Full Test Bank The Theory of Consumer Choice 42 Chapter 3 - Microeconomics Theory and Applications 13th Edition | Test Bank with Answer Key by Edgar K. Browning, Mark A. Zupan. DOCX document preview.
Package: Test Bank
Title: Microeconomics: Theory and Application, 13e
Chapter Number: 3
Question Type: Multiple Choice
1. Which of the following properties is not assumed to hold for a typical consumer’s preferences?
a. Nonsatiation
b. Completeness
c. Transitivity
d. Neutrality
Learning Objective: Develop an approach for analyzing consumer preferences.
2. The assumption of nonsatiation of preferences states that _____.
a. a consumer can rank all possible consumption bundles
b. consumers have consistent preferences
c. more of a good is always better
d. consumers are indifferent between identical goods
Learning Objective: Develop an approach for analyzing consumer preferences.
3. The assumption of completeness of preferences states that _____.
a. a consumer can rank all possible consumption bundles
b. consumers have consistent preferences
c. more of a good is always better
d. consumers are rational when making choices
Learning Objective: Develop an approach for analyzing consumer preferences.
4. The assumption of transitivity of preferences states that _____.
a. a consumer can rank all possible consumption bundles
b. consumers act rationally when choosing between consumption bundles
c. more of a good is always better
d. no two bundles can yield the same level of utility
Learning Objective: Develop an approach for analyzing consumer preferences.
5. An economic “bad” is a commodity for which _____.
a. less is preferred to more after a certain level of consumption has been reached
b. more is preferred to less regardless of the level of consumption
c. satisfaction does not change as more is consumed
d. less is preferred to more over all possible ranges of consumption
Learning Objective: Develop an approach for analyzing consumer preferences.
6. An indifference curve shows _____.
a. all the combinations of two products between which the consumer is indifferent
b. all possible combinations of the two products available to the consumer that can be purchased with a given level of income
c. the single best bundle of consumption for the consumer given two products and a particular income level
d. how the total satisfaction derived from consuming alternative market baskets changes along the curve
Learning Objective: Develop an approach for analyzing consumer preferences.
7. Along an indifference curve, if the MRS of food (F) for clothing (c. is 1F/2C, this means the consumer:
a. has a stronger preference for clothes than for food.
b. would be willing to give up 1 unit of food for 2 units of clothing, and would be better off with the exchange.
c. would be willing to give up 1 unit of food for 2 units of clothing, but his or her total utility will not increase.
d. would be willing to give up 2 units of food for 1 unit of clothing.
Learning Objective: Develop an approach for analyzing consumer preferences.
8. Suppose you have two indifference curves U1 and U2 representing the consumption of two normal goods. If U2 is twice as far from the origin as U1, then _____.
a. consuming a bundle on U1 is preferred two times more than consuming a bundle on U2
b. consuming a bundle on U1 has a higher utility than consuming a bundle on U2
c. consuming a bundle on U2 is preferred two times less than consuming a bundle on U1
d. consuming a bundle on U2 has a higher utility than consuming a bundle on U1
Learning Objective: Develop an approach for analyzing consumer preferences.
9. Indifference curves cannot intersect because:
a. consumers are indifferent between two consumption bundles.
b. that would violate the assumption of nonsatiation.
c. each person has a different set of indifference curves.
d. indifference curves are two-dimensional.
Learning Objective: Develop an approach for analyzing consumer preferences.
10. A set of indifference curves showing that the consumer is indifferent between market baskets A and B, and market baskets A and C, but that market basket C is preferred to B must be _____.
a. horizontal
b. positively sloped
c. parallel
d. intersecting
Learning Objective: Develop an approach for analyzing consumer preferences.
11. At any point on an indifference curve, the slope indicates:
a. the relative price ratio of the two goods.
b. the allocation of the consumer’s income between the two goods.
c. the marginal rate of substitution between the two goods.
d. how the total satisfaction of the consumer changes with different market baskets.
Learning Objective: Develop an approach for analyzing consumer preferences.
12. Intersecting indifference curves violate the assumption of _____.
a. nonsatiation
b. rationality
c. transitivity
d. completeness
Learning Objective: Develop an approach for analyzing consumer preferences.
