget line?

Question 20

Question 21

Question 22

A corner point solution is always the optimum for a consumer when:

A)a unique point of tangency exists between the consumer's indifference curve and the budget line.
B)the consumer has straight line (constant slope)indifference curves.
C)there is no point of tangency between the consumer's indifference curves and the budget line and the consumer does not have straight line indifference curves.
D)the consumer is indifferent to both goods equally.

Question 23

When given a choice between a cash subsidy and a voucher worth the same dollar amount, but only good for the purchase of a single good:

A)the consumer will always prefer the voucher to the cash subsidy or be indifferent between the two.
B)the consumer will always prefer the cash subsidy to the voucher or would be indifferent between the two.
C)the consumer might prefer the cash subsidy to the voucher or might prefer the voucher to the cash subsidy.
D)the consumer would prefer to receive neither the cash subsidy nor the voucher.

Question 24

Consumer choice of the basket of goods that (a)maximizes utility (b)allows his/her to live within the budget constraint and (c)includes a positive amount of all commodities is the consumer's:

A)optimal choice.
B)maximum choice.
C)interior optimum.
D)consumer choice.

Question 25

Question 26

Question 27

Question 28

Economists describe consumer choice as a constrained optimization problem. What is the consumer trying to do?

A)Maximize income subject to the budget constraint.
B)Maximize the budget constraint.
C)Maximize utility subject to the budget constraint.
D)Minimize spending.

Question 29

Question 30

The tangency condition for the optimal choice for a consumer is given by:

Question 31

Suppose John is planning to join a sports club. Membership in the club will allow John to swim at the pool for half price. Normally swimming for an hour would cost $10. If John has an income of $1000, the club membership fee is $100, and we plot the number of visits to the pool on the horizontal axis and a composite "other goods" which have a price of $1 on the vertical axis, the slope of John's budget line after joining the club will be:

Question 32

The "equal bang for the buck" idea means that the consumer is equating:

A)the marginal utilities of all of the goods purchased.
B)the prices of all the goods purchased.
C)the marginal utilities of the last dollar spent on each good purchased.
D)the ratios of the last dollar spent on each good purchased.

Question 33

Question 34

Question 35

Which of the following statements is true about the consumer's expenditure minimization problem?

A)The consumer's expenditure minimization problem results in the same optimal basket as the consumer's utility maximization problem if the required level of utility for the expenditure minimizer is the same as the maximized utility for the utility maximizer.
B)The consumer's expenditure minimization problem has an optimum at an expenditure of zero.
C)The consumer's utility maximization problem results in a tangency between the budget constraint and an indifference curve, whereas the expenditure minimization problem results in a solution where the indifference curve crosses the budget line.
D)The consumer always prefers to maximize utility rather than to minimize expenditure.

Question 36

When comparing a cash subsidy and a voucher worth the same dollar amount, but only good for the purchase of a single good:

A)a consumer can never be better off with a cash subsidy than with a voucher.
B)a consumer can never be better off with a voucher than with a cash subsidy.
C)a cash subsidy will always make the consumer better off than the consumer would be with a voucher.
D)a voucher will always make the consumer better off than the consumer would be with a cash subsidy.

Question 37

Suppose that candies are usually sold at $0.05 each. The local candy store offers 2 extra candies for free upon purchase of any 10 pieces. Suppose that Laurel gets an allowance of $3.00 per week. Which of the following is a false statement about her budget constraint if Laurel may consume either candy, x, measured on the horizontal axis or a composite good, y, measured on the vertical axis and priced at $1.00 per unit?

A)The maximum number of candies Laurel can purchase is 72.
B)The budget constraint has horizontal segments.
C)The budget constraint is a straight line with a negative slope.
D)With normally shaped preferences, Laurel will never refuse the free candies.

Question 38

At a consumer's interior optimum solution, which of the following will not necessarily hold true?

Question 39

Question 40

The theory of consumer choice:

A)describes how a consumer chooses between different budget constraints.
B)describes how a consumer chooses between different income levels.
C)describes how a consumer allocates her limited income among available goods and services.
D)describes how a consumer allocates her limited preferences among available income levels.

Question 41

When analyzing how borrowing and lending affect the consumer's budget constraint, we measure spending in the current time period on the horizontal axis and spending in the future time period on the vertical axis. Assume that the interest rate at which the consumer can lend and borrow is 10%, income in period 1 is $1000 and income in period 2 is $1200. The point of maximum current consumption can be expressed as:

Question 42

When we do not have information regarding a consumer's indifference map, which of the following analyses can provide additional information regarding the consumer's choices?

A)Revealed preference analysis.
B)Indifference curve analysis.
C)Market basket analysis.
D)Optimization analysis.

Question 43

When analyzing how borrowing and lending affect the consumer's budget constraint, we measure spending in the current time period on the horizontal axis and spending in the future time period on the vertical axis. Assume that the interest rate at which the consumer can lend and borrow is 10% and income in period 1 is $1000 while income in period 2 is $1200. The point of maximum future consumption can be expressed as:

Question 44

The budget constraint is a function of consumer preferences.

Question 45

Assume that we are modeling inter-temporal consumption for a typical consumer. Further assume that we measure current consumption on the horizontal axis and future consumption on the vertical axis. A market exists where borrowing and lending can occur for a fixed interest rate, r. Now identify the statement that is false.

A)When a consumer can lend or borrow at the same interest rate, the consumer's budget constraint is a straight line.
B)When the rate at which a consumer can borrow is higher than the rate at which the consumer can lend, the consumer's budget constraint is composed of two straight lines with different slopes.
C)When a consumer cannot borrow money or earn an interest rate for saving money, the consumer's budget constraint is a straight line.
D)When a consumer has access to financial markets so that he/she can lend or borrow money, his/her budget constraint is expanded when compared to his/her budget constraint without access to financial markets.

