Deck 3: Consumer Behavior

Question 1

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.2
Based on Figure 3.2, it can be inferred that:

A) Alvin does not consider good X as "good."
B) Alvin will never purchase any of good Y.
C) Alvin regards good X and good Y as perfect substitutes.
D) Alvin regards good X and good Y as perfect complements.
E) none of the above

Answer 1

D

Question 2

An upward sloping indifference curve defined over two goods violates which of the following assumptions from the theory of consumer behavior?

A) transitivity.
B) preferences are complete.
C) more is preferred to less.
D) all of the above
E) none of the above

Answer 2

C

Question 3

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.1
Refer to Figure 3.1. Which of the following is true concerning Alvin's marginal rate of substitution?

A) It is diminishing.
B) It is positive but varies along the indifference curve.
C) It is constant.
D) It is zero.

Answer 3

C

Question 4

Gary Franklin is a movie critic. He invented the Franklin Scale with which he rates movies from 1 to 10 (10 being best). When asked about his scale, Mr. Franklin explained "that it is a subjective measure of movie quality. A movie with a ranking of 10 is not necessarily 10 times better than a movie with a ranking of 1, but it is better. A movie with a ranking of 5 is better than a movie with a ranking of 1, but is not as good a movie with a ranking of 10. That's all it really tells you." Based on Mr. Franklin's description, his scale is:

A) ordinal but not cardinal.
B) cardinal but not ordinal.
C) an objective standard to judge movies.
D) neither cardinal nor ordinal.

Question 5

The slope of an indifference curve reveals:

A) that preferences are complete.
B) the marginal rate of substitution of one good for another good.
C) the ratio of market prices.
D) that preferences are transitive.
E) none of the above

Question 6

If a market basket is changed by adding more of at least one good, then rational consumers will:

A) rank the market basket more highly after the change.
B) more likely prefer a different market basket.
C) rank the market basket as being just as desirable as before.
D) be unable to decide whether the first market basket is preferred to the second or vice versa.
E) have indifference curves that cross.

Question 7

Which of the following is NOT an assumption regarding people's preferences in the theory of consumer behavior?

A) Preferences are complete.
B) Preferences are transitive.
C) Consumers prefer more of a good to less.
D) All of the above are basic assumptions about consumer preferences.

Question 8

A curve that represents all combinations of market baskets that provide the same level of utility to a consumer is called:

A) a budget line.
B) an isoquant.
C) an indifference curve.
D) a demand curve.
E) none of the above

Question 9

In what ways can economists help auto manufacturers estimate the marginal rate of substitution between features such as vehicle interior size and acceleration?

A) Examining production cost data
B) Conducting consumer surveys about willingness to pay for auto features
C) Solving the standard consumer model
D) Statistically analyzing historical data on purchases of different types of autos
E) B and D only

Question 10

If indifference curves cross, then:

A) the assumption of a diminishing marginal rate of substitution is violated.
B) the assumption of transitivity is violated.
C) the assumption of completeness is violated.
D) consumers minimize their satisfaction.
E) all of the above

Question 11

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.1
Refer to Figure 3.1. Which assumption concerning preferences do Alvin's indifference curves violate?

A) Diminishing marginal rates of substitution
B) Transitivity of preferences
C) More is preferred to less
D) Completeness

Question 12

A consumer prefers market basket A to market basket B, and prefers market basket B to market basket C. Therefore, A is preferred to C. The assumption that leads to this conclusion is:

A) transitivity.
B) completeness.
C) all goods are good.
D) diminishing MRS.
E) assumption of rationality.

Question 13

The assumption that preferences are complete:

A) means that a consumer will spend her entire income.
B) is unnecessary, as long as transitivity is assumed.
C) recognizes that there may be pairs of market baskets that cannot be compared.
D) means that the consumer can compare any two market baskets of goods and determine that either one is preferred to the other or that she is indifferent between them.

Question 14

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.2
Refer to Figure 3.2. At any consumption bundle with the quantity of good X exceeding the quantity of good Y (that is, a bundle located below the 45 degree line, like point
A) diminishing.

A), Alvin's marginal rate of substitution of good X for good Y is
B) positive.
C) constant and positive.
D) zero.