13. Candies are on the vertical axis and pretzels are on the horizontal axis. Both goods command a positive price in the market place. The indifference curves are shaped such that the marginal rate of substitution increases rather than decreases. At equilibrium, the consumer will:
a. consume both pretzels and candy in the ratio of their prices.
b. consume only pretzels or only candy.
c. consume both pretzels and candy in the ratio of their marginal utilities.
d. consume equal amounts of pretzels and candy.
Learning Objective: Develop an approach for analyzing consumer preferences.
14. Which one of the following assumptions about indifference curves is incorrect?
a. Consumers usually prefer more to less.
b. Consumers' preferences are transitive.
c. The marginal rate of substitution declines along an indifference curve.
d. Declining MRS implies that indifference curves are concave to the origin.
Learning Objective: Develop an approach for analyzing consumer preferences.
15. The diminishing marginal rate of substitution along an indifference curve is reflected by its _____.
a. constant slope
b. concavity
c. positive slope
d. convexity
Learning Objective: Develop an approach for analyzing consumer preferences.
16. Indifference curves consistent with one good being an economic “neuter” are:
a. convex.
b. straight lines with a slope of –1.
c. straight lines with a slope of 0.
d. L-shaped.
Learning Objective: Develop an approach for analyzing consumer preferences.
17. A set of indifference curves between an economic good and an economic bad must be _____.
a. negatively sloped
b. intersecting
c. positively sloped
d. horizontal
Learning Objective: Develop an approach for analyzing consumer preferences.
18. John will eat peanut butter and jelly sandwiches only when they are made with exactly two ounces of peanut butter and one ounce of jelly. If peanut butter is on the horizontal axis (Pb. and jelly on the vertical axis (J), John’s indifference curve for peanut butter and jelly is:
a. L-shaped, beginning at 2PB and 1J.
b. convex to the origin with a slope of –1/2.
c. a parallel straight line with a slope of –2.
d. concave to the origin with a slope of –2.
Learning Objective: Develop an approach for analyzing consumer preferences.
19. The set of indifference curves that show that a consumer remains equally well off by substituting one good for another at a constant rate must be _____.
a. negatively sloped
b. parallel lines
c. positively sloped
d. concave
Learning Objective: Develop an approach for analyzing consumer preferences.
20. Negatively-sloped, straight-line indifference curves imply:
a. that one of the goods has no effect on utility.
b. that the goods are perfect complements.
c. that the goods are perfect substitutes.
d. that one of the goods is an economic “bad”.
Learning Objective: Develop an approach for analyzing consumer preferences.
21. An example of goods which are perfect complements in consumption is:
a. apples and oranges.
b. left and right shoes.
c. tomatoes and apples.
d. nickels and dimes.
Learning Objective: Develop an approach for analyzing consumer preferences.
22. Perfect complements are associated with _____ indifference curves.
a. U-shaped
b. straight-line
c. convex
d. L-shaped
Learning Objective: Develop an approach for analyzing consumer preferences.
23. Jen does not care one way or another about blue jeans. In other words, blue jeans are a(n) _____ for Jen.
a. normal good
b. economic “bad”
c. economic “neuter”
d. inferior good
Learning Objective: Develop an approach for analyzing consumer preferences.
24. Suppose there are two goods, X and Y, with X measured on the horizontal axis and Y measured on the vertical axis. Which of the following statements about a budget line relating the two goods is correct?
a. The budget line shows all the possible combinations of X and Y a consumer can buy given the level of income and prices.
b. The budget line shows all the possible combinations of X and Y a consumer can buy given the level of income, prices, and borrowings.
c. The budget line shows the most preferred combinations of X and Y a consumer can buy given the level of income and prices.
d. The budget line shows the least-cost combinations of X and Y a consumer will buy given the level of income and prices.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
25. Suppose hamburgers are on the horizontal axis and root beer on the vertical axis. You have a budget allowance of $10, and the price of hamburgers is $4 and root beer is $2. The slope of your budget constraint is _____.
a. 0.5
b. 2
c. 2.5
d. 5
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
26. A point lying inside the budget line indicates:
a. an unattainable market basket for the consumer.
b. the consumer is not spending all of his or her income.
c. the consumer has exhausted his income on consumption.
d. that one of the goods consumed is an economic bad.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
27. Good Y is measured on the vertical axis and good X on the horizontal axis. If the price of Y is zero, the price of X is $10, and the consumer's income $100, the budget line:
a. would coincide with the vertical axis.
