Deck 9: Possibilities, Preferences, and Choices

Question 1

Larry spends all his $800 monthly income on pizza and gasoline. The price of pizza is $4 a slice, and the price of gasoline is $2 per gallon. If Larry buys 150 slices of pizza per month, his budget constraint will allow him to buy ________ gallons of gas per month.

A) 100
B) 80
C) 120
D) 200

Answer 1

100

Question 2

In order to determine a household's budget line, you must know the

A) prices of the goods bought and the household's income.
B) prices of the goods bought, but not the household's income.
C) household's income, but not the prices of goods bought.
D) household's income, prices of the goods bought, and the household's preferences.

Answer 2

prices of the goods bought and the household's income.

Question 3

Sam buys gasoline and coffee each week. In order to draw his budget line between gasoline and coffee, Sam would have to know

A) only how much income he has available to spend on gasoline and coffee.
B) only the prices of one gallon of gasoline and one pound of coffee.
C) only how much gasoline he wants to buy and how much coffee he wants to drink.
D) both how much income he has to spend and the prices of one gallon of gasoline and one pound of coffee.

Answer 3

both how much income he has to spend and the prices of one gallon of gasoline and one pound of coffee.

Question 4

All points below the budget line are

A) inferior to every point on the budget line.
B) preferred to every point on the budget line.
C) affordable.
D) Answers A and C are correct.

Question 5

Jake plans to spend $100 on fried chicken and Pepsi. The price of a fried chicken is $5 and Pepsi is $2 per bottle. If Jake buys 10 fried chickens how many bottles of Pepsi can he buy?

A) 50
B) 10
C) 25
D) 75

Question 6

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?

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

Question 7

The variables that determine a household's budget line are

A) its preferences and income.
B) its preferences and prices.
C) prices and income.
D) None of the above are correct.

Question 8

In order to draw an individual's budget line, we must know

A) prices and preferences.
B) prices and income.
C) income and preferences.
D) prices, income, and preferences.

Question 9

The budget line ________.

A) shows the limits to a household's consumption choices
B) illustrates a household's preferences
C) defines a household's consumption when prices change
D) shows the income a household needs to be able to buy goods and services

Question 10

Lily is a college student who likes to buy only two goods: Cheetos and Pepsi. To determine Lily's budget line, you need to know I. Lily's preferences for Cheetos and Pepsi.
II) The prices of Cheetos and Pepsi.
III) Lily's income.

A) II only
B) I and II
C) II and III
D) I, II and III

Question 11

A budget line shows the

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

Question 12

Moving along a given budget line

A) prices and real income both decrease.
B) prices fall and real income is constant.
C) real income decreases and prices are constant.
D) prices and real income are constant.

Question 13

Budget lines are drawn on a diagram with the

A) price of the good on the vertical axis and its quantity on the horizontal axis.
B) price of one good on the vertical axis and the price of another good on the horizontal axis.
C) quantity of the good on the vertical axis and its price on the horizontal axis.
D) quantity of one good on the vertical axis and the quantity of another good on the horizontal axis.

Question 14

All points above the budget line are

A) inferior to every point on the budget line.
B) preferred to every point on the budget line.
C) unaffordable.
D) Both answers B and C are correct.

Question 15

Tonya, who is rich, and Jerome, who is poorer, both buy orange juice and croissants for lunch at the student cafeteria. Their budget constraints on a diagram with orange juice on the vertical axis and croissants on the horizontal have the same

A) horizontal intercepts.
B) vertical intercepts.
C) slopes.
D) midpoints.

Question 16

For a consumer, a budget line shows the boundary between

A) what is desired and what is not desired.
B) what is needed and what is not needed.
C) what is affordable and what is not affordable.
D) what is available and what is not available.

Question 17

Goods that can be bought in any quantity desired are called

A) divisible goods.
B) indivisible goods.
C) invisible goods.
D) inferior goods.

Question 18

Which of the following is NOT a divisible good?