Question 15

The assumption of transitive preferences implies that indifference curves must:

A) not cross one another.
B) have a positive slope.
C) be L-shaped.
D) be convex to the origin.
E) all of the above

Question 16

Suppose that a market basket of two goods is changed by adding more of one of the goods and subtracting one unit of the other. The consumer will:

A) rank the market basket more highly after the change.
B) rank the market basket more highly before the change.
C) rank the market basket just as desirable as before.
D) any one of the above statements may be true.

Question 17

The theory of consumer behavior is based on certain assumptions. The set of four basic assumptions includes:

A) completeness.
B) transitivity.
C) intransitivity.
D) Both A and B are correct.
E) Both A and C are correct.

Question 18

Indifference curves are convex to the origin because of:

A) transitivity of consumer preferences.
B) the assumption of a diminishing marginal rate of substitution.
C) the assumption that more is preferred to less.
D) the assumption of completeness.
E) none of the above

Question 19

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.1
Based on Figure 3.1, it can be inferred that:

A) Alvin does not consider good X as "good."
B) Alvin will never purchase any of good Y.
C) Alvin regards good X and good Y as perfect substitutes.
D) Alvin regards good X and good Y as perfect complements.
E) none of the above

Question 20

Zoe is an executive at Dell Computer Company who is in charge of designing the next version of laptop computers. She will consider such features as screen size, weight, processor speed, and CD and DVD drives. Given the fact that it is costly to include more features in new products, why might Zoe be interested in data on how much consumers paid for a range of laptops with different attributes?

A) in order to estimate willingness to pay for each feature.
B) in order to set an optimal price for the laptops.
C) in order to determine the best features to include.
D) in order to estimate willingness to trade off one feature for another.
E) all of the above

Question 21

Which of the following is true about the indifference curve where one commodity (such as pollution) is "bad"?

A) It has a negative slope.
B) It has a positive slope.
C) It is horizontal.
D) It is vertical.

Question 22

Figure 3.3
Refer to the indifference curve in Figure 3.3. Which of the following statements about marginal utility (MU) is correct?

A) MU(A) = 0.
B) MU(B) = 0.
C) MU(A) is negative.
D) MU(B) is negative.

Question 23

Envision a graph with meat on the horizontal axis and vegetables on the vertical axis. A strict vegetarian would have indifference curves that are:

A) vertical lines.
B) horizontal lines.
C) diagonal straight lines.
D) right angles.
E) upward sloping.

Question 24

Consider the following three market baskets:

If baskets B and C are on the same indifference curve, and if preferences satisfy all four of the basic assumptions, then:

A) A is preferred to C.
B) A is preferred to B.
C) Both A and B answer choices are correct.
D) none of the above

Question 25

Figure 3.3
Refer to the indifference curve in Figure 3.3. Which of the following statements is correct?

A) This individual receives no satisfaction from Good A.
B) This individual receives no satisfaction from Good B.
C) This individual will only consume A and B in fixed proportions.
D) none of the above

Question 26

Use the following two statements to answer this question:
I) According to the three basic assumptions regarding people's preferences, a person will always prefer to earn a living through honest work rather than a life of crime.
II) When we say that preferences are complete, we mean that if a consumer prefers market basket A to market basket B, and prefers market basket B to market basket C, then the consumer prefers market basket A to market basket C.

A) Both I and II are true.
B) I is true and II is false.
C) I is false and II is true.
D) Both I and II are false.

Question 27

If indifference curves are concave to the origin, which assumption on preferences is violated?

A) Diminishing marginal rates of substitution
B) Transitivity of preferences
C) More is preferred to less
D) Completeness

Question 28

Figure 3.3
Refer to the indifference curve in Figure 3.3. Which of the following is true about the MRS?

A) It is negative.
B) It is positive.
C) It is equal to zero.
D) It is undefined.

Question 29

Which of the following are examples of situations in which the standard model of the consumer may not be realistic?

A) Impulse purchases
B) Following fads and fashions instead of one's own preferences
C) Addictions or other strong habits in consumption
D) all of the above

Question 30

If X and Y are perfect substitutes, which of the following assumptions about indifference curves is not satisfied?

A) Completeness
B) Transitivity
C) More is preferred to less
D) Diminishing MRS
E) none of the above (All of the above assumptions are satisfied.)

Question 31

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.2
Refer to Figure 3.2. Which assumption concerning preferences do Alvin's indifference curves violate?

A) Diminishing marginal rates of substitution
B) Transitivity of preferences
C) More is preferred to less
D) Completeness
E) both A and C

Question 32

Consider the following three market baskets:Table 3.1

Refer to Table 3.1. If preferences satisfy all four of the basic assumptions:

A) A is on the same indifference curve as B.
B) B is on the same indifference curve as C.
C) A is preferred to C.
D) B is preferred to A.
E) Both A and B answer choices are correct.