b. would be horizontal at $10 on the Y axis.
c. would be vertical at 10 units on the X axis.
d. would coincide with the horizontal axis.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
28. Suppose movie theater tickets are on the vertical axis and books on the horizontal axis. You have a budget allowance of $100, and the price of movie theater passes is $10 and the price of books is $25 each. What is the vertical intercept of your budget constraint?
a. 1
b. 4
c. 10
d. 100
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
29. Suppose there are two goods, X and Y, with X being measured on the horizontal axis and Y being measured on the vertical axis. The budget line connecting these two goods does not:
a. show all the possible combinations of X and Y a consumer can buy given the level of income and prices.
b. have a positive slope.
c. have a slope that reflects the trade-off of one good for another.
d. reflect the assumption of continuous divisibility if drawn as a straight line.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
30. If the vertical axis measures yams which cost $20 per unit and the horizontal axis measures xylophones which cost $5 a unit, the slope of the budget line is _____.
a. -20
b. -3
c. -0.25
d. -0.33
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
31. A decline in income is shown on the budget line by:
a. a rotation of the budget line such that its horizontal intercept is larger than its vertical intercept.
b. a parallel shift in the budget constraint toward the origin.
c. a rotation in the budget line so it intersects the vertical axis closer to the origin.
d. a change in the relative price ratio.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
32. An indifference map shows the optimal consumption bundle of a consumer for two goods A and B. Which of the following factors would lead to a parallel shift of the budget line allowing the consumer to reach a higher indifference curve?
a. A fall in the price of good A
b. A parallel outward shift of the consumer’s indifference curve
c. An increase in the consumer’s income
d. A fall in the price of good B
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
33. If the prices of two goods, X and Y, increase by 50 percent and the consumer's income rises by 100 percent:
a. the slope of the consumer's budget line will change, becoming flatter to indicate that X and Y are now relatively less expensive.
b. the consumer's budget line will shift out from the origin, with its slope unchanged.
c. the consumer's budget line will shift out from the origin and its slope will also change, reflecting the lower prices for X and Y.
d. the consumer's budget line will remain unchanged as the price and income effects will cancel each other out.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
34. Consider a budget line drawn with apples on the vertical axis and oranges on the horizontal axis. The consumer's income is $100, the price of apples is $5, and the price of oranges is $10. Suppose the consumer's income falls to $75.00, but the prices of apples and oranges remain unchanged. The change in income produces a:
a. parallel shift inward of the indifference curves.
b. new budget line which is steeper than the original one.
c. parallel shift inward of the budget line.
d. new budget line which is flatter than the original one.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
35. Suppose initially that the price of X is $5, the price of Y is $10, and the consumer's income is $100. If Y is measured on the vertical axis, X is measured on the horizontal axis, and the price of Y increases to $20:
a. the entire budget line will shift inward toward the origin, with its slope changing from –1/2 to –1/4.
b. the budget line will pivot inward toward the origin along the X axis, with its slope changing from –1/2 to –1/4.
c. the budget line will pivot inward toward the origin along the Y axis, with the slope changing from –1/2 to –1/4.
d. the budget line will pivot inward toward the origin along the Y axis, with the slope changing from –1/4 to –1/2.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
36. Suppose you have hamburgers on the horizontal axis and root beer on the vertical axis. If the price of hamburgers increased, how would this be shown using the income constraint?
a. It would shift the constraint outward.
b. It would shift the constraint inward.
c. It would rotate the vertical intercept outward.
d. It would rotate the horizontal intercept inward.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
37. Consider a graph with hamburger on the X-axis and cheese crackers on the Y-axis. The outbreak of mad cow disease, which will change the price of hamburgers, will:
a. not change the slope of the budget line.
b. lead to a parallel shift of the budget line depending on the change in price.
c. change the y-intercept of the budget line.
d. change the x-intercept of the budget line.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
38. Suppose a consumer must pay $P per visit to the local museum for each of the first 10 visits but only $P/2 per visit from the 11th visit on. With a composite consumption good on the Y-axis and visits to the museum on the X-axis, the budget line:
a. is vertical after 10 visits.
b. becomes steeper after 10 visits.
c. becomes flatter after 10 visits.
