Question 1

At consumer equilibrium between goods F and C, all of the following statements is true except one.Which is the exception? A)MU_F/MU_C = P_F/P_C B)MRS = -P_F/P_C C)MRS = the absolute value of the slope of the budget line D)utility is maximized subject to the budget constraint E)P_F/P_C = TU_F/TU_C

Accepted Answer

The exception is statement A, which should be corrected to read: MUSF/MUSC = PSF/PSC. The correct version of E states that the ratio of the price of F to the price of C is equal to the ratio of the total utility from consuming one more unit of F to the total utility from consuming one more unit of C (i.e., the marginal rate of substitution is equal to the ratio of the total utilities). Statements B, C, and D are all true at consumer equilibrium.

Question 2

Exhibit 6-27  The rotation of the budget line in Exhibit 6-27 from AC to AB represents a(n)
A)increase in the price of clams
B)increase in the price of mussels
C)decrease in the price of clams
D)decrease in the price of mussels
E)increase in the amount the consumer can spend

Accepted Answer

The answer of Exhibit 6-27  The rotation of the...

Question 3

Exhibit 6-26 Consider Exhibit 6-26.Three budget lines are shown.Which of the following statements is true about the budget lines? A)Budget line B₂ reflects the same income and price for DVDs as budget line B₁ but a higher price for books. B)Budget line B₃ reflects a higher income but the same price for both books and DVDs as budget line B₂. C)Budget line B₃ reflects higher income and the same prices for both books and DVDs as budget line B₁. D)Budget line B₁ reflects lower income than budget line B₂. E)Budget line B3 reflects a lower price ration than budget line B₃.

Accepted Answer

The answer of Exhibit 6-26  Consider Exhibit 6-26.Three budget...

Question 4

Exhibit 6-29  Which graph in Exhibit 6-29 shows the effect of an increase in the price of clothing, other things constant?
A)Graph a
B)Graph b
C)Graph c
D)Graph d
E)Graph e

Accepted Answer

Graph a shows a decrease in the quantity demanded of clothing, indicating that an increase in price has a negative effect on demand, other things constant.

Question 5

Exhibit 6-29  Which graph in Exhibit 6-29 shows the effect of a decrease in the price of clothing, other things constant?
A)Graph a
B)Graph b
C)Graph c
D)Graph d
E)Graph e

Accepted Answer

Graph b shows a downward shift in the demand curve, indicating an increase in quantity demanded at each price point due to a decrease in price.

Question 6

Exhibit 6-28  The rotation of the budget line in Exhibit 6-28 from AB to AC represents
A)an increase in the price of clams
B)an increase in the price of mussels
C)a decrease in the price of clams
D)a decrease in the price of mussels
E)an increase in the amount the consumer can spend

Accepted Answer

The answer of Exhibit 6-28  The rotation of the...

Question 7

If the price of apples falls, the substitution effect will cause a consumer to reduce her consumption of apples.

Accepted Answer

When the price of apples falls, the substitution effect should cause a consumer to increase her consumption of apples because they have become relatively cheaper compared to other goods. The income effect may cause a reduction in consumption if the consumer's purchasing power decreases due to a decline in income from selling apples, but this depends on the specific circumstances.

Question 8

Exhibit 6-28  The rotation of the budget line in Exhibit 6-28 from AC to AB represents a(n)
A)increase in the price of clams
B)increase in the price of mussels
C)decrease in the price of clams
D)decrease in the price of mussels
E)increase in the amount the consumer can spend

Accepted Answer

The answer of Exhibit 6-28  The rotation of the...

Question 9

Exhibit 6-27  Consider Exhibit 6-27.The rotation of the budget line from AB to AC represents a(n)
A)increase in the price of clams
B)increase in the price of mussels
C)decrease in the price of clams
D)decrease in the price of mussels
E)increase in the amount the consumer can spend

Accepted Answer

The rotation of the budget line from AB to AC represents a decrease in the price of clams, as the consumer can now purchase more clams for the same amount of money.

Question 10

Exhibit 6-29  Which graph in Exhibit 6-29 shows an increase in the price of food?
A)Graph a
B)Graph b
C)Graph c
D)Graph d
E)Graph e

Accepted Answer

The answer of Exhibit 6-29  Which graph in Exhibit...

Question 11

If the marginal utilities per dollar are not equal among the final set of goods Joe is planning to consume, he can increase his total utility by changing the amounts of what he intends to purchase.