Question 46

The budget line represents the set of all baskets the consumer can afford while spending all available income.

Question 47

If the government would like to induce a consumer to consume a specific level of some good:

A)a cash subsidy system would likely be cheaper for the government than a voucher system.
B)a voucher system would likely be cheaper for the government than a cash subsidy system.
C)the government should only use a cash subsidy system since this always make consumers better off.
D)the government should only use a voucher system since this always makes consumers better off.

Question 48

Question 49

Question 50

If a consumer states that he is indifferent between receiving a gift certificate for $10 at the local bookstore and receiving $10 cash, we can infer that this consumer:

A)would spend less than $10 at the bookstore.
B)would spend at least $10 at the bookstore.
C)would spend more than $10 at the bookstore.
D)would spend exactly $10 at the bookstore.

Question 51

Question 52

Suppose John is planning to join a sports club. Membership in the club will allow John to swim at the pool for half price. Normally swimming for an hour would cost $10. If John has an income of $1000, the club membership fee is $100, and we plot the number of visits to the pool on the horizontal axis and a composite "other goods" which have a price of $1 on the vertical axis, the equation of John's budget line after joining the club, where the composite good, y, is on the vertical axis and pool visits, x, are measured on the horizontal axis is:

Question 53

Suppose the government is considering a program to give housing vouchers to poor people. Assuming the value of the voucher is greater than the amount currently being spent on housing per month by poor people, which of the following must be true?

A)The housing voucher will necessarily cause more units of housing to be consumed by poor people, whereas an unrestricted cash subsidy with the same dollar value would not.
B)The housing voucher will lead to fewer apartments for poor people.
C)A subsidy is always preferable, no matter what the policy goal as it allows for freedom of choice.
D)Voucher systems have no impact on the housing market.

Question 54

Question 55

Suppose again the government offers poor people a housing voucher and units of housing is graphed on the x-axis and the composite good is graphed on the y-axis. The consumer will always choose to consume the exact amount of the housing voucher's units of housing when:

A)the consumer's indifference curves are everywhere steeper than the budget line.
B)the consumer chooses to move into a better school district for educational purposes.
C)the housing voucher causes the budget line to shift toward the origin.
D)the consumer's indifference curves are flatter (closer to horizontal)than the budget line where it slopes downward.

Question 56

The budget line represents the set of all baskets in which the consumer purchases only one of the goods.

Question 57

The budget line represents the set of all baskets the consumer can afford.

Question 58

Question 59

Question 60

The budget line represents the set of all baskets that give the consumer the same level of utility while holding spending constant.

Question 61

All points to the interior of the budget constraint are affordable.

Question 62

Suppose the government is considering a program to give housing vouchers to poor people. Assume the value of the voucher is greater than the amount currently being spent on housing per month by poor people. The housing voucher will necessarily cause more units of housing to be consumed by poor people, whereas an unrestricted cash subsidy with the same dollar value would not.

Question 63

The tangency condition for the optimal choice for a consumer is given by .

Question 64

The tangency condition for the optimal choice for a consumer is given by .

Question 65

The tangency condition for the optimal choice for a consumer is given by .

Question 66

The consumer's expenditure minimization problem has an optimum at an expenditure of zero.

Question 67

Question 68

The consumer always prefers to maximize utility rather than to minimize expenditure.

Question 69

The budget constraint defines the set of baskets that a consumer can purchase with a specific level of income.

Question 70

The tangency condition for the optimal choice for a consumer is given by .

Question 71

Assume that we are modeling inter-temporal consumption for a typical consumer. Further assume that we measure current consumption on the horizontal axis and future consumption on the vertical axis. A market exists where borrowing and lending can occur for a fixed interest rate, r. When a consumer cannot borrow money or earn an interest rate for saving money, the consumer's budget constraint is a straight line.

Question 72

An increase in the amount of income changes the intercepts of the budget constraint but not the slope.

Question 73

Assume that we are modeling inter-temporal consumption for a typical consumer. Further assume that we measure current consumption on the horizontal axis and future consumption on the vertical axis. A market exists where borrowing and lending can occur for a fixed interest rate, r. When the rate at which a consumer can borrow is higher than the rate at which the consumer can lend, the consumer's budget constraint is composed of two straight lines with different slopes.

Question 74

All points that lie on the budget constraint cost the same amount of money.

Question 75

Assume that we are modeling inter-temporal consumption for a typical consumer. Further assume that we measure current consumption on the horizontal axis and future consumption on the vertical axis. A market exists where borrowing and lending can occur for a fixed interest rate, r. When a consumer has access to financial markets so that he/she can lend or borrow money, his/her budget constraint is expanded when compared to his/her budget constraint without access to financial markets.

Question 76

The consumer's utility maximization problem results in a tangency between the budget constraint and an indifference curve, whereas the expenditure minimization problem results in a solution where the indifference curve crosses the budget line.

Question 77

Assume that we are modeling inter-temporal consumption for a typical consumer. Further assume that we measure current consumption on the horizontal axis and future consumption on the vertical axis. A market exists where borrowing and lending can occur for a fixed interest rate, r. When a consumer can lend or borrow at the same interest rate, the consumer's budget constraint is a straight line.

Question 78

Question 79

The consumer's expenditure minimization problem results in the same optimal basket as the consumer's utility maximization problem if the required level of utility for the expenditure minimizer is the same as the maximized utility for the utility maximizer.

Question 80