Deck 21: The Theory of Consumer Choice

Question 1

Assume that a college student spends all of her income on macaroni and hamburger.The price of a box of macaroni is $1.50 and a pound of hamburger costs $3.50.If she has $42 of income,what could she choose to consume

A)10 boxes of macaroni and 9 pounds of hamburger
B)12 boxes of macaroni and 7 pounds of hamburger
C)14 boxes of macaroni and 6 pounds of hamburger
D)11 boxes of macaroni and 8 pounds of hamburger

Answer 1

14 boxes of macaroni and 6 pounds of hamburger

Question 2

Figure 21-1

Refer to Figure 21-1.At what point in the figure is a consumer choosing to spend less than her total income

A)point B
B)point C
C)point D
D)point E

Answer 2

point D

Question 3

Figure 21-1

Refer to Figure 21-1.What point does NOT represent a possible consumption option

A)point A
B)point B
C)point D
D)point E

Answer 3

point E

Question 4

What can we say about a consumer who doesn't spend all of her income

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

Question 5

Assume that a college student spends all of her income on cola and macaroni and hamburger.During exam week,the price of a box of macaroni is $1.50 and a pound of hamburger costs $4.00.If she has $41 of income,what could she choose to consume

A)6 boxes of macaroni and 8 pounds of hamburger
B)7 boxes of macaroni and 9 pounds of hamburger
C)12 boxes of macaroni and 6 pounds of hamburger
D)14 boxes of macaroni and 5 pounds of hamburger

Question 6

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 7

What does the theory of consumer choice provide the foundation for understanding

A)the structure of a firm
B)the profitability of a firm
C)the product demand curve of a firm
D)the product supply curve of a firm

Question 8

Figure 21-2

Refer to Figure 21-2.Which of the graphs in the figure reflects an increase in consumer's income

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

Question 9

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 10

Consider two goods: pizza and cola.What is the slope of the consumer's budget constraint measured by

A)the consumer's income divided by the price of cola
B)the relative price of pizza and cola
C)the relative income that the consumer spends on pizza and cola
D)the consumer's spending on pizza divided by the consumer's income

Question 11

Assume that a college student spends all of her income on boxes of macaroni.During finals week,the price of a box of macaroni is $1.25 and a pound of hamburger costs $3.75.If she has $40 of income,what could she choose to consume

A)3 boxes of macaroni and 5 pounds of hamburger
B)4 boxes of macaroni and 10 pounds of hamburger
C)7 boxes of macaroni and 8 pounds of hamburger
D)8 boxes of macaroni and 8 pounds of hamburger

Question 12

Assume that a college student spends all of her income on macaroni and hamburger.During finals week,the price of a box of macaroni is $1.25 and a pound of hamburger costs $3.75.If she has $40 of income,what could she choose to consume

A)5boxes of macaroni and 9 pounds of hamburger
B)9 boxes of macaroni and 8 pounds of hamburger
C)10 boxes of macaroni and 9 pounds of hamburger
D)14 boxes of macaroni and 10 pounds of hamburger

Question 13

Figure 21-1

Refer to Figure 21-1.Which point in the figure represents the consumer's income divided by the price of Coke

A)point A
B)point B
C)point C
D)point D

Question 14

In what direction will an increase in income cause a shift in the budget constraint

A)outward
B)toward the good most consumed
C)toward the good least consumed
D)inward

Question 15

The theory of consumer choice can often provide insight into the behaviour of which of the following types of individuals

A)individuals who make rational choices
B)individuals who make constrained choices
C)individuals who are unaware of how to maximize their well-being
D)individuals who are irrational consumers

Question 16

If the relative price of a lift ticket at a ski resort is two times the price of a meal at a good restaurant,what is the opportunity cost of a lift ticket

A)the slope of the budget constraint
B)the slope of the indifference curve
C)the intercept on the lift ticket axis
D)the intercept on the meal axis

Question 17

Assume that a college student spends all of her income on macaroni and hamburger.During exam week,the price of a box of macaroni is $1.50 and a pound of hamburger costs $4.00.If she has $41 of income,what could she choose to consume

A)5 boxes of macaroni and 4 pounds of hamburger
B)7 boxes of macaroni and 9 pounds of hamburger
C)11 boxes of macaroni and 6 pounds of hamburger
D)15 boxes of macaroni and 5pounds of hamburger