d. shifts outward after 10 visits.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
39. Suppose a consumer must pay $P per visit to the local museum for each of the first 5 visits but $2P per visit from the 6th visit on. With a composite consumption good on the Y-axis and visits to the museum on the X-axis, the budget line:
a. is vertical after 5 visits.
b. becomes steeper after 5 visits.
c. becomes flatter after 5 visits.
d. shifts outward after 5 visits.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
40. Figure 3-1 shows the preferences of a consumer toward reading books and watching movies.
In Figure 3-1, the highest indifference curve is unattainable. Which of the following events would allow the consumer to reach the highest indifference curve, other things unchanged?
a. An increase in the price of books
b. A reduction in the price of movie tickets
c. A decrease in the income of the consumer
d. An increase in the price of movie tickets and books
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices./ Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
41. Figure 3-1 shows the preferences of a consumer toward reading books and watching movies. Refer to Figure 3-1. Which of the following is the point at which the consumer maximizes his utility?
a. A
b. C
c. D
d. E
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
42. Figure 3-1 shows the preferences of a consumer toward reading books and watching movies. Refer to Figure 3-1. Given that the price of a book is $4 and a movie ticket costs $5, the consumer's marginal rate of substitution in equilibrium equals _____.
a. 1
b. 5/4
c. 4/5
d. Cannot be determined without more information
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
43. When a consumer is in equilibrium this means that he or she is:
a. consuming the largest market basket possible.
b. consuming the best market basket, given his or her preferences, income, and prices.
c. maximizing his or her income.
d. consuming goods with the highest total utility.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
44. Which of the following is true when a consumer is optimizing her consumption choices across two or more goods?
a. She is not necessarily on the highest indifference curve in her indifference map.
b. The budget constraint intersects her indifference curve at her chosen consumption bundle.
c. She equates the total utility per good for all goods.
d. She is not necessarily spending all of her budget allotted to the goods.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
45. The consumer’s optimal consumption bundle is at the point where:
a. the slope of the indifference curve equals the slope of the budget line.
b. the indifference curve intersects the budget line.
c. the ratio of the total utilities of the goods equals the ratio of the prices of the goods.
d. the marginal utility of each good is maximized.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
46. Figure 3-2 shows the preferences of a consumer for two goods, guns and butter. According to the figure, which of the following is true?
a. Point E is an unattainable market basket for the consumer.
b. Point E is the point at which the consumer will maximize his satisfaction.
c. The consumer is indifferent between points F and G.
d. The consumer would rather consume at point E than at either F or G.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
47. Suppose hamburgers are on the horizontal axis and root beer on the vertical axis. Your budget allowance is $10 and the price of hamburgers is $4 each and root beer $2 each. If at your present consumption of hamburger and root beer your marginal rate of substitution of hamburger for root beer is 4, to maximize utility you should:
a. consume more hamburger and fewer root beers.
b. consume fewer hamburgers and more root beers.
c. continue consuming the same quantity of both hamburgers and root beers.
d. continue consuming the same quantity of hamburgers but consume more root beer.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
48. Suppose food is on the horizontal axis and all other goods on the vertical axis. Your budget allowance is $200, the market price of food is $5, and the market price of all other goods is $20. You are expending your total budget and the marginal rate of substitution at your present consumption bundle is 0.1 so to maximize utility you should consume:
a. more food and less of all other goods.
b. less food and more of all other goods.
c. less of both food and all other goods.
d. more of both food and all other goods.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
49. Which of the following best explains the concept of a corner solution?
a. Peter likes peanut butter and jelly and consumes both in positive amounts.
b. Jane prefers more cheese with her bagel than less.
c. Tony feels that the price of BMW does not justify what he would have to give up to buy one.
d. Rebecca likes both apples and pears equally and is willing to substitute one apple for one pear.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
50. When a consumer’s optimal consumption choice is a corner equilibrium it implies:
a. the consumer has highly diversified preferences.
b. the goods are economic “neuters”.
c. consumers spend all of their income on one good.
d. the goods are pure complements.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
51. Which of the following will lead to corner equilibrium?
a. The consumer has a fixed amount of income
b. The first unit of one good is not worth its cost
c. The consumer has L-shaped indifference curves
d. The proportion of income spent on both goods is the same
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
52. If a consumer is at a corner solution, this means that:
a. she is not spending all of his or her income.
b. MRS is equal to the ratio of the prices of two goods.
