Deck 4: Consumer Choice

Question 1

Indifference curves that are thick violate

A) the assumption of transitivity.
B) the assumption that more is better.
C) the assumption of completeness.
D) none of the assumptions.

Answer 1

B

Question 2

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.

Answer 2

C

Question 3

Diminishing marginal rate of substitution can be seen when indifference curves

A) cross.
B) are convex.
C) are downward sloping.
D) become flatter as we move down and to the right.

Answer 3

D

Question 4

Lisa views pizzas and burritos as goods.If she prefers a bundle of 4 burritos and 4 pizzas to a bundle of 4 burritos and 5 pizzas,which property of consumer preference is violated? What change in the assumptions could lead a rational consumer to prefer the first bundle?

Question 5

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 6

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".

Question 7

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 8

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 9

The statement "There is no accounting for taste" implies

A) individuals all have the same preferences.
B) individuals all have different cardinal preferences but the same ordinal preferences.
C) individuals all have different ordinal preferences but the same cardinal preferences.
D) individuals all have different ordinal and cardinal preferences.

Question 10

An indifference curve represents bundles of goods that a consumer

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

Question 11

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 12

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 13

Explain why most indifference curves are convex.

Question 14

Indifference curves on the same indifference map can have different shapes.

Question 15

Indifference curves cannot intersect.

Question 16

Economists use a preference map to illustrate that

A) more is better than less.
B) preferences are transitive.
C) preferences are complete.
D) All of the above.

Question 17

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 18

Indifference curves for perfect substitutes must be parallel lines with a slope of negative one.

Question 19

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.

Question 20

Indifference curves cannot ever be concave for two goods.

Question 21

Assuming that good "x" is measured on the x-axis and good "y" is measured on the y-axis,if the utility for the two goods "x" and "y" can be measured as U = x,then it can be concluded that

A) "x" and "y" are perfect complements.
B) "y" is a "bad".
C) the indifference curves on the x,y graph are upward sloping.
D) the indifference curves on the x,y graph are vertical.

Question 22

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 23

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 24

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 25

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

A) -C/F.
B) -F/C.
C) -
D) -

Question 26

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

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

Question 27

Assuming that good "x" is measured on the x-axis and good "y" is measured on the y-axis,if the utility for the two goods "x" and "y" can be measured as U = y,then it can be concluded that

A) "x" and "y" are perfect complements.
B) "x" is a "bad".
C) the indifference curves on the x,y graph are upward sloping.
D) the indifference curves on the x,y graph are horizontal.

Question 28

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 29

If Johnny likes homework (H)but hates exercise (E),which of the following might best represent his utility function for homework and exercise?

A) U = H + E
B) U = H/E
C) U = H² +
D) U = H² ×

Question 30

Draw the indifference curves for rock concerts and food for each of the following:
(a)a typical 17-year-old
(b)a typical 75-year-old

Question 31

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) B and C.

Question 32

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 33

If two goods,"x" and "y",are perfect substitutes,then which of the following best represents the utility function for the two goods?

A) U = x + y
B) U = x ∗ y
C) U = x² + y²
D) Any of the above.

Question 34

Individuals derive utility from picnics,p,and kayak trips,k.Assuming that an individual's utility is U(p,k)= k^0.5p^0.5 and income is $100,what is the marginal rate of substitution (MRS)between picnics and kayak trips?

A) MRS = 1.
B) MRS = -1.
C) MRS = -
D) There is no substitution because picnics and kayak trips are perfect complements.

Question 35

If the utility for two goods "x" and "y" is measured as U = x + y,then it can be concluded that

A) "x" and "y" are perfect substitutes.
B) "x" and "y" are perfect complements.
C) "x" and "y" are both bads.
D) the indifference curves on the x,y graph will be upward sloping.

Question 36

People view alcohol and marijuana as perfect substitutes.This means that

A) individuals will consume either alcohol or marijuana, but not both, regardless of price.
B) as the price of alcohol decreases, marijuana use decreases.
C) the marginal utility for alcohol and marijuana is constant.
D) Both B and C.

Question 37

Draw the indifference curves for nickels and dimes.Would they ever have a non-constant slope? Explain.

Question 38

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

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

Question 39

Clifford lives by the motto "Eat,drink and be merry today,for tomorrow doesn't matter." If today's consumption is measured on the horizontal axis and tomorrow's consumption is measured on the vertical axis,Clifford's indifference curves

A) are horizontal straight lines.
B) are vertical straight lines.
C) show decreasing utility as one moves upward.
D) cannot be determined from the information given.

Question 40

Some people view cosmetic surgery (c)and facials (f)as perfect substitutes as measured by the utility function U(c,f)= 5c + 10f.What is the marginal utility of cosmetic surgery?

A) MU = 5.
B) MU = 10.
C) MU = 15.
D) None of the above.

Question 41

Joe's budget constraint equals 500 = 2F + 100S,where $500 is Joe's income,$2 is the price of food (F)and $100 is the price of shelter (S).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 42

If both prices increases by 50%,

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

Question 43

What is the difference between ordinal and cardinal measurement?

Question 44

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 45

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 46

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 47

Quotas,such as limiting the amount of residential water use during a drought,restricts an individual's preference set and

A) reduces utility because an individual cannot consume as much as they would without the quota.
B) increases utility because quotas restrict output and raise profits for the water company.
C) reduces utility because an individual is forced to substitute to other goods.
D) does not affect overall utility.