Question 18

What does a budget constraint show

A)the prices that a consumer chooses to pay for products he consumes
B)the consumption bundles that are offered by the producer
C)the consumption bundles that a consumer can afford
D)the bundles of consumption that makes a consumer equally happy

Question 19

What does the theory of consumer choice examine

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 20

Assume that a university student spends all of her income on macaroni and hamburger.The price of a box of macaroni is $1.50 and a pound of hamburger costs $3.50.If she has $42 of income,what could she choose to consume

A)14 boxes of macaroni and 6 pounds of hamburger
B)15 boxes of macaroni and 7 pounds of hamburger
C)20 boxes of macaroni and 4 pounds of hamburger
D)22 boxes of macaroni and 3 pounds of hamburger

Question 21

Figure 21-3

Refer to Figure 21-3.In graph (a),if income is equal to $210,what is the price of good Y

A)$1
B)$2.50
C)$3.50
D)$4

Question 22

What do economists use to represent a consumer's preferences

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

Question 23

Figure 21-3

Refer to Figure 21-3.In graph (a),if income is equal to $180,what is the price of good X

A)$1
B)$3
C)$6
D)$9

Question 24

Figure 21-3

Refer to Figure 21-3.In graph (b),if income is equal to $210,what is the price of good X

A)$8
B)$10
C)$12
D)$14

Question 25

Which characterization is NOT applicable to the slope of the budget constraint

A)It shows the relative price of two goods.
B)It shows the rate at which a consumer can trade one good for another.
C)It is equal to the slope of the highest indifference curve.
D)It is constant.

Question 26

In what direction will a decrease in income cause a shift in the budget constraint

A)outward
B)toward the good most consumed
C)toward the good least consumed
D)inward

Question 27

As long as a consumer is on a given indifference curve,what can we say about her preferences

A)She is indifferent to all points that lie on any other indifference curves.
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 28

Figure 21-3

Refer to Figure 21-3.In graph (a),if income is equal to $180,what is the price of good Y

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

Question 29

In which way will an increase in income cause a consumer's budget constraint to change

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

Question 30

If two bundles of goods satisfy a consumer equally well,what can we say about the consumer

A)She is on her budget constraint.
B)She is in a position of equilibrium.
C)She is indifferent between the bundles.
D)She is optimally satisfied.

Question 31

Figure 21-3

Refer to Figure 21-3.In graph (b),if income is equal to $180,what is the price of good X

A)$6
B)$8
C)$10
D)$12

Question 32

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)The prices of both X and Y are lower in graph (b).

Question 33

Figure 21-3

Refer to Figure 21-3.In graph (a),what is the price of good Y relative to good X (i.e.,PY/PX)

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

Question 34

What determines the slope of the budget constraint

A)the relative price of commodities represented on the axes
B)the level of income of the consumer
C)the endowment of productive resources
D)the preferences of a consumer

Question 35

If a consumer's income decreases,in what way will the budget constraint for cola and pizza change

A)It will shift outward, parallel to the old budget constraint.
B)It will shift inward, parallel to the old budget constraint.
C)It will rotate outward toward pizza because the consumer can afford more pizza.
D)It will rotate outward toward cola because the consumer can afford more cola.

Question 36

Figure 21-3

Refer to Figure 21-3.In graph (b),if income is equal to $210,what is the price of good Y

A)$42
B)$44
C)$46
D)$48

Question 37

If the consumption of one good is reduced,how must a consumer alter his consumption of another good in order to remain indifferent between two bundles

A)He can reduce, increase, or not change his consumption of another good.
B)He must reduce his consumption of another good.
C)He must increase his consumption of another good.
D)He must not change his consumption of another good.

Question 38

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/PY)

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

Question 39

What do indifference curves graphically represent

A)an income level sufficient to make an individual happy
B)the constraints faced by individuals
C)an individual's preferences
D)the relative price of commodities

Question 40

Figure 21-3

Refer to Figure 21-3.In graph (b),if income is equal to $180,what is the price of good Y

A)$30
B)$32
C)$34
D)$36

Question 41

Figure 21-4
This figure shows a consumer's choice between popcorn and juice.

