Deck 7: Supply

Question 1

Which of the following is not needed to construct a budget line:

A) the price of the goods being consumed
B) all of the other three answers
C) total expenditures on the goods being consumed
D) total utility from the consumption of the goods

Answer 1

D

Question 2

At all points along an indifference curve, an individual is:

A) realizing the same level of utility
B) all of the other three answers
C) minimizing costs
D) spending the same amount of money

Answer 2

A

Question 3

An indifference curve that is convex to the origin and negatively sloped shows:

A) constant substitutability
B) imperfect subsitutability
C) perfect substitutability
D) none of the above

Answer 3

B

Question 4

To determine the combination of pizza and tacos that will maximize a student's utility, an economist must know:

A) the slope of the indifference curve
B) the marginal rate of substitution between pizza and tacos and the price ratio
C) the slope of the relevant budget line
D) the marginal rate of substitution between pizza and tacos

Question 5

Two indifference curves for a given consumer:

A) can never intersect
B) may intersect if the price of one of the goods represented by the curve changes
C) will shift whenever there is a change in the price of the other good
D) none of the other three answers

Question 6

The traditional convex indifference curve that is associated with an average consumer gets its shape from:

A) constant substitutability of goods
B) the diminishing utility in the consumption process
C) the complementarity between the two goods
D) none of the above

Question 7

If an indifference curve intersects a budget line at two points, we can surmise that:

A) there are two choices of utility maximizing product combinations
B) no utility maximizing combination is possible
C) none of the other three answers
D) there is a lower budget line where the indifference curve will intersect at only one point

Question 8

The tangency of an indifference curve and a budget line:

A) gives the profit maximizing combination of two goods
B) gives the cost minimizing combination of two goods
C) can be determined without regard to the prices of the two goods
D) is found where the slope of the indifference curve (MRS) is equal to the price ratio

Question 9

If you are eating pizza at a wedding reception where the pizza is free, you should:

A) continue eating pizza as long as the reception lasts
B) stop eating pizza when your total utility of eating pizza is at a maximum
C) stop eating pizza when your marginal utility begins to decrease
D) stop eating pizza when your marginal utility is positive

Question 10

The Law of Diminishing Marginal Utility explains:

A) why we consume a variety of food
B) why there are automatic checkout lanes at a grocery dtore
C) why more is preferred to less
D) scarcity

Question 11

A rational individual would never:

A) drive a truck across someone else's yard
B) study all night for an examination
C) desire more money than she could spend
D) prefer oranges over apples, apples over bananas, and bananas over oranges

Question 12

When an economist says that an apple gives a quantifiable level of utility, this is:

A) cardinal utility
B) ordinal utility
C) total utility
D) marginal utility

Question 13

An economist should never:

A) make value judgements about consumer purchases
B) all of the other three answers
C) assume that "crazy" behavior is irrational
D) use normative economics to analyze consumer purchases

Question 14

If the price of gasoline increases significantly for several months:

A) consumers will purchase fewer large sports utility vehicles
B) consumers will not change their automobile purchasing decisions
C) consumers will purchase less ethanol than previously
D) all of the other three answers

Question 15

An increase in the per capita income in China would result in:

A) increased beef exports to China
B) an decrease in the per capita consumption of cars in China
C) no impact on US agriculture
D) decreased grain exports to China

Question 16

To an economist, rational behavior means:

A) that an individual is sane
B) that consumers and producers are purposeful and consistent
C) that people do the best that they can given the constraints that they face
D) B and C only

Question 17

The Law of Diminishing Marginal Utility implies that:

A) consumers like to eat the same thing every day
B) the last unit consumed is the most favored
C) the first unit consumed is the best
D) the rate of change in TU increases as more units of a good are consumed

Question 18

If TU is increasing, then MU is:

A) increasing
B) positive
C) zero
D) negative

Question 19

A person who has eaten so much that she is physically sick has:

A) negative MU
B) negative TU
C) decreasing MU
D) decreasing TU

Question 20

The marginal rate of substitution is the slope of the:

A) indifference curve
B) budget line
C) isocost line
D) production possibility frontier

Question 21

Convexity of the indifference curve is due to

A) nonsatiation
B) completeness
C) consistency of preferences
D) the Law of Diminishing Marginal Utility

Question 22

Convex indifference curves suggest that:

A) consumers prefer a variety of goods
B) consumers prefer the consistency of the same good
C) consumers are indifferent about variety
D) more is always better than less

Question 23

The limit to consumption is caused by:

A) the budget constraint
B) the indifference curve
C) the Law of Diminishing Marginal Utility
D) convexity of the indifference curve

Question 24

Consumer choices depend on:

A) preferences
B) relative prices
C) the interaction of preferences and relative prices
D) technology

Question 25

If the budget constraint is given by M = P₁Y₁ + P₂Y₂ then:

A) there is borrowing but no saving
B) there is saving but no borrowing
C) there is borrowing and saving
D) there is neither borrowing nor saving

Question 26

If the budget constraint is given by M = P₁Y₁ + P₂Y₂ then:

A) the y-intercept is given by M/P₁
B) the y-intercept is given by M/P₂
C) the y-intercept is given by Y₂/P₁
D) the y-intercept is given by Y₁/P₁

Question 27

The opportunity set:

A) the collection of all combinations of goods that are affordable
B) rectangular in shape
C) triangular in shape
D) A and C only

Question 28

An equilibrium is:

A) a point where all things are equal
B) a point where there is no tendency to change
C) ceteris paribus
D) a movement along the demand curve

