Deck 5: Constraints, Choices, and Demand

Question 1

Refer to Table 5.1,which shows Madeline's preference ranking for various consumption bundles of bread and soup,where 1 represents her first choice,2 her second,and so on.If the price of soup is $3 per bowl,the price of bread is $3 per loaf and Madeline's income is $9 per day,which combination of bread and soup will she choose?

A) 2 loaves of bread and 1 bowl of soup
B) 1 loaf of bread and 2 bowls of soup
C) 3 loaves of bread and 0 bowls of soup
D) 0 loaves of bread and 3 bowls of soup

Answer 1

1 loaf of bread and 2 bowls of soup

Question 2

An increase in the price of the good measured on the horizontal axis will cause the budget line to:

A) shift outward.
B) become steeper.
C) become flatter.
D) shift inward.

Answer 2

become steeper.

Question 3

Consumption bundles that lie above the boundary established by the budget line:

A) are affordable for the consumer.
B) are preferred by the consumer but are not affordable.
C) are not preferred by the consumer.
D) do not exhaust the consumer's income.

Answer 3

are preferred by the consumer but are not affordable.

Question 4

Suppose a consumer purchases pizza and soft drinks.If pizza is measured on the vertical axis and soft drinks are measured on the horizontal axis,then the slope of the budget line is equal to:

A) the price of pizza divided by the price of soft drinks.
B) the price of soft drinks divided by the price of pizza.
C) the price of pizza divided by the price of soft drinks times negative one.
D) the price of soft drinks divided by the price of pizza times negative one.

Question 5

If all prices and income change by the same proportion:

A) the budget line shifts out.
B) the budget line shifts in.
C) the budget line rotates outward.
D) the budget line doesn't change.

Question 6

An increase in the price of the good measured along the vertical axis will cause the budget line to

A) shift outward.
B) shift inward.
C) become steeper.
D) become flatter.

Question 7

Refer to Figure 5.1.In which graph does a shift from BL1 to BL2 represent an increase in the price of DVDs?

A) A
B) B
C) C
D) D

Question 8

Suppose a consumer buy books and DVDs.The price of a book is $10,the price of a DVD is $20 and the consumer's income is $400.If books are measured on the vertical axis and DVDs are measured on the horizontal axis,then the budget line intersects the vertical axis at:

A) 40.
B) 20.
C) 10.
D) 400.

Question 9

Terry buys 10 pounds of cheese and 12 boxes of crackers each month.A pound of cheese costs $5 and a box of crackers costs $3.If she is maximizing her utility,what is her monthly income?

A) $86
B) $90
C) $80
D) There is not enough information to determine her monthly income.

Question 10

Choices that do not exhaust the consumer's budget lie to the ______ of the budget line.

A) southwest
B) northeast
C) northwest
D) southeast

Question 11

A consumer's budget constraint is:

A) a positively-sloped line.
B) a negatively-sloped line.
C) convex.
D) a vertical line at the level of the consumer's income.

Question 12

Suppose a consumer buy books and DVDs.The price of a book is $10,the price of a DVD is $20 and the consumer's income is $400.If books are measured on the vertical axis and DVDs are measured on the horizontal axis,then the slope of the budget line is:

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

Question 13

An increase in a consumer's income will cause the budget line to:

A) shift outward.
B) shift inward.
C) become steeper.
D) become flatter.

Question 14

When the consumer has found the best affordable bundle of goods:

A) the area above the indifference curve that runs through the consumer's best bundle does not overlap with the area below the budget line.
B) the area above the indifference curve that runs through the consumer's best bundle does not overlap with the area above the budget line.
C) the area above the indifference curve that runs through the consumer's best bundle should overlap with the area below the budget line.
D) the area above the indifference curve that runs through any bundle other than the consumer's best bundle does not overlap with the area below the budget line.

Question 15

A consumer's budget constraint is determined by:

A) a consumer's income.
B) a consumer's income and preferences.
C) a consumer's income and the prices of the goods she buys.
D) a consumer's preferences and the prices of the goods she buys.

Question 16

The price of bread is $1.50 per pound and the price of butter is $3 per pound.Steve has an income of $30,with which he buys 4 pounds of bread.How many pounds of butter does he buy,assuming he buys nothing else and he maximizes his utility?

A) 8
B) 12
C) 4
D) There is not enough information to answer the question.

Question 17

Refer to Figure 5.3.Which of the following statements is false?

A) Points a, b and c all represent best choices for the consumer.
B) It is possible for the consumer to afford better bundles than a.
C) Point b satisfies the tangency condition.
D) It is possible for the consumer to afford better bundles than c.