Question 33

Mikey is very picky and insists that his mom make his breakfast with equal parts of cereal and apple juice - any other combination and it ends up on the floor. Cereal costs 4 cents per tablespoon and apple juice costs 6 cents per tablespoon. If Mikey's mom budgets $8 per month for Mikey's breakfast, how much cereal and juice does she buy?

A) 40 tablespoons each of cereal and juice
B) 80 tablespoons each of cereal and juice
C) 40 tablespoons of cereal and 75 tablespoons of juice
D) 100 tablespoons of cereal and 67 tablespoons of juice

Question 34

Consider the following three market baskets:Table 3.1

Refer to Table 3.1. Which of the following cannot be true?

A) The consumer could be indifferent between A and B.
B) A and C could be on the same indifference curves.
C) The consumer could be indifferent between B and C.
D) A and C could be on different indifference curves.

Question 35

Jane is trying to decide which courses to take next semester. She has narrowed down her choice to two courses, Econ 1 and Econ 2. Now she is having trouble and cannot decide which of the two courses to take. It's not that she is indifferent between the two courses, she just cannot decide. An economist would say that this is an example of preferences that:

A) are not transitive.
B) are incomplete.
C) violate the assumption that more is preferred to less.
D) all of the above

Question 36

If a consumer is always indifferent between an additional one grapefruit or an additional two oranges, then when oranges are on the horizontal axis the indifference curves:

A) will be straight lines with a slope of -1/2.
B) will be straight lines with a slope of -1.
C) will be straight lines with a slope of +1/2.
D) will be right angles whose corners occur on a ray from the origin with a slope of +2.
E) none of the above

Question 37

The magnitude of the slope of an indifference curve is:

A) called the marginal rate of substitution.
B) equal to the ratio of the total utility of the goods.
C) always equal to the ratio of the prices of the goods.
D) all of the above
E) A and C only

Question 38

What is a good argument for using the model of the consumer despite the fact that it requires making many simplifying assumptions?

A) It is complex to solve.
B) The assumptions are sometimes realistic.
C) It explains observed patterns of behavior.
D) It is used in many scholarly fields.

Question 39

Use the following two statements to answer this question:
I) If utility is ordinal, a market basket that provides 30 utils provides twice the satisfaction of a market basket that provides 15 utils.
II) When economists first studied utility it was believed that utility was cardinal, but it was later discovered that ordinal preferences are sufficient to explain how most individual decisions are made.

A) Both I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false.

Question 40

Consider the following three market baskets:

If baskets A and B are on the same indifference curve and if indifference curves exhibit diminishing MRS:

A) C is preferred to both A and B.
B) A and B are both preferred to C.
C) C is on the same indifference curve as A and B.
D) There is not enough information to determine preferences for C relative to the other goods.

Question 41

Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the horizontal axis,

A) the budget line will become steeper.
B) the budget line will become flatter.
C) the slope of the budget line will not change.
D) the slope of the budget line will change, but in an indeterminate way.

Question 42

If Jill's MRS of popcorn for candy is 2 (popcorn is on the horizontal axis), Jill would willingly give up:

A) 2, but no more than 2, units of popcorn for an additional unit of candy.
B) 2, but no more than 2, units of candy for an additional unit of popcorn.
C) 1, but no more than 1, unit of candy for an additional 2 units of popcorn.
D) 2, but no more than 2, units of popcorn for an additional 2 units of candy.

Question 43

Use the following two statements to answer this question:
I) Consumer theory can determine whether giving an individual a more preferred basket of goods doubles her overall level of satisfaction, less than doubles her satisfaction, or more than doubles her satisfaction.
II) There is not much empirical evidence to support the assumption that higher incomes result in higher levels of satisfaction.

A) Both I and II are true.
B) I is true and II is false.
C) I is false and II is true.
D) Both I and II are false.

Question 44

The following combinations of goods X and Y represent various market baskets. Consumption is measured in pounds per month.
Market Basket Units of X Units of Y
A 4 6
B 16 7
C 15 3
D 3 2
Explain which market basket(s) is(are) preferred to other(s), and if there is any uncertainty over which is preferable, point this out as well.