Refer to Figure 21-4.Comparing all the points on the figure,which one is the best choice

A)If a consumer moves from point C to point A, her loss of popcorn cannot be compensated by an increase of juice.
B)Point E is preferred to all other points identified in the figure.
C)Because more is preferred to less, point C may be preferred to point E in some circumstances.
D)Because point E and point B have basically equal units of juice and popcorn, a consumer would be indifferent between these two points.

Question 42

How can we define the marginal rate of substitution on the graph of consumer choice model

A)It is the slope of a budget constraint.
B)It is the ratio between the slope of a budget constraint and an indifference curve.
C)It is the slope of an indifference curve.
D)It is the point at which the budget constraint is tangent to the indifference curve.

Question 43

What does a consumer's preferences provide

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 44

What happens when indifference curves are bowed in toward the origin

A)A consumer is less willing to trade away any goods when his income decreases.
B)A consumer is more willing to trade away goods when his income increases.
C)A consumer is less willing to trade away goods that he has in abundance than the goods of which he has little.
D)A consumer is more willing to trade away goods that he has in abundance than the goods of which he has little.

Question 45

What is a property of indifference curves

A)Lower indifference curves are preferred to higher ones.
B)The slope of indifference curves is positive.
C)Indifference curves do not cross.
D)Indifference curves are bowed outward.

Question 46

Which statement best explains the relationship between indifference curves and consumer preferences

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

Question 47

Higher indifference curves are preferred to lower ones as long as which circumstance applies

A)The marginal rate of substitution is diminishing.
B)The consumer's income remains constant.
C)Commodities in the bundle are "goods."
D)The budget constraint does not shift.

Question 48

What does a bowed-in indifference curve reflect

A)a consumer's unwillingness to substitute one good for another
B)a consumer's desire to specialize in the consumption of one good over another
C)a consumer's decreasing willingness to give up a good that she has in abundance
D)a consumer's increasing willingness to give up a good that she has in abundance

Question 49

Figure 21-4
This figure shows a consumer's choice between popcorn and juice.

Refer to Figure 21-4.What position is a person who chooses to consume bundle C likely to end up in

A)He will receive higher total utility than at point A.
B)He will gain more satisfaction from bundle C than bundle A.
C)He will receive higher marginal utility from popcorn than from juice.
D)He will receive higher marginal utility from juice than from popcorn.

Question 50

If an indifference curve is bowed inward toward the origin,what do we know about the marginal rate of substitution

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

Question 51

Figure 21-4
This figure shows a consumer's choice between popcorn and juice.

Refer to Figure 21-4.Which statement best describes a consumer's preference

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 popcorn than that associated with point C.
D)The bundles along indifference curve I1 are preferred to those along indifference curve I2.

Question 52

Figure 21-4
This figure shows a consumer's choice between popcorn and juice.

Refer to Figure 21-4.Which statement best describes a consumer who moves from point A to point D

A)The consumer has a stronger preference for popcorn.
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 juice at point A than at point D.

Question 53

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

A)It increases.
B)It decreases.
C)It is constant.
D)It switches from positive to negative.

Question 54

Which conclusion would crossing indifference curves suggest

A)It is possible to demonstrate that a consumer does not prefer more to less.
B)Consumers are likely to prefer a redistribution of income from rich to poor.
C)Differences in consumption choices across individuals are more easily explained than with noncrossing indifference curves.
D)It is possible to demonstrate that all standard properties of indifference curves are typically satisfied.

Question 55

What is the slope of an indifference curve

A)the rate of change of consumer's preferences
B)the marginal rate of exchange
C)the marginal rate of substitution
D)the slope of the budget constraint

Question 56

What can we say about the amount of each good a consumer is currently consuming

A)It is only affected by price.
B)It affects the rate at which she is willing to trade.
C)It is only affected by income.
D)It will not affect the marginal rate of substitution.

Question 57

Which term refers to the rate at which a consumer is willing to exchange one good for another,maintaining a constant level of satisfaction

A)the relative exchange ratio
B)the value of marginal product
C)the marginal rate of substitution
D)the relative price ratio

Question 58

What is a property of indifference curves

A)Indifference curves are upward sloping.
B)Indifference curves that are farther from the origin are preferable to indifference curves closer to the origin.
C)Indifference curves are bowed outward from the origin.
D)Indifference curves may or may not cross.

Question 59

Figure 21-4
This figure shows a consumer's choice between popcorn and juice.

