Question 1

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

Accepted Answer

The answer of Suppose a consumer only purchases food and...

Question 2

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.

Accepted Answer

If both prices and income in a society double, the budget line remains unchanged because the relative prices of the goods, which determine the slope of the budget line, do not change. The intercepts, which are determined by how much of each good can be bought if all income is spent on that good, also do not change in relative terms.

Question 3

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.

Accepted Answer

It is not possible to determine which of two individuals is made happier by consuming a particular market basket because happiness and utility are subjective and cannot be quantified objectively or compared across individuals.

Question 4

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

Accepted Answer

The answer of A consumer has $100 per day to...

Question 5

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.

Accepted Answer

An increase in income with holding prices constant results in an outward shift of the budget line. This is because the consumer can now afford to purchase more goods and services. The budget line will shift parallelly outward as there is no change in the relative prices of the goods.

Question 6

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

Accepted Answer

The budget line rotates counter-clockwise about the fixed horizontal axis intercept because the price of clothing (plotted on the vertical axis) increases, reducing the amount of clothing that can be purchased for a given amount of food (which remains unchanged in price), without changing the maximum amount of food that can be purchased.

Question 7

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.

Accepted Answer

The answer of Use the following two statements to answer...

Question 8

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.

Accepted Answer

MRS is the maximum amount of one good a consumer is willing to give up for an additional unit of another good while remaining equally satisfied. In this case, if Jill's MRS of popcorn for candy is 2, she would be willing to give up 2 units of popcorn for an additional unit of candy. Therefore, the correct answer is B - Jill would be willing to give up 2 units of popcorn for an additional unit of candy, but no more than 2 units of candy for an additional unit of popcorn.

Question 9

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.

Accepted Answer

If the price of food falls relative to clothing, then the opportunity cost of food has decreased and the consumer can afford more food for the same amount of clothing. This means that the slope of the budget line becomes flatter, allowing the consumer to buy more food without sacrificing as much clothing.

Question 10

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

Accepted Answer

The answer of The budget constraint for a consumer who...

Question 11

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

Accepted Answer

The answer of Theodore's budget line has changed from A...

Question 12

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

Accepted Answer

Exempting food from the state sales tax effectively reduces the price of food relative to other goods, making it cheaper for consumers to purchase food. This change causes the budget line to become flatter, indicating that consumers can now buy more food relative to other goods for the same amount of money.

Question 13

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

Accepted Answer

The consumer maximizes satisfaction when the marginal utility per dollar spent is equal for both goods X and Y. This can be represented as MUx/Px = MUy/Py, which simplifies to MUx/MUy = Px/Py. Therefore, the consumer's valuation of good X, in terms of good Y, is Px/Py.

Question 14

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 rightward shift
D)Parallel leftward shift
E)none of the above

Accepted Answer

The $300 payment increases consumers' income, causing a parallel rightward shift of the budget line, as they can now afford more of both goods.

Question 15

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

Accepted Answer

All three options listed (A, B, and C) will result in a decrease in a consumer's purchasing power. A decrease in income means there is less money available to spend on goods and services, while increases in prices of goods (whether along the vertical or horizontal axis) means that each dollar buys fewer of those goods.

Question 16

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)-Qa/Qb B)-Qb/Qa C)-Pa/Pb D)-Pb/Pa E)I/Pa or I/Pb

Accepted Answer

The slope of the budget constraint is -P_A/P_B because the budget constraint is a straight line with a slope of -P_A/P_B.

Question 17

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.

Accepted Answer

The endpoints of the budget line represent the maximum quantity of each good that can be purchased if all the budget is allocated to that good. This is because the budget line represents all the possible combinations of goods that can be purchased given the budget constraint. The slope of the budget line measures the rate at which one good can be exchanged for another, while the rate at which a consumer is willing to trade one good for another is measured by the marginal rate of substitution. The endpoints do not indicate the highest level of satisfaction the consumer can achieve, as this depends on the consumer's preferences and utility function.

Question 18

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.

Accepted Answer

When indifference curves are concave, it means that the consumer's marginal rate of substitution is decreasing as they consume more of a certain good. As a result, the consumer will choose to consume only one of the goods at the point where the budget line is tangent to the highest attainable indifference curve. Therefore, Option C, "Only one of the goods is consumed" is the correct statement.

Question 19

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.

Accepted Answer

The slope of the budget line represents the rate at which the market is willing to substitute one good for another (the price ratio of the two goods). If the prices of both goods double, the price ratio between good A and good B remains unchanged, hence the slope of the budget line does not change.

Question 20

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.

Accepted Answer

The indifference map violates the assumption of diminishing MRS because the slope of the indifference curves is constant and not getting flatter as we move down and to the right. The assumption of more is better than less is not violated, as each indifference curve represents a higher level of utility. The assumption of transitivity cannot be determined from the given information.

Quiz 3: Consumer Behavior

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:

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

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

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?

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

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:

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

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:

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

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:

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

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 __________.

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

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

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

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