Question 1

Indifference curves are downward sloping because of the assumption of

Accepted Answer

Indifference curves are downward sloping because of the assumption of "more is better," which implies that to maintain the same level of satisfaction (or utility), if the quantity of one good increases, the quantity of the other must decrease.

Question 2

If a consumer prefers Apples to Bananas and prefers Bananas to Citrus Fruit,in order to satisfy assumptions about preferences,she has to prefer

Accepted Answer

This preference order satisfies the assumption of transitivity in consumer choice theory, which states that if a consumer prefers A to B and B to C, then the consumer must prefer A to C. Therefore, if the consumer prefers Apples to Bananas and Bananas to Citrus Fruit, they must prefer Apples to Citrus Fruit to maintain consistency in their preferences.

Question 3

The indifference curves for left shoes and right shoes would most likely be

Accepted Answer

Indifference curves for left shoes and right shoes are L-shaped because these goods are perfect complements. A person typically needs one left shoe and one right shoe in a pair, so the utility or satisfaction doesn't increase by having more of one without the other.

Question 4

If two indifference curves were to intersect at a point,this would violate the assumption of

Accepted Answer

Transitivity assumes that if A is preferred to B and B is preferred to C, then A is preferred to C. If two indifference curves intersect at a point, it implies that the consumer does not have a consistent preference order, which violates the assumption of transitivity. On the other hand, completeness assumes that the consumer can rank all possible baskets of goods, but the intersection of two indifference curves does not necessarily violate this assumption. Therefore, choice C is incorrect.

Question 5

A consumer's willingness to trade one good for another can be expressed by the consumer's

Accepted Answer

A consumer's willingness to trade one good for another is represented by their indifference curve, which shows all the combinations of two goods that the consumer is equally satisfied with. The marginal rate of substitution (MRS) measures the rate at which a consumer is willing to trade one good for another while remaining on the same indifference curve. Therefore, both A and B are correct.

Question 6

There is an indifference curve through every bundle because of the assumption of

Accepted Answer

The assumption of completeness, which states that a consumer can compare and rank all possible bundles of goods, ensures that there is an indifference curve through every bundle. This is because if a consumer can compare any two bundles, they can also identify a bundle which is indifferent to one of the bundles, forming an indifference curve. The other options (transitivity, rationality, and nonsatiation) do not necessarily imply the existence of indifference curves through every bundle.

Question 7

For which of the following pairs of goods would most people likely have convex indifference curves?

Accepted Answer

Movie tickets and concert tickets are likely to have convex indifference curves because people's preferences may vary depending on the quantity consumed. For example, someone may be willing to pay more for the first few movie tickets (to see their favorite actor in a new release), but as they go to more movies, the marginal utility may decrease and they may be willing to pay less for additional tickets. On the other hand, for concert tickets, someone may be willing to pay a lot for the first ticket to see their favorite band, but the marginal utility may increase for additional tickets if they want to go with friends or catch multiple shows if the band is touring. Therefore, the indifference curves for movie tickets and concert tickets are likely to be convex. The other options (nickels and dimes, left shoes and right shoes) are not likely to have convex indifference curves.

Question 8

Measuring "y" on the vertical axis and "x" on the horizontal axis,convexity of indifference curves imply that the magnitude of MRS of "y" for "x"

Accepted Answer

Convexity of indifference curve implies diminishing marginal rate of substitution (MRS). As we move from left to right along the X-axis, the MRS of y for x becomes smaller, indicating that more and more units of x are required to compensate for the loss of one unit of y.

Question 9

Diminishing marginal rate of substitution can be seen when indifference curves

Accepted Answer

Diminishing marginal rate of substitution is illustrated by indifference curves that become flatter as we move down and to the right, indicating that a consumer is willing to give up fewer units of one good to obtain one more unit of another good, reflecting decreasing additional satisfaction.

Question 10

Convexity of indifference curves imply that consumers are willing to

Accepted Answer

Convexity of indifference curves reflects diminishing marginal rate of substitution, meaning consumers are willing to give up less of "y" to obtain an additional unit of "x" as the quantity of "x" they have increases. This implies a decreasing willingness to substitute "x" for "y" as they accumulate more of "x".

Question 11

Indifference curves on the same indifference map can have different shapes.

Accepted Answer

Indifference curves can meet all the necessary requirements and still have different shapes.

Question 12

Lisa views pizzas and burritos as goods.If she prefers a bundle of four burritos and four pizzas to a bundle of four burritos and five pizzas,which property of consumer preference is violated? What change in the assumptions could lead a rational consumer to prefer the first bundle?

Accepted Answer

The answer of Lisa views pizzas and burritos as goods.If...

Question 13

The assumption of completeness means that

Accepted Answer

The assumption of completeness in consumer theory implies that consumers are able to rank all possible consumption bundles. This means that given any two bundles of goods, the consumer can always determine which one they prefer or if they are indifferent between the two bundles.

Question 14

Indifference curves cannot ever be concave for two goods.

Accepted Answer

While indifference curves are typically convex,they can be concave.This means,however,that the MRS of y for x increases as x increases.That is,the consumer places greater value on the next x the more x she has.The interpretation is that a consumer with concave indifference curves prefers to specialize in either x or y but not have a mix of both.

Question 15

If two goods are perfect substitutes,then the indifference curves for those two goods would be

Accepted Answer

When two goods are perfect substitutes, the consumer is equally happy consuming one good as they are consuming the other. This means that the indifference curves are straight lines because the consumer is indifferent between any combination of the two goods.

Question 16

Indifference curves for perfect substitutes must be parallel lines with a slope of negative one.

Accepted Answer

Indifference curves for perfect substitutes are parallel lines,but the slope is not necessarily negative one.

Question 17

Indifference curves that are thick violate

Accepted Answer

The assumption that more is better is violated when indifference curves become thick. This is because thicker indifference curves indicate that there is a range of consumption bundles that provide the same level of utility, rather than a unique bundle being preferred to all others. In other words, if a consumer is indifferent between two consumption bundles that differ in terms of the quantity of a desirable good, then more of that good will not necessarily be preferred to less.

Question 18

Indifference curves cannot intersect.

Accepted Answer

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As seen in the above figure,points a and c are on the same indifference curve and are therefore equally preferred.Points b and c are also on the same indifference curve and are therefore equally preferred.Transitivity implies that the consumer would be indifferent between a and b; however,since more is preferred to less,a is preferred to b.Thus,as a result of the assumption of transitivity and the assumption that more is preferred to less,indifference curves cannot intersect.

Question 19

An indifference curve represents bundles of goods that a consumer

Accepted Answer

An indifference curve represents all the combinations of two goods that a consumer considers equally desirable or equally satisfying.

Question 20

The principle that "More is better" results in indifference curves

Accepted Answer

The principle that "More is better" implies that consumers prefer more of a good to less, leading to indifference curves that slope downward (as you need to give up some of one good to get more of another while remaining equally satisfied), do not intersect (since each curve represents a different level of satisfaction), and reflect greater preferences the further they are from the origin (as being further away means having more of both goods, which is preferred).

Quiz 3: A Consumers Constrained Choice