c. she would prefer to buy infinite amounts of one good.
d. consumption of the first unit of one good is not worth its cost.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
53. The consumption of the composite good is measured by:
a. total outlays on all goods included in the group.
b. adding up the quantities of all goods included in the group.
c. adding up the prices of all goods included in the group.
d. the relative prices of the goods included in the group.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
54. The composite-good convention allows indifference curve analysis to analyze preferences for one good against many other goods as long as:
a. all the goods belong to the same category.
b. the prices of the other goods is kept constant.
c. all the other goods are normal goods.
d. income levels of consumers remain unchanged.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
55. The composite good convention:
a. allows three-dimensional analysis.
b. treats many goods as a group.
c. cannot be employed in a two-dimensional graph.
d. incorporates goods that have dual uses in the consumer theory.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
56. Figure 3-3 shows dollar outlays a composite good on the vertical axis and units of good X costing $5 a unit measured on the horizontal axis. Given the indifference curve and the budget line shown in Figure 3-3, which of the following is correct?
a. The slope of the budget line is $5
b. The prices of other goods vary with income
c. The slope of the budget line shows how much the consumer is willing to reduce dollar outlays on other goods to obtain one more unit of clothing
d. The optimal point of consumption is at point E
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
57. With a composite good on the vertical axis, the slope of the budget line is _____.
a. the price of the composite good
b. – 1
c. the price of the good on the horizontal axis
d. 0
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
58. Which of the following will keep a consumer on the same indifference curve even if he wishes to move to a higher one?
a. An increase in the consumer's income
b. An increase in the relative price of one good the consumer purchases, other prices remaining unchanged
c. A decrease in the relative price of one good the consumer purchases, other prices remaining unchanged
d. A doubling of the consumer's income and a halving of the prices of all the goods the consumer purchases
Learning objective: Determine how changes in income affect consumption choices.
59. Which of the following correctly describes an income-consumption curve?
a. It identifies consumer responses to decreases in prices which increase his or her real income.
b. It identifies the rate at which a consumer is able to substitute one good for another as income changes.
c. It identifies how a consumer's consumption pattern changes as real income changes while prices are constant.
d. It identifies the income effect of price changes.
Learning objective: Determine how changes in income affect consumption choices.
60. In deriving an income-consumption curve, it is assumed that:
a. nominal income is constant.
b. the prices of all but one good are held constant.
c. the consumer's preferences may change.
d. the consumer's income changes.
Learning objective: Determine how changes in income affect consumption choices.
61. When the income-consumption curve is upward-sloping to the right, the good represented on the X-axis must be _____.
a. a normal good
b. an inferior good
c. a Giffen good
d. an economic “bad”
Learning objective: Determine how changes in income affect consumption choices.
62. When the income-consumption curve is backward-bending to the left, the good represented on the X-axis must be _____.
a. a normal good
b. an inferior good
c. a Giffen good
d. an economic bad
Learning objective: Determine how changes in income affect consumption choices.
63. Which of the products described below is mostly likely considered an inferior good?
a. At lower prices people consume higher quantities of shredded wheat.
b. As incomes increase canned meat product consumption falls.
c. The higher the price of jeans the higher the demand for jeans.
d. The lower the price of jeans the more the demand for shirts.
Learning objective: Determine how changes in income affect consumption choices.
64. How do inferior goods differ from economic “bads”?
a. The demand for economic “bads” falls at higher levels of income whereas the demand for inferior goods falls at higher prices.
b. Economic “bads” are commodities for which demand falls as price falls whereas for inferior goods, quantity demanded falls as more is consumed.
c. Economic “bads” are commodities for which less is preferred to more under all conditions whereas for inferior goods, demand falls only when income increases.
d. For economic “bads” marginal utility is positive but gradually diminishes whereas for inferior goods, utility is negative from the first unit of consumption.
Learning objective: Determine how changes in income affect consumption choices.
65. A low-fat decaf vanilla latte is more likely to be an inferior good than coffee in general because:
a. the demand for low fat coffees is generally low.
b. as prices go up, the demand for low-fat decaf vanilla lattes decreases.
c. it is a relatively narrowly defined category of coffee.
d. the price of coffee is negatively correlated to its price.
Learning objective: Determine how changes in income affect consumption choices.