Question 45

Match the following descriptions of preferences to the indifference curve diagrams that follow.
________ Ann does not care whether she has more diet soft drinks or fewer
diet soft drinks.
________ Peter is very picky about his buttered popcorn. He tops every quart
of popped corn with exactly one quarter cup of melted butter.
________ Amy likes M&M's, plain and peanut. For Amy, the marginal rate of
substitution between plain and peanut M&M's does not vary with the
quantities of plain and peanut M&M's she consumes.
________ George dislikes broccoli and would be willing to pay something to not
have to eat it.
________ Natalya likes rap and rock music. Natalya's preferences exhibit a
diminishing marginal rate of substitution between the two types of music.
________ Matthew knows his limit. He likes beer up to a point, but if he drinks
too much he gets sick.

Question 46

In the theory of consumer behavior, certain axioms about the nature of preferences imply that indifference curves cannot cross. Which axioms imply this? Explain your answer using a diagram and using words.

Question 47

In the field of financial management it has been observed that there is a trade-off between the rate of return that one earns on investments and the amount of risk that one must bear to earn that return.
a. Draw a set of indifference curves between risk and return for a person that is risk averse (a person that does not like risk).
b. Draw a set of indifference curves for a person that is risk neutral (a person that does not care about risk one way or the other).
c. Draw a set of indifference curves for a person that likes risk.

Question 48

Each of the following consumers exhibit behavior that violates one of the basic assumptions of consumer preferences. Identify the assumption that is violated for each individual.
∙ Art says that he can watch 2 movies a week but couldn't be paid to watch another movie after that.
∙ Alex says that he prefers going to a movie over hiking. He also indicates that he prefers hiking to swimming. Alex then states that he would rather go swimming than go to a movie.
∙ Alicia says that she prefers hiking to watching a movie but can't determine her preferences for swimming.

Question 49

A consumer has $100 per day to spend on product A, which has a unit price of $7, and product B, which has a unit price of $15. What is the slope of the budget line if good A is on the horizontal axis and good B is on the vertical axis?

A) -7/15
B) -7/100
C) -15/7
D) 7/15

Question 50

The endpoints (horizontal and vertical intercepts) of the budget line:

A) measure its slope.
B) measure the rate at which one good can be substituted for another.
C) measure the rate at which a consumer is willing to trade one good for another.
D) represent the quantity of each good that could be purchased if all of the budget were allocated to that good.
E) indicate the highest level of satisfaction the consumer can achieve.

Question 51

You view tea and scones as perfect complements, and you prefer to consumer one cup of tea with one scone. Also, your indifference curves are plotted with tea on the vertical axis. If you presently have two cups of tea and one scone, what this the marginal rate of substitution (MRS) at this point?

A) +1
B) -1
C) Zero
D) Infinity

Question 52

Draw a set of indifference curves for the following pairs of goods:
a. Hamburgers and carrots for a vegetarian who neither likes nor dislikes meat. (Vegetarians do not eat meat.)
b. Peanut butter and jelly for an individual that will not eat peanut butter sandwiches or jelly sandwiches, but loves peanut butter and jelly sandwiches made with two parts peanut butter and one part jelly.
c. Tickets for Knott's Berry Farm (KBF) and Universal Studios (US) for a tourist that believes that KBF and US are perfect substitutes.
d. Ice cream and pie if these are goods that you like, but if you consume enough of either, you get sick of them. If you are sick of a good, consuming more of it lowers your utility.

Question 53

Theodore's budget line has changed from A to B. Which of the following explains the change in Theodore's budget line?

A) The price of food and the price of clothing increased.
B) The price of food increased, and the price of clothing decreased.
C) The price of food decreased, and the price of clothing increased.
D) The price of food and the price of clothing decreased.
E) none of the above

Question 54

In the theory of consumer behavior, several assumptions are made about the nature of preferences. What are these assumptions? Illustrate the significance of these assumptions using indifference curves.

Question 55

An island economy produces only two goods, coconuts and pineapples. There are five people (A,B, C, D, and
E) living on the island with these preferences:
A has a strong preference for pineapples.
B has a strong preference for coconuts.
C doesn't care for pineapples (assigns no value to them).
D doesn't care for coconuts (assigns no value to them)
E will only consume pineapples and coconuts in the fixed
proportion of one pineapple to one coconut.
For each of these five individuals, construct a representative indifference curve with pineapples on the vertical axis and coconuts on the horizontal axis. Discuss the shape of the indifference curves and relate them to the MRS.