Refer to Figure 21-4.Which statement best describes a consumer who moves from point B to point C

A)The consumer is better off since he has more popcorn.
B)The consumer is worse off since he has less juice.
C)The consumer is willing to sacrifice juice to obtain popcorn.
D)The consumer has the same preferences between juice and popcorn.

Question 60

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 61

What does the bowed shape of the indifference curve reflect about the consumer's willingness

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

Question 62

What happens at the consumer's optimum

A)The budget constraint has a slope of MUX/PX.
B)It is still possible for the consumer to increase his consumption of both goods.
C)The indifference curve would intersect the budget constraint at its centre point.
D)The slope of the indifference curve is equal to the slope of the budget constraint.

Question 63

When two goods are perfect complements,of what form are the indifference curves

A)positively sloped
B)negatively sloped
C)vertical lines
D)right angles

Question 64

When two goods are perfect substitutes,what do we know about the marginal rate of substitution

A)It is constant.
B)It decreases as the scarcity of one good increases.
C)It increases as the scarcity of one good increases.
D)It increases as the abundance of one good increases.

Question 65

A highly bowed inward set of indifference curves represents two goods which can be described as which of the following

A)easily substitutable
B)strongly complementary
C)weakly substitutable
D)weakly complementary

Question 66

A slightly bowed inward set of indifference curves represents the two goods as which of the following types

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

Question 67

What does a consumer's choice of goods depend on

A)her budget constraint and income
B)her budget constraint and preferences
C)her budget constraint, income, and preferences
D)her preferences and income

Question 68

When considering her budget,what is the highest indifference curve that a consumer can reach

A)the indifference curve to which the budget constraint is tangent
B)the indifference curve farthest from the origin
C)the indifference curve that intersects the budget constraint in at least two places
D)the indifference curve for which all combinations of goods are affordable

Question 69

Which property characterizes the consumption bundle selected by an optimizing consumer

A)The ratio of total utilities is equal to the relative price.
B)The ratio of income to price equals the marginal rate of substitution.
C)The marginal rate of substitution is equal to the relative price.
D)The marginal rate of substitution is equal to income.

Question 70

What can we say about a consumption bundle selected by an optimizing consumer

A)Utility is maximized, and income is minimized.
B)Utility is maximized, and prices are minimized.
C)Utility is maximized subject to budget constraints.
D)Utility is maximized, and indifference curves are linear.

Question 71

Assume that your mother purchased two pairs of identical gloves for your birthday.What,in this case,do "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 72

What the term for the point where the highest attainable indifference curve and the budget constraint are tangent

A)the consumer's equilibrium
B)the consumer's utility minimum
C)the consumer's efficient allocation of resources
D)the consumer's optimum

Question 73

When the budget constraint is tangent to the indifference curve,what is likely to be the case

A)The consumer cannot be made better off without increasing her income.
B)The consumer is likely to be at a suboptimal level of consumption.
C)Income is at its optimum for a consumer.
D)Indifference curves are likely to intersect.

Question 74

What type of indifference curve would represent nickels and dimes

A)bowed out
B)bowed in
C)vertical lines
D)right angles

Question 75

Figure 21-5

Refer to Figure 21-5.What occurs at point B

A)MRSXY > PY/Px
B)MRSXY = PX/PY
C)MRSXY < PX/PY
D)MRSXY > PX/PY

Question 76

When two goods are perfect complements,what types of indifference curves will they have

A)indifference curves with a positive slope
B)indifference curves that are vertical
C)indifference curves that are horizontal
D)indifference curves that are right angles

Question 77

What type of indifference curve would represent right shoes and left shoes

A)bowed out
B)bowed in
C)vertical lines
D)right angles

Question 78

Figure 21-5

Refer to Figure 21-5.The consumer is likely to select the consumption bundle associated with which point

A)point B
B)point C
C)point D
D)point E

Question 79

Figure 21-5

Refer to Figure 21-5.When would it be possible for the consumer to reach I2

A)if the price of Y increased
B)if the price of X increased
C)if his income increased
D)if his preferences changed

Question 80

Figure 21-5

Refer to Figure 21-5.What occurs at point C

A)MRSXY > PY/PX
B)MRSXY = PX/PY
C)MRSXY < PX/PY
D)MRSXY < PY/PX