66. Consider a graph with the composite consumption good on the Y-axis and commencement tickets on the X-axis. Assume seniors are allowed only 5 tickets at a price of zero. As the price of commencement tickets increases from $0 to $20, the slope of the:
a. indifference curves for students with large families increases.
b. budget line decreases.
c. budget line is zero, that is, the budget line becomes vertical.
d. indifference curves for students with small families increases.
Learning objective: Determine how changes in income affect consumption choices.
67. Consumer theory does not specify which goods people consider economic “goods” and which economic “bads”. It nonetheless remains useful because:
a. people are all different.
b. some people don’t consider anything an economic “bad.”
c. people reveal their preferences through their consumption decisions.
d. consumers have identical preferences.
Learning Objective: Explain how altruism can be explained by the theory of consumer choice.
68. Consider a graph with Yvonne’s income on the Y-axis and Xavier’s income on the X-axis. Yvonne has twice as much income as Xavier. If Yvonne cares about the material well-being of Xavier, and considers the latter’s income as an economic good, the slope of the indifference curves representing Yvonne’s preferences:
a. will be steeper, the more willing she is to transfer some of her income to Xavier.
b. will be flatter, the more willing she is to transfer some of her income to Xavier.
c. cannot be determined from the information given.
d. will not change as Yvonne’s willingness to donate to Xavier changes.
Learning Objective: Explain how altruism can be explained by the theory of consumer choice.
69. Incorporating altruistic preferences into the theory of consumer choice:
a. is not possible.
b. requires modifying the original assumptions of nonsatiation, completeness, and transitivity.
c. is possible, but results in corner solutions.
d. is possible without changing any assumptions.
Learning Objective: Explain how altruism can be explained by the theory of consumer choice.
70. An income consumption curve (shown on an indifference map with Ben's income on the horizontal axis and Jerry's income on the vertical axis) is positively sloped. Given that the indifference curves on the map are downward sloping, which of the followings statements is true?
a. Jerry views charitable donations to Ben as an inferior good.
b. Altruism cannot be accurately captured using indifference curves.
c. Charitable giving to Ben is a normal good for Jerry.
d. Jerry views Ben's income as an economic bad.
Learning Objective: Explain how altruism can be explained by the theory of consumer choice.
71. Consider a graph with Yvonne’s income on the Y-axis and Xavier’s income on the X-axis. Yvonne has twice as much income as Xavier. If Yvonne cares about the material well-being of Xavier, and considers the latter’s income as an economic good, the slope of Yvonne’s budget line relating her income to Xavier’s income would be _____.
a. -1
b. -2
c. -1/2
d. -4
Learning Objective: Explain how altruism can be explained by the theory of consumer choice.
72. Marginal utility is _____.
a. the amount that total utility changes when consumption increases by one unit
b. the level of utility after all units have been consumed
c. the level of total utility divided by the number of units consumed.
d. the amount that total utility changes when consumption is at its maximum
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
73. Nonsatiation implies that marginal utility is:
a. always greater than or equal to zero.
b. diminishing.
c. always positive.
d. negative from the first unit consumed.
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
75. Using the utility approach, the consumer is in equilibrium when:
a. the marginal utility associated with consuming the last unit is zero.
b. total utility from each good is at a maximum.
c. the marginal utilities associated with consuming an extra unit of each good are equal.
d. the marginal utility per dollars’ worth of each good is equal.
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
76. Which of the following statements about the law of diminishing marginal utility is correct?
a. As more of a given good is consumed, total utility rises at an increasing rate.
b. As more of a given good is consumed, marginal utility rises at an increasing rate.
c. As more of a given good is consumed beyond some level, the marginal utility associated with consumption of additional units tends to decline.
d. As more of a given good is consumed, total utility rises at a decreasing, then increasing rate.
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
77. If a consumer's marginal utility was 10 utils per unit of meat and 5 utils per unit of potatoes:
a. the consumer should purchase less potatoes and more meat to maximize his satisfaction.
b. the consumer would be in equilibrium if the per-unit price of meat was twice the price of potatoes.
c. the consumer would be in equilibrium if the price per unit of meat was half the price of potatoes.
d. the consumer's total utility could be increased by consuming more potatoes and less meat until the marginal utilities of the two goods were equal.