Question 29

The mathematical representation of a consumer's equilibrium is:

A) MRS = MU
B) MRS = P₁/P₂
C) ΔY₂/ΔY₁ = MU
D) ΔY₂/ΔY₁ = TU

Question 30

An individual demand curve for pizza can be derived with the following:

A) the price of pizza, the price of one other good, and income
B) price of pizza and two other goods
C) income
D) price of pizza alone

Question 31

Utils are:

A) imaginary numbers that measure satisfaction
B) real, measurable numbers that measure satisfaction
C) the number represented on the budget line
D) the number represented by marginal decisions

Question 32

If consumers were not subject to the budget constraint, they would consume:

A) an infinite amount
B) just enough to get by
C) enough to be well off, and live in the suburbs
D) less than they would otherwise

Question 33

A consumer equilibrium is found where:

A) the budget line and indifference curve are tangent
B) the budget line and price ratio are tangent
C) the price ratio and MRS are tangent
D) the budget line and indifference curve are equal

Question 34

Marginal utility refers to:

A) the extra level of electricity from a public utility
B) the level of satisfaction from consuming a good
C) utility derived from consuming a good
D) a change in utility when consumption is increased by one unit

Question 35

When a consumer is indifferent between consuming an additional unit of a good:

A) TU is negative
B) MU is equal to zero
C) TU is equal to zero
D) MU is negative

Question 36

All of the following are assumptions about consumer behavior except:

A) complete preferences
B) consistent consumers
C) nonsatiation
D) relativity

Question 37

Economists use cardinal utility to measure:

A) ranking of goods
B) the number of utils of each good consumed
C) TU
D) the Law of Diminishing Utility

Question 38

When the price of gasoline increases, consumers will:

A) drive less
B) use public transportation more
C) all of the other answers
D) carpool more

Question 39

Increases in per-capita income, ceteris paribus, will lead to:

A) increase in beef consumption
B) decrease in beef consumption
C) not affect beef consumption
D) result in a substitution out of pork into beef

Question 40

If the price of chicken increases:

A) consumer purchases of chicken will increase, and purchases of beef will decrease
B) consumer purchases of chicken will decrease, and purchases of beef will decrease
C) consumer purchases of chicken will increase, and purchases of beef will increase
D) consumer purchases of chicken will decrease, and purchases of beef will increase

Question 41

A general inflation will:

A) decrease the consumption of beef
B) increase the consumption of beef
C) no change in the consumption of beef
D) not enough information to answer

Question 42

Sugar (sucrose) and corn syrup (fructose) are:

A) perfect substitutes in production and consumption
B) imperfect substitutes in production and consumption
C) perfect substitutes in production only
D) perfect substitutes in consumption only

Question 43

Beef and chicken are:

A) Complements in consumption
B) Substitutes in consumption
C) Complements in production
D) Substitutes in production

Question 44

A consumer maximizes utility by looking at the tangency of:

A) The budget line and the isocost line
B) The budget line and the isorevenue line
C) The budget line and the indifference curve
D) The budget line and the production possibilities frontier

Question 45

An increase in the price of pork will affect:

A) The amount of chicken purchased
B) The amount of pork purchased
C) Relative prices of pork and chicken
D) All of the other three answers

Question 46

Apples and oranges are examples of:

A) perfect substitutes
B) perfect complements
C) imperfect substitutes
D) unrelated goods

Question 47

Hamburgers and hamburger buns are an example of:

A) substitutes
B) complements
C) unrelated goods
D) not enough information to determine

Question 48

The MRS:

A) represents consumer expenditures
B) reflects a constant price ratio
C) changes value due to the Law of Diminishing Marginal Utility
D) remains constant due to the assumption of complete preferences

Question 49

The slope of the indifference curve is equal to:

A) MRS
B) the marginal valuation of the two goods
C) the rate of exchange of one good for another that leaves utility unchanged
D) all of the other three answers

Question 50

Which term refers to "rate of change"?

A) marginal
B) additional
C) incremental
D) all of the other three answers

Question 51

Define the Law of Diminishing Marginal Utility, and explain how it helps us understand human behavior.

Question 52

Define an indifference curve, and list four properties of indifference curves.

Question 53

Define and graph: A. Perfect substitutes, and B. Perfect complements. Graph and explain how relative prices affect the production of each type of good.

Question 54

Explain MRS. Derive the mathematical equation that represents consumer equilibrium.

Question 55

Define and explain what an economist means by:A. rational, and B. utility.

Question 56

Define and explain MRS carefully.

Question 57

Define and explain what a budget line is.

Question 58

Use graphical analysis to show the impact of the following events on consumer choices: A. Gasoline price increase on consumption of gas and hybrid automobiles.
B. Economic recession, caused by the financial sector crisis, on gas and hybrid purchases.
C. Inflation, caused by government policy to deal with the financial sector crisis, on gas and hybrid vehicle purchases.

Question 59

Select an industry that you are interested in, and describe an economist's advice to the industry, based on consumer theory presented in chapter seven.

Question 60

Charlie purchases burritos (=Y₁, in #) and tacos (=Y₂, in #). The price of burritos is P₁=$5/burrito, and the price of tacos is P₂=$4/taco. Weekly income for Charlie is equal to $40. Graph the budget line and opportunity set.
A. Draw an indifference curve in the graph, and show an equilibrium point.
B. Suppose that the price of tacos increases from $4/taco to $6/taco, resulting in the quantity demanded of tacos to decrease from 180 tacos to 160 tacos.
What is the point elasticity of demand for tacos? Are tacos elastic or inelastic? Why?