Deck 19: Geometrical Analysis of Consumer Equilibrium

Question 1

Use the following to answer questions :
Figure 5A-1
Refer to Figure 5A-1.If X costs $6 per unit and Y costs $5 per unit, what is the income of this household?

A)$25.
B)$30.
C)$36.
D)Not enough information.
E)None of the above.

Answer 1

$30.

Question 2

A consumer's indifference curves will be influenced by all the following except:

A)age.
B)income.
C)household size.
D)other consumers.
E)none of the above.

Answer 2

income.

Question 3

An indifference curve represents consumption bundles among which the consumer is indifferent.

Answer 3

True

Question 4

When MU_l/P_l = MU₂/P₂, the indifference curve and budget line are necessarily tangent.

Question 5

A consumer's indifference curves will be influenced by all the following except:

A)household size.
B)education.
C)prices.
D)advertising.
E)none of the above.

Question 6

The slope of an indifference curve is:

A)the sum of a consumer's demand curves for the goods they purchase.
B)derived from the supply curves of two different goods.
C)the measure of the goods' relative marginal utilities, or of the substitution terms on which the consumer would be willing to exchange a little less of one good in return for a little more of the other.
D)the same for all consumers.
E)none of the above.

Question 7

What is the straight line that sums up all the possible combinations of two goods that would exhaust a consumer's income called ?

A)budget line.
B)income line.
C)combination line.
D)economics line.
E)none of the above.

Question 8

In the figure below, a rise in income will (ceteris paribus)shift utility-maximizing consumption from E to:

A)F
B)G
C)H
D)I
E)no shift will occur.

Question 9

Increasing all prices and income in exactly the same proportion:

A)leaves equilibrium quantities consumed unchanged.
B)increases consumption of luxuries.
C)decreases consumption of necessities.
D)both B and C are correct.
E)none of the above are correct.

Question 10

In the figure below, if the consumer is currently at point A, with the given budget line and indifference curve, she should:

A)move to point B.
B)buy less of good 1 and more of good 2.
C)buy less of good 1 and less of good 2.
D)remain at A.
E)buy more of good 1 and less of good 2.

Question 11

A purpose of indifference-curve analysis is to:

A)derive a theory of producer behavior.
B)prove the law of diminishing utility.
C)derive a theory of consumer behavior without requiring absolute utility measurement.
D)prove that the demand curve for all commodities is negatively sloped.
E)describe market phenomena.

Question 12

The equilibrium condition for the consumer is that:

A)along a budget line, the indifference curve be tangent to the budget line.
B)expenditure on each good be equal.
C)the marginal utility of each good be equal to its price.
D)marginal utilities be equal for all goods.
E)none of the above.

Question 13

In the figure below, a shift in the budget line from AC to BC represents:

A)a decrease in income.
B)an increase in good 2's price.
C)an increase in good 1's price.
D)a decrease in good 2's price.
E)a decrease in good 1's price.

Question 14

An indifference curve is bowed out like the production possibility frontier.

Question 15

Consumer equilibrium on an indifference map is at:

A)any intersection of the budget line and an indifference curve.
B)any point on the highest indifference curve shown on the indifference map.
C)that point where the budget line is tangent to an indifference curve.
D)any point inside the budget line.
E)any point on the budget line.

Question 16

As shown in the figure below a shift in the budget line from AB to AC represents:

A)an increase in the price of good 1.
B)an increase in the price of good 2.
C)a decrease in the price of good 1.
D)a decrease in the price of good 2
E)none of the above.

Question 17

Which of the following statements concerning indifference curves is correct?

A)An indifference curve is the locus of points describing proportional price levels of the two goods.
B)Indifference curves presuppose the measurement of total utility and marginal utility.
C)An indifference curve is the locus of points representing various combinations of two goods about which the consumer is indifferent.
D)Indifference curves presuppose the validity of the "law of diminishing returns."
E)None of the above.

Question 18

Indifference curves are generally convex to the origin because of:

A)the law of diminishing marginal utility.
B)substitution and income effects.
C)limitations of the economy in producing an ever-increasing amount of the commodities in question.
D)the instability of individual human wants.
E)none of the above.

Question 19

Use the following to answer questions :
Figure 5A-1
Refer to Figure 5A-1.What is the slope of the budget constraint?

A)-1.2.
B).83.
C)1.
D)-.83.
E)None of the above.

Question 20

Equilibrium in the consumption of food (F)and clothing (C)occurs at which point in the figure below?

A)A.
B)B.
C)C.
D)D.
E)none of the above.

Question 21

The elasticity of the budget line equals the price ratio of the two goods.

Question 22

The slope of the indifference curve measures the terms on which the consumer would be willing to trade one good for another.

Question 23

If your income is halved, your budget line will shift twice as far from the origin in a parallel way.

Question 24

Use the following to answer questions :
Figure 5A-2
Refer to Figure 5A-2.If the budget line is AB and X costs $6 and Y costs $4, then income = $24.

Question 25

Use the following to answer questions :
Figure 5A-2
In Figure 5A-2, the shift from the budget line AB to the new budget line DB was caused by an increase in the price of Y.

Question 26

As the price of food changes, the budget line for clothing and food pivots about a single point on the clothing axis.

Question 27

The scarcer the good, the greater its relative substitution value.

Question 28

If all prices double, your budget line will shift halfway back to the origin.

Question 29

Use the following to answer questions :
Figure 5A-2
Refer to Figure 5A-2.Assuming income is held constant, the shift outward to the budget line AC is caused by an increase in the price of Y.

Question 30

Geometrically, the consumer is at equilibrium where the slope of the budget line is exactly equal to the slope of the indifference curve.

Question 31

As the price of food changes, the budget line shifts out to the right.

Question 32

The slope at any point on an indifference curve measures the relative marginal utilities of the two goods at that point.

Question 33

Use the following to answer questions :
Figure 5A-2
The slope of the budget line BD in Figure 5A-2 is -2.

Question 34

Use the following to answer questions :
Figure 5A-2
In Figure 5A-2, starting from the budget constraint AC, if both income and prices are doubled, the household's budget constraint would shift out to EF, and the household could attain a utility level of U(4).

Question 35

Use the following to answer questions :
Figure 5A-2
In Figure 5A-2, U(3)is unattainable if the household's budget constraint is BD.

Question 36

The budget line shifts inward in a parallel way when you get less income.

Question 37

All consumers have the same indifference curves.

Question 38

The slope of the budget line equals the price ratio of the two goods.

Question 39

Use the following to answer questions :
Figure 5A-2
If the household's budget constraint in Figure 5A-2 is AC, then the household will purchase 1.5 units of X and 4.5 units of Y in order to maximize utility.

Question 40

In consumer equilibrium, the consumer's substitution ratio for two goods equals the price ratio of the two goods.