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
78. The law of diminishing marginal utility states that:
a. the additional utility from consuming an additional unit of a good declines as more of the good is consumed.
b. the additional utility from consuming an additional unit of a good eventually becomes positive as more of the good is consumed.
c. as less of one good and more of another good is consumed, the marginal utility of the first good eventually declines.
d. total utility eventually increases because marginal utility eventually increases as more of a good is consumed.
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
79. A consumer attains equilibrium by _____.
a. consuming all goods to the point where the marginal utility of each are equal
b. consuming all goods to the point where the total utility of each are equal
c. allocating income such that the total amount spent on each good is equal
d. allocating income such that the marginal utility of the last dollar spent on each good is the same
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
80. If the marginal utility of an extra hamburger is 8 utils, the marginal utility of a soft drink is 5 utils, the price of a hamburger is $1, and the price of a soft drink is 50 cents, then the consumer can achieve equilibrium when:
a. she buys more hamburgers.
b. she buys more soft drinks.
c. the price of soft drinks increases.
d. the price of hamburgers decreases.
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
81. At his current consumption of lobster and hamburgers, Ike’s marginal utility from eating lobster is 30 and from hamburger is 5. If the price of a hamburger is $3, and the price of lobster is $20, Ike should:
a. purchase less lobster and hamburger in equal amounts.
b. purchase more lobster and fewer hamburgers.
c. purchase less lobster and more hamburgers.
d. purchase more lobster and hamburger in equal amounts.
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
82. Suppose hamburger is on the horizontal axis and pizza on the vertical axis. If you were consuming at a point on a convex indifference curve such that the slope at that point was -4, which of the following best describes your consumption bundle?
a. Your marginal utility of hamburger is 20 and for pizza it is 20.
b. Your marginal utility of hamburger is 5 and for pizza it is 10.
c. Your marginal utility of hamburger is 20 and for pizza it is 5.
d. Your marginal utility of hamburger is one-fifth that of pizza.
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
Question Type: True/False
83. Given a choice between one vacation in Tahiti and two vacations in Tahiti, a consumer will prefer the latter provided that the choices are otherwise identical. This property is called being transitive.
Learning Objective: Develop an approach for analyzing consumer preferences.
84. Marginal rate of substitution is a measure of a consumer’s willingness to trade one good for another.
Learning Objective: Develop an approach for analyzing consumer preferences.
85. Economic “bads” are products, such as cigarettes and fast food, which are unhealthy for consumers.
Learning Objective: Develop an approach for analyzing consumer preferences.
86. Economic “goods” are commodities of which more is better than less.
Learning Objective: Develop an approach for analyzing consumer preferences.
87. For all products, consumers always prefer more to less at a given price point.
Learning Objective: Develop an approach for analyzing consumer preferences.
88. Market baskets lying on indifference curves closer to the origin are preferred to those on curves farther from the origin.
Learning Objective: Develop an approach for analyzing consumer preferences.
89. A declining marginal rate of substitution implies that indifference curves are concave to the origin.
Learning Objective: Develop an approach for analyzing consumer preferences.
90. If the indifference “curve” is a straight line parallel to the x-axis, then the good on the x‑axis must be a “neuter.”
Learning Objective: Develop an approach for analyzing consumer preferences.
91. When the indifference curves are parallel lines, it indicates perfect complements.
Learning Objective: Develop an approach for analyzing consumer preferences.
92. When the indifference curves are L-shaped, it indicates perfect substitutes.
Learning Objective: Develop an approach for analyzing consumer preferences.
93. A budget line is a line that shows the combinations of goods that can be purchased at the specified prices and assuming that all of the consumer’s income is expended.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
94. With a budget line, the intercepts with the axes show the minimum amount of one good that can be purchased if none of the other is bought.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
95. A change in income causes a change in the slope of the budget line.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
96. A change in the price of one of the products on the budget line will cause the budget line to shift to the left (price reduction) or to the right (price increase) but the new and old lines will be parallel.
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
97. A composite good is a number of goods treated as a group.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
98. Margin cost is the cost of consuming one more unit of a good.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
99. A corner solution is a situation in which a particular good has a declining marginal cost.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
100. Marginal benefit is when a good offers little or no benefit to the consumer.
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
101. An increase in income will cause the consumer’s demand curve to shift to the left.
Learning objective: Determine how changes in income affect consumption choices.
102. The income-consumption curve is normally downward sloping to the right.
Learning objective: Determine how changes in income affect consumption choices.