A) gasoline
B) tap water
C) electricity
D) movies

Question 19

A household's consumption choices cannot exceed limits created by

A) only the household's income.
B) only the prices of the goods and services that it buys.
C) both the household's income and the prices of the goods and services that it buys.
D) neither the household's income nor the prices of the goods and services that it buys.

Question 20

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

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

Question 21

Based on the above figure showing a budget line, which of the following combinations of soda and bottled water are not affordable?

A) 3 bottles of water and 4 cans of soda
B) 4 bottles of water and 2 cans of soda
C) 2 bottles of water and 6 cans of soda
D) None of the above, that is, all the combinations listed are affordable.

Question 22

The above figure gives your budget line between CDs and magazines. Which combination of CDs and magazines is not affordable?

A) combination a
B) combination b
C) combination c
D) both combinations b and d

Question 23

Suppose that Dave has $200 to spend per week and he buys only magazines and pizza. The price of a pizza is $10 and the price of a magazine is $5. If Dave buys 20 magazines per week, which of the following amount of pizza is not affordable to him?

A) 10
B) 20
C) 9
D) All of the above answers are correct because none of the listed amounts of pizza are affordable.

Question 24

Joe has $50 to spend on pizza and movies. If movies are $5 each and a pizza is $10 then, assuming he spends all his money, he can buy which of the following bundle of goods?

A) 6 movies and 2 pizzas
B) 8 movies and 4 pizzas
C) 2 movies and 6 pizzas
D) 6 movies and 4 pizzas

Question 25

The figure above gives your budget line for magazine and CDs per month. Given that your income equals $60 per month, what is your real income in terms of CDs?

A) 3 CDs
B) 5 CDs
C) 6 CDs
D) $60/month

Question 26

The figure above gives your budget line for magazine and CDs per month. Given that your income equals $60 per month, what is the price of a magazine and the price of a CD?

A) The price of a magazine is $12 per magazine and the price of a CD is $6 per CD.
B) The price of a magazine is $5 per magazine and the price of a CD is $10 per CD.
C) The price of a magazine is $4 per magazine and the price of a CD is $12 per CD.
D) It is impossible to tell from the information given.

Question 27

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

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

Question 28

Suppose that Dave has $200 to spend per week and he buys only magazines and pizza. The price of a pizza is $10 and the price of a magazine is $5. What is Dave's real income in terms of magazines?

A) 20
B) 40
C) 200
D) 10

Question 29

According to the budget line in the above figure, which of the following combinations is unaffordable?

A) 1 pizza and 3 CDs
B) 3 pizzas and 2 CDs
C) 2 pizzas and 4 CDs
D) All of the above are affordable.

Question 30

The figure above shows Tanya's consumption possibilities. Which of the following combinations of goods is not affordable?

A) 8 movie tickets and 3 restaurant meals.
B) 12 movie tickets and 2 restaurant meals.
C) 10 movie tickets and 3 restaurant meals.
D) 6 movie tickets and 3 restaurant meals.

Question 31

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

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

Question 32

Given the budget line in the above figure, if income is $60, then the price of a pizza is ________ and the price of a CD is ________.

A) $5; $20
B) $6; $4
C) $15; 15
D) $10; $15

Question 33

Suppose that Dave has $200 to spend per week and he buys only magazines and pizza. The price of a pizza is $10 and the price of a magazine is $5. What is the maximum amount of pizza Dave can buy each week?

A) 40
B) 20
C) 200
D) 60

Question 34

Junkfood Jill spends all of her income on jellybeans and Jolt cola. Suppose that Jill's income is $30, the price of a bag of jellybeans is $6, and the price of a bottle of Jolt cola is $2. Which of the following combinations of jellybeans and Jolt cola lies inside of Jill's budget line?

A) 5 bags of jellybeans and 0 bottles of Jolt
B) 4 bags of jellybeans and 4 bottles of Jolt
C) 3 bags of jellybeans and 6 bottles of Jolt
D) 2 bags of jellybeans and 8 bottles of Jolt

Question 35

Consider the budget line in the above figure. If the consumer's income is $240, then the price of a movie is

A) $24 per movie.
B) $12 per movie.
C) $10 per movie.
D) More information is needed to determine the price of a movie.