Question 18

Refer to Figure 5.1.In which graph does a shift from BL1 to BL2 represent an increase in the consumer's income?

A) A
B) B
C) C
D) D

Question 19

Refer to Figure 5.1.In which graph could a shift from BL1 to BL2 represent a doubling of the prices of both Books and DVDs?

A) A
B) B
C) C
D) D

Question 20

Suppose a consumer buys pizza (P)and soft drinks (S).The price of pizza is $10,the price of soft drinks is $2 and the consumer's income is $100.If pizza is measured on the vertical axis and soft drinks are measured on the horizontal axis,then the consumer's budget constraint is given by:

A) P = 10 - (1/5)S
B) S = 10 - (1/5)P
C) P = 100 - 5S
D) P = 10 - 5S

Question 21

An affordable consumption bundle is an interior choice if:

A) it lies below the budget line.
B) for each good, there are affordable bundles containing a little bit more of that good and a little bit less of it.
C) for each good, there are no other affordable bundles containing a little bit more of that good and a little bit less of it.
D) it exhausts the consumer's income.

Question 22

Boundary solutions arise when:

A) a good provides a consumer with little value per dollar relative to other alternatives.
B) a consumer has a very low level of income.
C) indifference curves are convex.
D) indifference curves exhibit increasing MRS.

Question 23

A curve that describes the relationship between the price of a good and the amount a particular consumer purchases (holding the consumer's income,preferences and all other prices fixed)is called:

A) a price-consumption curve.
B) an individual demand curve.
C) an income-consumption curve.
D) a budget line.

Question 24

When the price elasticity of demand is large in magnitude,a _____ increase in the price leads to a _____ reduction in the amount purchased and the demand curve is relatively ____.

A) slight; substantial; steep
B) slight; slight; flat
C) large; slight; steep
D) slight; substantial; flat

Question 25

Refer to Figure 5.5.Which diagram shows the price-consumption curve resulting from a decrease in the price of good X?

A) A
B) B
C) C
D) D

Question 26

When the government provides food stamps to low-income households:

A) the household definitely purchases more food.
B) the household purchases less food.
C) purchases of food may increase or decrease.
D) the household's utility is greater than if they received cash aid.

Question 27

Suppose that soup is measured on the horizontal axis and bread is measured on the vertical axis.At an interior solution:

A) MRS_SB = P_S/P_B.
B) MRS_SB = - P_S/P_B.
C) MRS_SB = P_B/P_S.
D) MRS_SB = - P_B/P_S.

Question 28

Refer to Figure 5.4.Which consumption bundle would maximize the consumer's utility?

A) A
B) B
C) C
D) D

Question 29

Which of the following statements is true?

A) Corner solutions always satisfy the tangency condition.
B) Interior solutions may or may not satisfy the tangency condition.
C) Interior solutions always satisfy the tangency condition.
D) Whenever the consumer purchases good X but not good Y, then MRS_XY ≤ P_X/P_Y at the chosen bundle.

Question 30

When the price elasticity of demand is small in magnitude,a _____ increase in the price leads to a _____ reduction in the amount purchased and the demand curve is relatively ____.

A) slight; substantial; steep
B) slight; slight; flat
C) large; slight; steep
D) slight; substantial; flat

Question 31

Mike's income is $600 per month.He spends all of it on books (B)and CDs (C).Books cost $10 and CDs cost $15.His preferences correspond to the utility function U(B,C)= B × C.For that utility function,the marginal benefit of books is C and the marginal benefit of CDs is B.How many books and how many CDs will he purchase in a month?

A)20 CDs and 30 Books
B)60 CDs and 10 Books
C)15 CDs and 40 Books
D)30 CDs and 15 Books

Question 32

If everyone in an economy buys and sells goods at market-wide prices:

A) people will pay the same prices, so everyone's marginal rate of substitution will be the same.
B) people will pay the same prices, but will have different marginal rates of substitution.
C) people will pay different prices, but will have the same marginal rates of substitution.
D) people will pay different prices and therefore will have different marginal rates of substitution.

Question 33

When indifference curves have ________ marginal rates of substitution,any interior choice that satisfies the tangency condition is the best affordable choice.

A) constant
B) increasing
C) declining
D) positive

Question 34

At a boundary choice:

A) the consumer purchases at least some of every good.
B) the consumer purchases no goods.
C) the consumer does not spend all of her income.
D) the consumer purchases some of at least one good but none of at least one other good.

Question 35

The curve that shows how the best affordable consumption bundle changes as the price of a good changes (holding the consumer's income,preferences and all other prices fixed)is called:

A) a price-consumption curve.
B) an individual demand curve.
C) an income-consumption curve.
D) a budget line.