Question 48

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 49

Joe's income is $500,the price of food (F)is $2 per unit,and the price of shelter (S)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 50

If both prices decreases by 50%,

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

Question 51

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 52

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 53

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

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

Question 54

Joe's income is $500,the price of food (F)is $2 per unit,and the price of shelter (S)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 55

The absolute value of the slope of an indifference curve equals the ratio of the marginal utilities of the two goods involved.

Question 56

If the prices of both goods and income increase by the same percentage,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 outward without a change in slope.
D) Nothing.

Question 57

Suppose Joe's utility for lobster (L)and soda (S)can be represented as U = L^0.5 S^0.5.Draw the indifference curve that yields a utility level of 9.Calculate the MUL,MUS,and MRS of L for S on that indifference curve when S = 3.

Question 58

Joe's income is $500,the price of food (F)is $2,and the price of shelter (S)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 59

If a consumer's budget line for food (F)and shelter (S)is represented as F = 250 - 5S,we know that

A) the consumer's income is 250.
B) the price of shelter is 5.
C) the price of shelter is 5 times the price of food.
D) All of the above.

Question 60

The intuition behind the budget constraint is that

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 61

Max has allocated $100 toward meats for his barbecue.His budget line and an indifference map are shown in the above figure.What happens if Max's mother gives him 30 pounds of burger?

A) Max would have preferred receiving the dollar value of the burger.
B) Max is indifferent between this gift and the dollar value of the burger.
C) Max prefers this gift to the dollar value of the burger.
D) None of the above.

Question 62

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 63

Lisa has an income of $100.She spends all of her income on pizza and burritos.A pizza costs $10 and a burrito costs $5.However,the store where Lisa buys her burritos has a special deal.After you've bought 6 burritos,then you can buy each burrito for $2.50.Draw Lisa's opportunity set.

Question 64

Max has allocated $100 toward meats for his barbecue.His budget line and an indifference map are shown in the above figure.What is the price of chicken?

A) $0.80/lb
B) $1.25/lb
C) $4/lb
D) $5/lb

Question 65

The slope of the budget line represents the rate at which the consumer is willing to trade one good for another at any given bundle.

Question 66

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 67

Max has allocated $100 toward meats for his barbecue.His budget line and an indifference map are shown in the above figure.What happens if Max receives a $100 cash grant to buy either meat or chicken?

A) Max will double his consumption of both meats.
B) Max will spend it all on burger. Because of its lower price, he can buy more of it.
C) Max will take advantage of the gift by buying all chicken because it is the more expensive meat.
D) There is not enough information to answer the question.

Question 68

Explain the difference between the marginal rate of substitution and the marginal rate of transformation.

Question 69

Max has allocated $100 toward meats for his barbecue.His budget line and an indifference map are shown in the above figure.What happens if Max's mother gives him 10 pounds of burger?

A) Max would have preferred receiving the dollar value of the burger.
B) Max is indifferent between this gift and the dollar value of the burger.
C) Max prefers this gift to the dollar value of the burger.
D) None of the above.

Question 70

Johnny has allocated $30 toward coffee and tea and feels that coffee and tea are perfect substitutes.Due to differences in caffeine levels,his MRS of tea for coffee equals 2.If coffee and tea sell for the same price,Johnny will

A) spend all $30 on tea.
B) spend all $30 on coffee.
C) spend $20 on coffee and $10 on tea.
D) be indifferent between any bundle of coffee and tea costing $30.

Question 71

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 consumer's choice?

A) 5 Beer, 5 Pizza
B) 0 Beer, 25 Pizza
C) 25 Beer, 15 Pizza
D) None of the bundle will be chosen.

Question 72

Max has allocated $100 toward meats for his barbecue.His budget line and an indifference map are shown in the above figure.Which of the following best describes Max's preferences?

A) d > b > e
B) d = b = e
C) a = b > c
D) a = b > e

Question 73

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 74

Max has allocated $100 toward meats for his barbecue.His budget line and an indifference map are shown in the above figure.Which bundle will Max choose?

A) a
B) b
C) c
D) d

Question 75

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

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

Question 76

Joe subscribes to an Internet provider that charges $2 per hour.Draw his budget line for Internet access on the horizontal axis and money spent on all other goods on the vertical axis assuming he has $100 per month to spend.Another company offers unlimited Internet access for a flat monthly fee of $20.Draw this budget line.

Question 77

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 78

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 79

Max has allocated $100 toward meats for his barbecue.His budget line and an indifference map are shown in the above figure.If the price of burger increases,

A) Max will buy less burger and more chicken.
B) Max will buy less burger and the same quantity of chicken.
C) Max will buy less of both meats.
D) More information is needed to answer the question.

Question 80

A consumer derives utility for "all other goods," g,and cigarettes,s.The price of "all other goods" equals $9 and the price of cigarettes is $10.Now suppose the government implements a $0.50 per-unit tax on cigarettes to encourage a decrease in smoking.How does the tax affect the marginal rate of transformation,MRT?

A) The MRT will decrease to - .
B) The MRT will increase to - .
C) The MRT will increase to - + 0.05.
D) The MRT will decrease to - - 0.05.