Question 56

Which of the following statements concerning utility as a measure for well being are false?

A) There is generally a positive relationship between income and utility.
B) It is possible to determine which of two individuals is made happier by consuming a particular market basket.
C) Utility is an abstract representation of an individual's degree of happiness.
D) Cross country studies suggest that citizens in wealthier countries are happier than citizens in poorer countries.

Question 57

If the quantity of good A (Q_A) is plotted along the horizontal axis, the quantity of good B (Q_B) is plotted along the vertical axis, the price of good A is P_A, the price of good B is P_B and the consumer's income is I, then the slope of the consumer's budget constraint is ________.

A) -Q_A/Q_B
B) -Q_B/Q_A
C) -P_A/P_B
D) -P_B/P_A
E) I/P_A or I/P_B

Question 58

Consider the indifference map in the figure below: Which of the four basic assumptions about consumer preferences are violated by this indifference map?

A) More is better than less
B) Transitivity
C) Diminishing MRS
D) A and B are correct.
E) A and C are correct.

Question 59

Suppose your utility function for food (F) and clothing (C) is u(F,C) = F + 4C. If you reduce your clothing consumption by 2 units, how much do you have to increase your food consumption in order to maintain the same utility level?

A) 2 units
B) 4 units
C) 6 units
D) 8 units

Question 60

Consider Gary's utility function: U(X,Y) = 5 XY, where X and Y are two goods. If the individual consumed 10 units of X and received 250 units of utility, how many units of Y must the individual consume? Would a market basket of X = 15 and Y = 3 be preferred to the above combination? Explain.

Question 61

Suppose a consumer only purchases food and clothing, and food is plotted along the horizontal axis of the consumer's indifference map. If the price of food and clothing increase and income does not change, then the budget line changes by rotating:

A) counter-clockwise about the fixed vertical axis intercept.
B) clockwise about the fixed vertical axis intercept.
C) counter-clockwise about the fixed horizontal axis intercept.
D) clockwise about the fixed horizontal axis intercept.
E) none of the above

Question 62

Bob views apples and oranges as perfect substitutes in his consumption, and MRS = 1 for all combinations of the two goods in his indifference map. Suppose the price of apples is $2 per pound, the price of oranges is $3 per pound, and Bob's budget is $30 per week. What is Bob's utility maximizing choice between these two goods?

A) 4 pounds of apples and 6 pounds of oranges
B) 5 pounds of apples and 5 pounds of oranges
C) 10 pounds of oranges and no apples
D) 15 pounds of apples and no oranges
E) none of the above

Question 63

Sue views hot dogs and hot dog buns as perfect complements in her consumption, and the corners of her indifference curves follow the 45-degree line. Suppose the price of hot dogs is $5 per package (8 hot dogs), the price of buns is $3 per package (8 hot dog buns), and Sue's budget is $48 per month. What is her optimal choice under this scenario?

A) 8 packages of hot dogs and 6 packages of buns
B) 8 packages of hot dogs and 8 packages of buns
C) 6 packages of hot dogs and 6 packages of buns
D) 6 packages of hot dogs and 8 packages of buns

Question 64

The budget constraint for a consumer who only buys apples (A) and bananas (B) is P_AA + P_BB = I where consumer income is I, the price of apples is P_A, and the price of bananas is P_B. To plot this budget constraint in a figure with apples on the horizontal axis, we should use a budget line represented by the slope-intercept equation:

A) A = -I/P_A + (P_B/P_A)B
B) A = I/P_A - (P_B/P_A)B
C) B = -I/P_B + (P_A/P_B)A
D) B = I/P_B - (P_A/P_B)A

Question 65

If prices and income in a two-good society double, what will happen to the budget line?

A) The intercepts of the budget line will increase.
B) The intercepts of the budget line will decrease.
C) The slope of the budget line may either increase or decrease.
D) Insufficient information is given to determine what effect the change will have on the budget line but we know society is worse-off.
E) There will be no effect on the budget line.

Question 66

A consumer maximizes satisfaction at the point where his valuation of good X, measured as the amount of good Y he would willingly give up to obtain an additional unit of X, equals:

A) the magnitude of the slope of the indifference curve through that point.
B) one over the magnitude of the slope of the indifference curve through that point.
C) Px/Py
D) Py/Px

Question 67

The fact that Alice spends no money on travel:

A) implies that she does not derive any satisfaction from travel.
B) implies that she is at a corner solution.
C) implies that her MRS does not equal the price ratio.
D) any of the above are possible.