Question 36

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 ________.

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

Question 37

Consider the budget line in the above figure. If the consumer's income is $240, then the price of a book is

A) $20 per book.
B) $24 per book.
C) $12 per book.
D) More information is needed to determine the price of a book.

Question 38

Suppose that Dave has $200 to spend per week and he buys only magazines and pizza. The price of a pizza is $10 and the price of a magazine is $5. If Dave buys 15 pizza each week, what is the maximum number of magazines can he buy?

A) 40
B) 20
C) 10
D) 200

Question 39

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

A) $10 per book.
B) $12 per book.
C) $6 per book.
D) More information is needed to determine the price of a book.

Question 40

The figure above shows Tanya's consumption possibilities when the price of a restaurant meal is $20. If the price of a restaurant meal falls to $10 and Tanya buys 12 movie tickets, how many restaurant meals can she buy?

A) 2
B) 3
C) 4
D) 5

Question 41

The figure above gives your budget line for magazine and CDs per month. Given that your income equals $60 per month, what is your real income in terms of magazines?

A) 12 magazines
B) 6 magazines
C) 2 magazines
D) $60/month

Question 42

If units of pizza are plotted on the horizontal axis, and units of hot dogs plotted on the vertical axis, and the price of a hot dog increases the

A) x-intercept and the slope of the budget line will increase.
B) y-intercept and the slope of the budget line will increase.
C) x-intercept and the slope of the budget line will decrease.
D) y-intercept and the slope of the budget line will decrease.

Question 43

The above figure gives your budget line between CDs and magazines. What would allow you to buy more CDs?

A) a decrease in the relative price of CDs
B) an increase in income
C) a decrease in the price of magazines with no change in the price of CDs
D) All of the above changes would allow you to buy more CDs.

Question 44

If Sam has $60.00 each week to spend on gasoline and coffee, and their respective prices are $1.50 per gallon and $3.00 per pound, which of the following equations represents his budget line?

A) $60.00 = $1.50/Q_g + $3.00/Q_c
B) $60.00 = Q_g /$1.50 + Q_c /$3.00
C) $60.00 = $1.50(Q_g) + $3.00(Q_c)
D) $60.00 = $1.50(Q_g) - $3.00(Q_c)

Question 45

Which of the following factors is NOT part of the budget equation?

A) relative prices
B) real income
C) quantities of goods
D) preferences

Question 46

The above figure gives your budget line between CDs and magazines. The slope of the budget line is ________ CD per magazine.

A) 1/2
B) -1/2
C) -1
D) -2

Question 47

Given the budget line in the above figure, what is the household's real income in terms of pizzas per month?

A) 5 pizzas per month
B) 4 pizzas per month
C) 3 pizzas per month
D) All of above represent the household's real income.

Question 48

Real income can be measured by

A) the slope of the budget line.
B) the area under the budget line.
C) the length of the budget line.
D) an intercept of the budget line.

Question 49

Real income equals a household's income

A) in terms of the quantity of goods the household can buy.
B) multiplied by the prices of the goods it buys.
C) divided by the prices of the goods it buys.
D) multiplied by the relative prices of the goods it buys.

Question 50

Given the budget line in the above figure, which of the following combinations of pizza and milk are affordable?

A) 0 pizzas, 12 gallons of milk
B) 2 pizzas, 2 gallons of milk
C) 4 pizzas, 4 gallons of milk
D) All of the above combinations are affordable.

Question 51

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 quart. Larry's real monthly income in terms of pizza is

A) 400 slices.
B) $800.
C) 200 slices.
D) $400.

Question 52

Given the budget line in the above figure, what is the relative price of pizza?

