Deck 21: The Theory of Consumer Choice

Question 1

The slope of the budget constraint is determined by the

A)relative price of the goods measured on the axes.
B)relative price of the goods measured on the axes and the consumer's income.
C)endowment of productive resources.
D)preferences of the consumer.

Answer 1

A

Question 2

If a consumer's income decreases,the budget constraint for CDs and DVDs will

A)shift outward, parallel to the original budget constraint.
B)shift inward, parallel to the original budget constraint.
C)rotate outward along the CD axis because we can afford more CDs.
D)rotate outward along the DVD axis because we can afford more DVDs.

Answer 2

B

Question 3

Figure 21-1

Refer to Figure 21-1.Which point in the figure showing a consumer's budget constraint represents the consumer's income divided by the price of a CD?

A)Point A
B)Point C
C)Point D
D)Point E

Answer 3

C

Question 4

Assume that a college student spends her income on mac-n-cheese and CDs.The price of one box of mac-n-cheese is $1.00,and the price of one CD is $12.00.If she has $100 of income,she could choose to consume

A)15 boxes of mac-n-cheese and 6 CDs.
B)20 boxes of mac-n-cheese and 7 CDs.
C)10 boxes of mac-n-cheese and 8 CDs.
D)30 boxes of mac-n-cheese and 6 CDs.

Question 5

Figure 21-1

Refer to Figure 21-1.A consumer that chooses to spend all of her income could be at which point(s)on the budget constraint?

A)A
B)E
C)B, C, or D
D)A, B, C, or D

Question 6

Consider two goods,books and hamburgers.The slope of the consumer's budget constraint is measured by the

A)consumer's income divided by the price of hamburgers.
B)relative price of books and hamburgers.
C)consumer's marginal rate of substitution.
D)number of books purchased divided by the number of hamburgers purchased.

Question 7

The theory of consumer choice provides the foundation for understanding

A)the structure of a firm.
B)the profitability of a firm.
C)a firm's product demand.
D)a firm's product supply.

Question 8

A budget constraint

A)shows the prices that a consumer chooses to pay for products he consumes.
B)shows the purchases made by consumers.
C)shows the consumption bundles that a consumer can afford.
D)represents the consumption bundles that give a consumer equal satisfaction.

Question 9

A consumer that doesn't spend all of her income

A)would be at a point outside of her budget constraint.
B)would be at a point inside her budget constraint.
C)must not be consuming positive quantities of all goods.
D)must be consuming at a point where her budget constraint touches one of the axes.

Question 10

An increase in income will cause a consumer's budget constraint to

A)shift outward, parallel to its initial position.
B)shift inward, parallel to its initial position.
C)pivot around the "Y" axis.
D)pivot around the "X" axis.

Question 11

Figure 21-1

Refer to Figure 21-1.All of the points identified in the figure represent possible consumption options with the exception of

A)A
B)E
C)A and E
D)None.All points are possible consumption options.

Question 12

The slope of the budget constraint is all of the following except

A)the relative price of two goods.
B)the rate at which a consumer can trade one good for another.
C)the marginal rate of substitution.
D)constant.

Question 13

When the price of a shirt falls,the

A)quantity of shirts demanded falls.
B)quantity of shirts demanded rises.
C)quantity of shirts supplied rises.
D)demand for shirts falls.

Question 14

Figure 21-2

Refer to Figure 21-2.Which of the graphs in the figure reflects an increase in the price of good Y only?

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

Question 15

If the relative price of a concert ticket is 3 times the price of a meal at a good restaurant,then the opportunity cost of a concert ticket can be measured by the

A)slope of the budget constraint.
B)slope of an indifference curve.
C)marginal rate of substitution.
D)income effect.

Question 16

Figure 21-2

Refer to Figure 21-2.Which of the graphs in the figure could reflect a decrease in the prices of both goods?

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

Question 17

The theory of consumer choice examines

A)the determination of output in competitive markets.
B)the tradeoffs inherent in decisions made by consumers.
C)how consumers select inputs into manufacturing production processes.
D)the determination of prices in competitive markets.

Question 18

Figure 21-2

Refer to Figure 21-2.Which of the graphs in the figure reflects a decrease in the price of good X only?