Question 68

An individual consumes only two goods, X and Y. Which of the following expressions represents the utility maximizing market basket?

A) MRSxy is at a maximum.
B) Px/Py = money income.
C) MRSxy = money income.
D) MRSxy = Px/Py.
E) all of the above

Question 69

To simplify our consumption models, suppose U.S. consumers only purchase food and all other goods where food is plotted along the horizontal axis of the indifference map. If the U.S. Congress passes an economic stimulus package that pays $300 to each person, how does this affect the budget line for each consumer?

A) Makes the budget line steeper
B) Makes the budget line flatter
C) Parallel outward (rightward) shift
D) Parallel inward (leftward) shift
E) none of the above

Question 70

The price of lemonade is $0.50; the price of popcorn is $1.00. If Fred has maximized his utility by purchasing lemonade and popcorn, his marginal rate of substitution will be:

A) 2 lemonades for each popcorn.
B) 1 lemonades for each popcorn.
C) 1/2 lemonade for each popcorn.
D) indeterminate unless more information on Fred's marginal utilities is provided.

Question 71

When Joe maximizes utility, he finds that his MRS of X for Y is greater than Px/Py. It is most likely that:

A) Joe's preferences are incomplete.
B) Joe's preferences are irrational.
C) Joe is not consuming good X.
D) Joe is not consuming good Y.

Question 72

The price of coffee is always equal to one-half the price of tea. When we plot the budget line for coffee and tea, coffee is plotted on the horizontal axis. What is the slope of this budget line?

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

Question 73

An increase in income, holding prices constant, can be represented as:

A) a change in the slope of the budget line.
B) a parallel outward shift in the budget line.
C) an outward shift in the budget line with its slope becoming flatter.
D) a parallel inward shift in the budget line.

Question 74

Suppose a consumer only purchases food and clothing, and food is plotted along the horizontal axis of the consumer's indifference map. If the price of clothing increases and the price of food and income do not change, then the budget line changes by rotating:

A) counter-clockwise about the fixed vertical axis intercept.
B) clockwise about the fixed vertical axis intercept.
C) counter-clockwise about the fixed horizontal axis intercept.
D) clockwise about the fixed horizontal axis intercept.
E) none of the above

Question 75

Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food falls relative to that of clothing, the budget line will:

A) become flatter.
B) become steeper.
C) shift outward.
D) become steeper or flatter depending on the relationship between prices and income.

Question 76

Which of the following statements is true about a consumer's optimal decision when indifference curves are concave?

A) Both goods are consumed.
B) No goods are consumed.
C) Only one of the goods is consumed.
D) It occurs at the point of tangency with the budget line.

Question 77

Suppose you only consume food and clothing, and clothing is plotted on the vertical axis. Also, you purchase food at a fixed price (P_F), but the price of clothing declines as you buy in larger quantities (i.e., quantity discounts). What does the budget line look like in this case?

A) The budget line is a straight line
B) The budget line is now concave to (bows out from) the origin
C) The budget line is now convex to (bows in toward) the origin
D) The budget line will not be a straight line, but it may be concave or convex

Question 78

Which of the following will result in a decrease in a consumer's purchasing power?

A) A decrease in the consumer's income
B) An increase in the price of the good on the vertical axis
C) An increase in the price of the good on the horizontal axis
D) all of the above

Question 79

To simplify our consumption models, suppose U.S. consumers only purchase food and all other goods where food is plotted along the horizontal axis of the indifference map. Also, suppose that all states initially impose state sales taxes on all goods (including food), but then the states exempt food from the state sales tax. How does this tax policy change alter the consumer's budget line?

A) Makes the budget line steeper
B) Makes the budget line flatter
C) Parallel rightward shift
D) Parallel leftward shift
E) none of the above

Question 80

Pencils sell for 10 cents and pens sell for 50 cents. Suppose Jack, whose preferences satisfy all of the basic assumptions, buys 5 pens and one pencil each semester. With this consumption bundle, his MRS of pencils for pens is 3. Which of the following is true?

A) Jack could increase his utility by buying more pens and fewer pencils.
B) Jack could increase his utility by buying more pencils and fewer pens.
C) Jack could increase his utility by buying more pencils and more pens.
D) Jack could increase his utility by buying fewer pencils and fewer pens.
E) Jack is at a corner solution and is maximizing his utility.