A) 10 gallons of milk per pizza
B) 6 gallons of milk per pizza
C) 4 gallons of milk per pizza
D) 2 gallons of milk per pizza

Question 53

Shaniq consumes only magazine and CDs. Her income equals $60 per month. CDs are $12 each and magazines are $5 each. What is the equation for her budget line?

A) $60 = Q_m + Q_CD
B) $60 = $12Q_m + $5Q_CD
C) 12 = -2Q_m + 6
D) $60 = 12Q_CD + 5Q_m

Question 54

If Sam has $80.00 each week to spend on tacos and magazines, and their respective prices are $.50 per taco and $4.00 per magazine, which of the following equations represents his budget line?

A) $80.00 = $.50/Q_t + $4.00/Q_m
B) $80.00 = Q_t/Q_m + $.50 /$4.00
C) $80.00 = $.50(Q_m) + $4.00(Q_t)
D) $80.00 = $.50(Q_t) + $4.00(Q_m)

Question 55

Mary has $10 to spend each week on coffee, Q_c and magazines, Q_m. The price of a coffee is $1, and the price of a magazine is $2. Mary's budget equation is ________.

A) Q_m = 10 - Q_c
B) Q_m + Q_c = 20
C) $1 × Q_c + $2 × Q_m = $10
D) Q_m = 10 - 2 × Q_c

Question 56

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

A) $2/Q_bagel + $3/Q_coffee = $40.
B) $2(Q_bagel) + $3(Q_coffee) = $40.
C) Q_bagel /$2 + Q_coffee /$3 = $40.
D) Q_bagel + Q_coffee = $40/($3 + $2).

Question 57

The above figure gives your budget line between CDs and magazines. If the price of a magazine falls, then the budget line

A) shifts outward and the slope does not change.
B) rotates inward with no change in the horizontal intercept.
C) rotates inward with no change in the vertical intercept.
D) rotates outward with no change in the vertical axis.

Question 58

Real income measures the

A) slope of the budget line.
B) purchasing power of a given income.
C) slope of the preference map.
D) area under the indifference curve.

Question 59

Real income is ________.

A) equal to money income minus taxes
B) equal to the income earned legally
C) equal to money income plus benefits minus taxes
D) the maximum amount of goods and services that a household can afford

Question 60

Hilda buys only cauliflower, Q_c, and geraniums, Q_g. The equation for Hilda's initial budget line is $40 = $2 × Q_c + $4 × Q_g. If Hilda's income increases by $20, the price of cauliflower decreases by $1, and the price of geraniums increases by $1, the equation of her new budget line is ________.

A) $60 = $1 × Q_c + $5 × Q_g
B) $60 + $1 × Q_c = $5 × Q_g
C) $0 = $60 + $1 × Q_c + $5 × Q_g
D) $60 = $5 × Q_c - $1 × Q_g

Question 61

When the price of only one good rises, the relative price of that good

A) falls.
B) rises.
C) does not change.
D) rises if it is a normal good and falls if it is an inferior good.

Question 62

The price of one good divided by the price of another good is a

A) money price.
B) relative price.
C) budget constraint.
D) divisible good.

Question 63

Suppose the price of chocolate chip cookies is $4.00 per pound and the price of a slice of cake is $2.00 per slice. The relative price of cookies in terms of cake is

A) $2.00 per cookie.
B) $4.00 per cookie.
C) 1/2 slice of cake per cookie.
D) 2 slices of cake per cookie.

Question 64

Suppose you are graphing the quantity of bagels on the vertical axis and the quantity of coffee on the horizontal axis. A household's real income in terms of bagels is the

A) relative price of coffee.
B) relative price of bagels.
C) point at which the budget line intersects the x-axis.
D) point at which the budget line intersects the y-axis.

Question 65

Suppose the price of coffee is $3 each, the price of bagels is $2 each and a person's budget is $40. The relative price of coffee is

A) 1.5 bagels.
B) 2/3 of a bagel.
C) 13.33 bagels.
D) 20 bagels.

Question 66

A relative price is the

A) price of one good divided by the price of another good.
B) same as opportunity cost.
C) price of a given good divided by income.
D) Both answers A and B are correct.