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

Question 19

Figure 21-3

Refer to Figure 21-3.In graph (a),if income is equal to $120,the price of good y is

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

Question 20

Assume that a college student spends her income on books and pizza.The price of a pizza is $8.00,and the price of a book is $15.If she has $100 of income,she could choose to consume

A)8 pizzas and 4 books.
B)4 pizzas and 5 books.
C)9 pizzas and 3 books.
D)4 pizzas and 3 books.

Question 21

A consumer is currently spending all of her available income on two goods: music CDs and DVDs.At her current consumption bundle she is spending twice as much on CDs as she is on DVDs.If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs,what is the price of a CD?

A)$4
B)$8
C)$12
D)$20

Question 22

Budget constraints exist for consumers because

A)their utility from consuming goods eventually reaches a maximum level.
B)even with unlimited incomes they have to pay for each good they consume.
C)they have to pay for goods and they have limited incomes.
D)prices and incomes are inversely related.

Question 23

Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs.If the price of a CD is $9,the price of a DVD is $18,and she is currently consuming 10 CDs and 5 DVDs,what is the consumer's income?

A)$90
B)$180
C)$270
D)$360

Question 24

Suppose the only two goods that Brett consumes are wine and cheese.When wine sells for $10 a bottle and cheese sell for $10 a pound,he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100.One day the price of wine falls to $5 a bottle and the price of cheese increases to $20 a pound,while his income does not change.If you place wine on the vertical axis and cheese on the horizontal axis,then

A)the slope of Brett's budget has not changed.
B)the slope of Brett's budget constraint is flatter at the new prices.
C)the slope of Brett's budget constraint is steeper at the new prices.
D)Brett's budget constraint has shifted in parallel to the budget constraint with the old prices.

Question 25

If the price of bread is zero,the budget constraint between bread (on the vertical axis)and cheese (on the horizontal axis)would

A)be vertical.
B)coincide with the vertical axis.
C)coincide with the horizontal axis.
D)be horizontal.

Question 26

Figure 21-3

Refer to Figure 21-3.In graph (b),what is the price of good x relative to good y (i.e.,Pₓ/Pᵧ)?

A)2/7
B)3/6
C)7/2
D)7

Question 27

The price of gin has risen from $7 to $9 per bottle,the price of cocktail onions has fallen from $6 to $5 per jar,and Elizabeth's income has stayed fixed at $46 per week.If you put gin on the vertical axis and cocktail onions on the horizontal axis,then the budget constraint

A)is steeper after the price changes.
B)is flatter after the price changes.
C)is the same after the price changes.
D)shifts in parallel to the old budget constraint after the price changes.

Question 28

Suppose a consumer spends her income on two goods: music CDs and DVDs.If the price of a CD is $8,the price of a DVD is $20,and we graph the budget constraint by placing the quantity of CDs purchased on the horizontal axis,what is the slope of the budget constraint?

A)-5.0
B)-2.5
C)-0.4
D)The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods.

Question 29

A family on a trip budgets $800 for meals and gasoline.If the price of a meal for the family is $50,how many meals can the family buy if they do not buy any gasoline?

A)8
B)16
C)24
D)32

Question 30

Scenario 21-1
Suppose the price of pizza is $10, the price of cola is $1, and the consumer's income is $50. In addition, suppose the consumer's budget constraint measures pizza on the horizontal axis and cola on the vertical axis.
Refer to Scenario 21-1.If the price of cola doubles to $2,then the

A)budget constraint intersects the vertical axis at 25 colas.
B)slope of the budget constraint rises to -2.
C)budget constraint intersects the vertical axis at 100 colas.
D)budget constraint shifts inward in a parallel fashion.

Question 31

Scenario 21-1
Suppose the price of pizza is $10, the price of cola is $1, and the consumer's income is $50. In addition, suppose the consumer's budget constraint measures pizza on the horizontal axis and cola on the vertical axis.
Refer to Scenario 21-1.If the consumer's income rises to $60,then the budget line for pizza and cola would

A)now intersect the horizontal axis at 6 pizzas and the vertical axis at 60 colas.
B)not change.
C)now intersect the horizontal axis at 4 pizzas and the vertical axis at 16 colas.
D)rotate outward along the cola axis.