103. Inferior goods are another name for economic “bads.”
Learning objective: Determine how changes in income affect consumption choices.
104. An increase in income always leads to an increase in consumption for all goods.
Learning objective: Determine how changes in income affect consumption choices.
105. Consumer theory does not specify which goods people consider economic “goods” and which economic “bads”.
Learning objective: Determine how changes in income affect consumption choices.
106. The fact that Samantha cares about Oscar’s income is sufficient to imply that she will always donate money to Oscar.
Learning Objective: Explain how altruism can be explained by the theory of consumer choice.
107. Units in which utility is measured are completely arbitrary.
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
108. Utility is measured in a unit called utils.
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
109. The law of diminishing marginal utility states that the additional utility from consuming an additional unit of a good declines to zero as more of the good is consumed.
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
Question Type: Essay
110. Define indifference curves and explain their properties.
Learning Objective: Develop an approach for analyzing consumer preferences.
111. Please answer the following:
a) Peter and Pip both like apples. Parker has one apple that he can give to either Pip or Peter but he thinks it is fair to give it to the person who gets the most utility from the apple. The decision presents Parker with a problem: since he cannot quantify the utility that Peter and Pip each get from the apple, he cannot compare their utilities and make a fair decision. Is Parker right? Explain.
b) Pat likes apple pies, caramel apples, and apple cake. Consumer choice theory postulates that whichever she chooses, she is maximizing her utility. However Pat finds it difficult to put a number to the level of utility she gets from each and therefore it is not possible to determine whether she is actually at her highest level of utility or not. Is Pat correct? Explain.
Learning Objective: Develop an approach for analyzing consumer preferences.
112. Please answer the following:
a) Microeconomic theories of fertility explain that the number of children that a couple have is balanced against the opportunity cost of raising children: the foregone wages of the mother, the other goods that the couple could have bought with their money, the time cost of raising children, the total resources of the parents, etc. Draw indifference curves for a couple who prefer a smaller number of children to a higher number.
b) The average fertility rate is lower in developed countries with high incomes than in lower income developing countries. How would this be modeled using indifference curves? What can you conclude about the nature of children as an economic good? (Assume that the couple faces a straight line budget constraint.
c) Assume that the foregone hours of free time is the only factor that affects fertility decisions. If the cost of raising children increased, how would this be shown with indifference curves? (Assume that the couple faces a straight line budget constraint)
Learning Objective: Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices.
114. Tim gets constant marginal utility of 4 utils from eating apples and a constant marginal utility of 5 utils from eating bananas. In other words, he considers them perfect substitutes and is willing to substitute 5 apples for 4 bananas and remain equally well off. He has $10 to spend on apples and bananas. The price of bananas is $1. Assume he can consume fractional amounts. Plot the demand curve for apples. (Hint: consider several different prices for apples.)
Learning Objective: Describe how the market basket chosen by a consumer reflects both the consumer’s preferences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods.
115. Define a normal good and an inferior good and give an example of each.
Learning objective: Determine how changes in income affect consumption choices.
116. Graphically and mathematically illustrate the consumer’s optimal choice between two goods, yams and xylophones, which are consumed in positive amounts.
Learning Objective: Relate the utility approach to the indifference curve method of analyzing consumer choice.
117. Dana likes spending time at the museum (M) as well as the park (P). Given that her utility function takes the form U = U (M, P) use the utility theory approach to algebraically show the condition for her optimal consumption choice.
Learning Objective: Explain the mathematics behind consumer choice.
118. Explain the difference between diminishing marginal utility and diminishing marginal rate of substitution.
Learning Objective: Explain the mathematics behind consumer choice.
119. Prove that the slope of the budget line is equal to the negative of the price ratio.
Learning Objective: Explain the mathematics behind consumer choice.
120. Karen is at the supermarket buying her weekly groceries. Since she is on a budget, she wants to limit her purchases to canned soup (c. and prepackaged salad (S). A can of soup costs $1.2 and a tub of salad costs $2. Her utility function is expressed as U(C,S) = F × S. Given that she has only $10 to spend, derive the equilibrium condition using the utility approach.
Learning Objective: Explain the mathematics behind consumer choice.
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Connected Book
Microeconomics Theory and Applications 13th Edition | Test Bank with Answer Key
By Edgar K. Browning, Mark A. Zupan