Question 36

A utility function is a mathematical function that assigns values to consumption bundles to represent the:

A) consumer's income.
B) consumer's preferences.
C) marginal rate of substitution.
D) prices of the goods in the consumption bundle.

Question 37

Refer to Figure 5.5.Which diagram shows the income-consumption curve resulting from a decrease in income?

A) A
B) B
C) C
D) D

Question 38

Which of the following conditions must hold if a consumer is maximizing her utility?

A) MU_X × P_X = MU_Y × P_Y
B) MU_X = MU_Y
C) MU_X/P_Y = MU_Y/P_X
D) MU_X/P_X = MU_Y/P_Y

Question 39

Hailey's income is $40 per week.She spends all of it on coffee (C)and doughnuts (D).Coffee costs $2 per cup and doughnuts cost $1 each.Her marginal rate of substitution for coffee with doughnuts is D/C.How many cups of coffee and how many doughnuts will she purchase each week?

A) 15 cups of coffee and 10 doughnuts
B) 10 cups of coffee and 20 doughnuts
C) 20 cups of coffee and 10 doughnuts
D) 5 cups of coffee and 30 doughnuts

Question 40

Whenever a consumer purchases good X but not good Y,then:

A) MRS_XY ≥ P_X/P_Y at the chosen bundle.
B) MRS_XY ≤ P_X/P_Y at the chosen bundle.
C) MRS_XY = P_X/P_Y at the chosen bundle.
D) MRS_XY = - P_X/P_Y at the chosen bundle.

Question 41

If a change in the price of one good does not cause a shift in the demand curve of another good,then the two goods are:

A) substitutes.
B) complements.
C) normal.
D) not related.

Question 42

A curve that describes the relationship between income and the amount of a good consumed (holding the consumer's preferences and all other prices fixed)is called:

A) a price-consumption curve.
B) the Engel curve.
C) an income-consumption curve.
D) a budget line.

Question 43

Refer to Figure 5.7.Which diagram best represents an income-consumption curve where soup is a normal good?

A) A
B) B
C) C
D) D

Question 44

If the price of the good measured on the horizontal axis is subject to volume discounts,then:

A) the budget line will get steeper as the consumer moves along it from left to right.
B) the budget line will get flatter as the consumer moves along it from left to right.
C) the indifference curve will get steeper as the consumer moves along it from left to right.
D) the indifference curve will get flatter as the consumer moves along it from left to right.

Question 45

If two goods are substitutes,then an increase in the price of one will cause:

A) a leftward shift of the demand curve for the other good.
B) a rightward shift of the demand curve for the other good.
C) a movement up and to the left along the demand curve for the other good.
D) a movement down and to the right along the demand curve for the other good.

Question 46

Refer to Figure 5.6.Which diagram shows an increase in income with both bread and soup being normal goods?

A) A
B) B
C) C
D) D

Question 47

If a good is normal,then the Engel curve:

A) slopes upward.
B) slopes downward.
C) is vertical.
D) is horizontal.

Question 48

When a good is normal:

A) an increase in income raises consumption at each price, so the demand curve shifts to the left.
B) an increase in income raises consumption at each price, so the demand curve shifts to the right.
C) a decrease in income lowers consumption at each price, so the demand curve shifts to the right.
D) an increase in income lowers consumption at each price, so the demand curve shifts to the left.

Question 49

Refer to Figure 5.7.Which diagram best represents an income-consumption curve where bread is an inferior good?

A) A
B) B
C) C
D) D

Question 50

Refer to Figure 5.6.Which diagram shows an increase in income with bread being inferior and soup being normal?

A) A
B) B
C) C
D) D

Question 51

If the price of the good measured on the horizontal axis is subject to volume penalties,then:

A) the budget line will get steeper as the consumer moves along it from left to right.
B) the budget line will get flatter as the consumer moves along it from left to right.
C) the indifference curve will get steeper as the consumer moves along it from left to right.
D) the indifference curve will get flatter as the consumer moves along it from left to right.

Question 52

If an increase in the price of one good causes the demand curve for another good to shift to the left,then the two goods are:

A) substitutes.
B) complements.
C) normal.
D) unrelated.

Question 53

If the income-consumption path slopes upward,then:

A) both goods are normal goods.
B) both goods are inferior goods.
C) the goods are substitutes.
D) the goods are complements.

Question 54

Refer to Figure 5.7.Which diagram best represents an Engle curve where soup is a normal good?

A) A
B) B
C) C
D) D

Question 55

Which of the following statements is true?