Question 32

Figure 21-3

Refer to Figure 21-3.In graph (a),what is the price of good y relative to good x (i.e.,Pᵧ/Pₓ)?

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

Question 33

Suppose a consumer spends her income on two goods: music CDs and DVDs.If the consumer has $200 to allocate to these two goods,the price of a CD is $10,and the price of a DVD is $20,what is the maximum number of CDs the consumer can purchase?

A)10
B)20
C)40
D)50

Question 34

A family on a trip budgets $800 for meals and hotel accommodations.Suppose the price of a meal is $40.In addition,suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals.How many meals could the family afford if they gave up two nights in the hotel?

A)1
B)2
C)5
D)8

Question 35

A decrease in a consumer's income

A)increases the slope of the consumer's budget constraint.
B)has no effect on the consumer's budget constraint.
C)decreases the slope of the consumer's budget constraint.
D)has no effect on the slope of the consumer's budget constraint.

Question 36

The price of gin has risen from $7 to $9 per bottle,the price of cocktail onions has fallen from $6 to $5 per jar,and Elizabeth's income has stayed fixed at $46 per week.Since the price changes,Elizabeth has been buying 4 bottles of gin and 2 jars of cocktail onions per week.At the original prices,4 bottles of gin and 2 jars of cocktail onions would have

A)exactly exhausted her income.
B)cost more than her income.
C)cost less than her income.
D)could have maximized her satisfaction given her budget constraint.

Question 37

Figure 21-3

Refer to Figure 21-3.Assume that a consumer faces both budget constraints in graph (a)and graph (b)on two different occasions.If her income has remained constant,what has happened to prices?

A)The price of X in graph (a) is higher than the price of X in graph (b).
B)The price of Y in graph (a) is higher than the price of Y in graph (b).
C)The prices of both X and Y are lower in graph (a).
D)None of the above are true.

Question 38

Suppose the only two goods that Brett consumes are wine and cheese.When wine sells for $10 a bottle and cheese sell for $10 a pound,he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100.One day the price of wine falls to $5 a bottle and the price of cheese increases to $20 a pound,while his income does not change.The bundle of wine and cheese that he purchased at the old prices,now costs,at the new prices,

A)the same amount.
B)less than Brett's income.
C)more than Brett's income.
D)not enough information to answer the question.

Question 39

The following diagram shows a budget constraint for a particular consumer.
If the price of x is $10,what is the price of y?

A)$15
B)$25
C)$35
D)$70

Question 40

An increase in a consumer's income

A)increases the slope of the consumer's budget constraint.
B)has no effect on the slope of the consumer's budget constraint.
C)decreases the slope of the consumer's budget constraint.
D)has no effect on the consumer's budget constraint.

Question 41

A consumer's preferences for $1 bills and $20 bills can be represented by indifference curves that are

A)bowed out from the origin
B)bowed in towards the origin
C)straight lines
D)right angles

Question 42

Consider the indifference curve map for nickels and quarters.Assume nickels are on the vertical axis and quarters are on the horizontal axis.The indifference curves for nickels and quarters

A)are straight lines with slope of -1/5
B)are straight lines with a slope of -1.
C)are straight lines with a slope of -5.
D)are L shaped.

Question 43

As long as a consumer remains on the same indifference curve

A)she is indifferent to all points which lie on any other indifference curve.
B)her preferences will not affect the marginal rate of substitution.
C)she is unable to decide which bundle of goods to choose.
D)she is indifferent among the points on that curve.

Question 44

A consumer

A)is equally satisfied with any indifference curve.
B)prefers indifference curves with positive slopes.
C)prefers higher indifference curves to lower indifference curves.
D)is generally unable to place all consumption bundles on an indifference curve.

Question 45

Figure 21-4

Refer to Figure 21-4.Which of the following statements is true?

A)If a consumer moves from point C to point A, her loss of Ho-Ho's cannot be compensated for by an increase in Twinkies.
B)Point E is preferred to all other points identified in the figure.
C)Since more is preferred to less, point C may be preferred to point E in some circumstances for this consumer.
D)Even though point E has more of both goods than point B, we could draw a different set of indifference curves in which point B is preferred to point E.

Question 46

Figure 21-4

Refer to Figure 21-4.Which of the following statements is true for a consumer who moves from point A to point D?