Question 67

Suppose that Dave has $200 to spend per week and he buys only magazines and pizza. The price of a pizza is $10 and the price of a magazine is $5. What is Dave's real income in terms of magazines?

A) 20
B) 40
C) 200
D) 10

Question 68

In 2012, the Associated Press examined the effect higher gas prices on consumption of other goods. It said that the increase in the price of gasoline has decreased the quantity of other goods, such as food, that people consume. (Source: Associated Press, September 28, 2012)
If consumers spend their income either on gasoline or food, then an increase in the price of gasoline rotates the budget line

A) inward along the "food" axis.
B) outward along the "food" axis.
C) inward along the "gasoline" axis.
D) outward along the "gasoline" axis.

Question 69

If the price of gasoline increases and the price of food remains the same, then real income measured in terms of

A) gasoline increases.
B) gasoline decreases.
C) food increases.
D) food decreases.

Question 70

Suppose that the price of a bag of jellybeans is $6, and the price of a bottle of cola is $2. The relative price of cola is

A) 3 bags of jellybeans per bottle of cola.
B) 2 bags of jellybeans per bottle of cola.
C) 1/3 bag of jellybeans per bottle of cola.
D) $2.

Question 71

Suppose the price of chocolate chip cookies is $4.00 per pound and the price of a slice of cake is $2.00 per slice. The relative price of cake in terms of cookies is

A) 1/2 pound of cookies per cake.
B) 2 pounds of cookies per cake.
C) 1/2 slice of cake per cookie.
D) 2 slices of cake per cookie.

Question 72

Suppose the price of coffee is $3 each, the price of bagels is $2 each and a person's budget is $40. The person's real income is

A) $40.
B) $13.33 in terms of bagels.
C) $13.33 in terms of coffee.
D) $8.

Question 73

John has $40 to spend on pizza and tacos. Pizza costs $10 each and tacos are $1 per taco. John's real income ________.

A) is $40
B) is 4 pizzas or 40 tacos
C) is 4 pizzas plus 40 tacos
D) depends only on his money wage

Question 74

If the relative price of pizza in terms of movies is 3, this means that

A) the opportunity cost of a pizza is 3 movies.
B) 3 pizzas can be traded for 9 movies.
C) in terms of the dollars that must be spent to buy the product, pizza is more expensive than movies.
D) All of the above answers are correct.

Question 75

Suppose that initially the price of a bag of jellybeans is $6, and the price of a bottle of cola is $2. If the price of a bottle of cola increases, then the relative price of jellybeans

A) increases.
B) decreases.
C) stays the same, but the relative price of cola increases.
D) stays the same, but the relative price of cola decreases.

Question 76

The magnitude of the slope of the budget line is determined by

A) the marginal rate of substitution.
B) the level of income.
C) the consumer's preferences for the goods.
D) relative prices.

Question 77

If the price of peanuts increases by 10 percent and the price of potato chips does not change, then the relative price of peanuts with respect to potato chips will ________ and the relative price of potato chips with respect to peanuts will ________.

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

Question 78

The ________ is the price of one good ________ the price of another good.

A) relative price; times
B) relative price; divided by
C) budget; times
D) budget; divided by

Question 79

Real income is equal to ________ and a relative price is given by ________.

A) the dollar amount of income divided by the dollar price of a good; the dollar price of one good divided by the dollar price of the good whose relative price is being calculated
B) the dollar price of one good divided by the dollar price of the good whose relative price is being calculated; the dollar amount of income divided by the dollar price of a good
C) The dollar price of one good divided by the dollar price of another good; the dollar price of one good divided by the dollar price of the good whose relative price is being calculated
D) the dollar amount of income; real income divided by the dollar amount of income

Question 80

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 quart. The relative price of milk is

A) 2 slices of pizza per quart.
B) 0.5 slices of pizza per quart.
C) $2 per quart.
D) 0.5 quarts per slice of pizza.