A) No good can be inferior at all levels of income.
B) The income elasticity of demand is negative for normal goods.
C) It is possible for a good to be inferior at all income levels.
D) It is possible for all of the goods a consumer buys to be inferior.

Question 56

Refer to Figure 5.6.Which diagram shows a decrease in income with bread being normal and soup being inferior?

A) A
B) B
C) C
D) D

Question 57

If an increase in the price of one good causes the demand curve for another good to shift to the right,then the two goods are:

A) substitutes.
B) complements.
C) normal.
D) unrelated.

Question 58

A curve that shows how the best available consumption bundle changes as income changes (holding the consumer's preferences and all other prices fixed)is called:

A) a price-consumption curve.
B) an individual demand curve.
C) an income-consumption curve.
D) a budget line.

Question 59

Suppose that books are measured on the horizontal axis and CDs are measured on the vertical axis.As long as the law of demand holds for books,than an increase in the price of books will generate a price-consumption curve that traces a path:

A) to the left.
B) to the right.
C) upward.
D) downward.

Question 60

If the income-consumption path slopes down,then:

A) both goods are inferior.
B) both goods are normal.
C) one good is normal and the other good is inferior.
D) we can't tell anything about whether the goods are normal or inferior.

Question 61

One consumption bundle is revealed preferred to a second bundle if:

A) a consumer voluntarily chooses it over the second bundle.
B) surveys reveal that consumers are more likely to choose it than the second bundle.
C) it is cheaper than the second bundle.
D) it lies on a higher indifference curve than the second bundle.

Question 62

Which of the following goods is given in the textbook as an example of a good whose price is subject to volume penalties?

A) Electricity
B) Pizza
C) Beer
D) Yogurt

Question 63

If electricity is measured on the horizontal axis,and the price of electricity becomes more expensive beyond 500 kilowatts,we draw:

A) an indifference curve that becomes flatter at 500 kilowatts.
B) a budget constraint that is kinked at 500 kilowatts.
C) a budget constraint that becomes steeper at 500 kilowatts.
D) an Engle curve that becomes negatively-sloped at 500 kilowatts.

Question 64

Which of the following goods is given in the textbook as an example of a good whose price is subject to volume discounts?

A) Electricity
B) Pizza
C) Gasoline
D) Yogurt

Question 65

In the United States,some state governments set tiered prices for electricity.These tiered prices lead to budget lines that are:

A) upward-sloping.
B) kinked.
C) horizontal at a specific level of electricity consumption.
D) vertical at a specific level of electricity consumption.

Question 66

Nicole's income is $1,000 per month.She spends all of it on shoes (S)and books (B).Shoes cost $50 and books cost $25.Her marginal rate of substitution for shoes with books is MRS_SB = 2B/3S.Illustrate her utility-maximizing combination of shoes and books and draw her price-consumption curve if the price of books rises to $30.

Question 67

The price of CDs is $15 and the price of pizzas is $10.Derek spends all of his income buying 2 CDs and 6 pizzas per week (and nothing else).Determine Derek's income,draw his budget line and represent his utility-maximizing point using an indifference curve.

Question 68

Using carefully-labeled graphs,explain how an individual demand curve is derived from the utility-maximizing behavior of a consumer.

Question 69

The revealed preference approach refers to:

A) asking consumer to reveal their preferences using survey methods.
B) estimating demand curves by using data on individual consumers.
C) a statistical method used to estimate demand curves.
D) a method of gathering information about consumer's preferences by observing their actual choices.

Question 70

If a good's price is volume sensitive,the consumer will:

A) choose the bundle on the budget line that lies on the lowest indifference curve.
B) choose the bundle on the budget line where the budget line is "kinked."
C) choose a boundary solution.
D) choose the bundle on the budget line that lies on the highest indifference curve.

Question 71

Suppose that an individual consumes just hamburgers and soft drinks.Using a carefully-labeled diagram,derive the price-consumption curve that would result from a decrease in the price of hamburgers.

Question 72

Which of the following is NOT given in the text as a problem with using surveys to determine consumer preferences?

A) Subjects are asked to imagine choices that they do not actually face, and few people take hypothetical questions as seriously as they would actual choices.
B) Some people have difficulty forecasting their own behavior.
C) People may answer with what they think they ought to do, not what they think they actually would do.
D) Many people maliciously try to tamper with survey results by giving false answers.

Question 73

Using a carefully-labeled diagram,explain an Engel curve for a good that is initially a normal good,but eventually becomes an inferior good.

Question 74

Suppose that steak is a normal good and vegetables are inferior goods.Using a carefully-labeled diagram,illustrate the income-consumption curve that would result from an increase in a consumer's income.