A)It is difficult to compare the level of consumer satisfaction between points D and a.
B)The consumer is indifferent between point A and point D.
C)The consumer is definitely worse off.
D)The consumer is likely to place a higher relative value on Twinkies at point A than at point D.

Question 47

If an indifference curve is bowed in toward the origin,the marginal rate of substitution is

A)not likely to reflect the relative value of goods.
B)likely to be constant for all bundles along the indifference curve.
C)likely to be identical to the price ratio for each bundle along the indifference curve.
D)different for each bundle along the indifference curve.

Question 48

The marginal rate of substitution is

A)the slope of a budget constraint.
B)always constant.
C)the slope of an indifference curve.
D)the point at which the budget constraint and the indifference curve is tangent.

Question 49

Figure 21-4

Refer to Figure 21-4.A person that chooses to consume bundle C is likely to

A)receive higher total satisfaction at point C than at point a.
B)spend more on bundle C than bundle A.
C)receive higher marginal utility from Ho-Ho's than from Twinkies.
D)receive higher marginal utility from Twinkies than from Ho-Ho's.

Question 50

A consumer's preferences provide a

A)ranking of the set of bundles that happen to fall on indifference curves.
B)relative ranking of bundles that provide more of all goods.
C)framework for evaluating market equilibriums.
D)complete ranking of all possible consumption bundles.

Question 51

The rate at which a consumer is willing to exchange one good for another,and maintain a constant level of satisfaction,is called the

A)relative expenditure ratio.
B)value of marginal product.
C)marginal rate of substitution.
D)relative price ratio.

Question 52

Figure 21-4

Refer to Figure 21-4.Which of the following statements is not true for a consumer who moves from point B to point C?

A)At point C the consumer would be willing to give up a larger number of Ho-Hos in exchange for a Twinkie than at point B.
B)The marginal rate of substitution at points C and B are the same since the points lie on the same indifference curve.
C)The consumer is willing to sacrifice Twinkies to obtain Ho-Ho's.
D)The consumer receives the same level of satisfaction at points B and C.

Question 53

The slope of an indifference curve is

A)the rate of change of consumer's preferences.
B)the marginal rate of preference.
C)the marginal rate of substitution.
D)always equal to the slope of the budget constraint.

Question 54

Figure 21-4

Refer to Figure 21-4.Which of the following statements is correct?

A)Point A is preferred equally to point E.
B)Point A is preferred equally to point C.
C)The bundle associated with point B contains more Ho-Ho's than that associated with point C.
D)The bundles along indifference curve I₁ are preferred to those along indifference curve I₂.

Question 55

Economists represent a consumer's preferences using

A)demand curves.
B)budget constraints.
C)indifference curves.
D)supply curves.

Question 56

All of the following are properties of indifference curves except

A)higher indifference curves are preferred to lower ones.
B)indifference curves are downward sloping.
C)indifference curves do not cross.
D)indifference curves are bowed outward.

Question 57

Indifference curves graphically represent

A)an income level sufficient to allow an individual to achieve a given level of satisfaction.
B)the constraints faced by individuals.
C)an individual's preferences.
D)the relative price of commodities.

Question 58

A consumer's preferences for right shoes and left shoes can be represented by indifference curves that are

A)bowed out from the origin
B)bowed in towards the origin
C)straight lines
D)right angles

Question 59

If two bundles of goods give a consumer the same satisfaction,the consumer must be

A)on her budget constraint.
B)in a position of equilibrium.
C)indifferent between the bundles.
D)Both a and c are correct.

Question 60

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by

A)the prices of the products.
B)the amount of each good the consumer is currently consuming.
C)the consumer's income.
D)the marginal value product.

Question 61

Figure 21-5

Refer to Figure 21-5.Which of the graphs shown may represent indifference curves?

A)graph (a)
B)graph (b)
C)graph (c)
D)All of the above are correct.

Question 62

When indifference curves are bowed in toward the origin,

A)a consumer is less inclined to trade away goods they are lacking.
B)a consumer's willingness to trade away goods they have in abundance diminishes.
C)an increase in income will shift the indifference curve away from the origin.
D)a decrease in income will shift the indifference curve away from the origin.

Question 63

When two goods are perfect substitutes,the marginal rate of substitution

A)is constant along the indifference curve.
B)decreases as the scarcity of one good increases.
C)increases as the scarcity of one good increases.
D)changes to reflect the consumer's changing preferences for the goods.

Question 64

A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

A)perfect substitutes.
B)perfect complements.
C)very close substitutes.
D)very close complements.

Question 65

Which of the following is a property of indifference curves?

A)Indifference curves cross to explain higher preferences.
B)Indifference curves have positive slopes.
C)Indifference curves are downward sloping and always linear.
D)Indifference curves are bowed in toward the origin.

Question 66

A consumer has preferences over two goods: books and movies.Three bundles,which all lie on the same indifference curve for this consumer,are shown in the table below.
Assuming that these goods are neither perfect substitutes nor perfect complements for this consumer,which of the following properties of indifference curves would this consumer's preferences violate?

A)Indifference curves are downward sloping.
B)Indifference curves do not cross.
C)Indifference curves are bowed inward.
D)These bundles do not violate any of the properties of indifference curves.

Question 67

As more units of an item are purchased,everything else equal,marginal satisfaction from consuming additional units will tend to

A)decrease at the same rate for all consumers.
B)decrease but at different rates for different people.
C)increase at the same rate for all consumers.
D)increase but at a decreasing rate for all consumers.

Question 68

A consumer has preferences over two goods: books and movies.Two bundles,which lie on the same indifference curve for this consumer,are shown in the table below.
Which of the following bundles could not lie on the same indifference curve with A and B and satisfy the four properties of indifference curves?

A)One movie and five books
B)Three movies and three books
C)Five movies and one book
D)One movie and seven books

Question 69

As one moves down a typical indifference curve,the marginal rate of substitution

A)increases.
B)decreases.
C)is constant.
D)will switch from positive to negative.

Question 70

The following diagram shows one indifference curve representing the preferences for goods x and y for one consumer.
What is the marginal rate of substitution between points A and B?

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

Question 71

Higher indifference curves are preferred to lower ones as long as the

A)marginal rate of substitution is diminishing.
B)products in the bundle are "bads."
C)products in the bundle are "goods."
D)budget constraint does not shift.

Question 72

The following diagram shows one indifference curve representing the preferences for goods x and y for one consumer.
What is the marginal rate of substitution between points A and B?

A)2/5
B)1
C)5/2
D)3

Question 73

When two goods are perfect complements they will have

A)indifference curves with a positive slope.
B)indifference curves that are right angles.
C)indifference curves with a constant marginal rate of substitution.
D)Both b and c are correct.

Question 74

The bowed shape of the indifference curve reflects the consumer's

A)unwillingness to give up a good that he already has in large quantity.
B)unwillingness to purchase a good that he already has in large quantity.
C)greater willingness to give up a good that he already has in large quantity.
D)greater willingness to purchase a good that he already has in large quantity.

Question 75

When two goods are perfect complements,the indifference curves are

A)positively sloped.
B)negatively sloped.
C)straight lines.
D)right angles.

Question 76

A consumer has preferences over two goods: x and y.Three bundles,which all lie on the same indifference curve for this consumer,are shown in the following table.
Which of the following statements regarding these bundles is correct?

A)The goods are perfect substitutes for this consumer.
B)The goods are perfect complements for this consumer.
C)These bundles violate the property that indifference curves are bowed inward.
D)These bundles violate the property that indifference curves do not cross.

Question 77

Which of the following is not true? Indifference curves

A)are downward sloping.
B)that are closer to the origin are preferable to indifference curves further from the origin.
C)are bowed in toward the origin.
D)do not cross.

Question 78

"Left" gloves and "right" gloves provide a good example of

A)perfect substitutes.
B)perfect complements.
C)negatively sloped indifference curves.
D)positively sloped indifference curves.

Question 79

Figure 21-5

Refer to Figure 21-5.Which of the graphs shown represent indifference curves for perfect substitutes?

A)graph (a)
B)graph (b)
C)graph (c)
D)None of the above is correct.

Question 80

Indifference curves that cross would suggest that

A)the consumer does not prefer more to less.
B)the consumer is likely to prefer a redistribution of income from rich to poor.
C)different individuals have different preferences for the same goods.
D)the marginal rate of substitution is the same for both indifference curves.