Accepted Answer

If the marginal utilities per dollar are not equal, Joe can increase his total utility by adjusting the amounts of the goods he plans to purchase. He should consume more of the good with the higher marginal utility per dollar and less of the good with the lower marginal utility per dollar. This will lead to a higher total utility overall.

Question 12

If a consumer allocates income between goods x and y, consumer equilibrium occurs when A)the indifference curve farthest from the origin is reached B)MU_x/P_x = MU_y/P_y and the budget is exhausted C)marginal utility is maximized D)MU_x = MU_y for the last unit consumed of each good E)consumer surplus equals 0

Accepted Answer

Consumer equilibrium occurs when the consumer maximizes utility subject to their budget constraint. This is represented by the equation MU_x/P_x = MU_y/P_y, which means the last dollar spent on each good should give the same marginal utility. This condition ensures that the consumer is getting the most satisfaction possible given their budget.

Question 13

Which of the following would not cause the budget line between books and food to shift?
A)A fall in the price of books.
B)A fall in the price of food.
C)A change in the consumer's preferences.
D)A fall in income.
E)A fall in income coupled with a rise in the price of food.

Accepted Answer

A change in consumer preferences would not directly affect the prices of books or food, and therefore would not cause the budget line to shift.

Question 14

Economists assume that, within a given budget, consumers will
A)maximize average utility
B)minimize average utility
C)maximize total utility
D)face diminishing total utility after consuming the first unit of a good
E)continue to consume a good until its utility is negative

Accepted Answer

The assumption that consumers will maximize total utility is a fundamental premise of consumer behavior in economics. This assumption is based on the idea that consumers will make rational choices to allocate their budgets towards goods and services that provide the greatest overall satisfaction or utility. This is done by weighing the benefits and costs of each purchase, and selecting the combination of goods and services that maximizes their total level of satisfaction. Therefore, option C is the best choice, as it aligns with this fundamental principle of consumer behavior.

Question 15

Only a change in income can affect a consumer's budget line.

Accepted Answer

A consumer's budget line can also be affected by changes in the prices of goods, not just changes in income.

Question 16

If two goods have the same price, a consumer will buy equal quantities of those two goods.

Accepted Answer

Consumers' purchasing decisions are influenced by factors beyond price, such as preferences, needs, and perceived value, which can lead to different quantities being bought even if prices are the same.

Question 17

A consumer maximizes utility where the
A)budget line intersects an indifference curve
B)budget line is tangent to an indifference curve
C)distance between the budget line and an indifference curve is greatest
D)indifference curve farthest from the origin intersects the budget line twice
E)area between the indifference curve and the budget line is the greatest

Accepted Answer

A consumer maximizes utility where the budget line is tangent to an indifference curve because at that point, the consumer is consuming the combination of goods that gives them the highest level of satisfaction, given their budget constraint. Any point below the indifference curve is not preferred, while any point above it is unaffordable, making the point of tangency the optimal choice.

Question 18

Which of the following statements about indifference curves is not true?
A)The consumer is indifferent among the combinations illustrated along a given curve.
B)Every indifference curve intersects the consumer's budget line at least once.
C)Indifference curves slope downward.
D)Indifference curves are concave (bowed in toward the origin).
E)Indifference curves do not intersect.

Accepted Answer

Indifference curves do not necessarily intersect the consumer's budget line; they can be entirely above or below it.

Question 19

If a good is offered to a rational individual for free, she will
A)accept unlimited quantities of the good each time period
B)stop consuming it when its marginal utility begins to increase
C)stop consuming it when its marginal utility begins to diminish
D)stop consuming it when its marginal utility equals zero
E)stop consuming it when its total utility equals zero

Accepted Answer

A rational individual will continue to consume a good until the marginal utility (additional satisfaction from consuming one more unit) equals zero, as consuming beyond this point would not provide any additional benefit.

Question 20

A rotation of the budget line indicates a change in the price of one of the goods under consideration.

Accepted Answer

A rotation of the budget line occurs when the price of one good changes while the price of the other good and the consumer's income remain constant, altering the slope of the budget line.

Quiz 6: Appendix--Indifference Curves and Utility Maximization

At consumer equilibrium between goods F and C, all of the following statements is true except one.Which is the exception?

Exhibit 6-27 The rotation of the budget line in Exhibit 6-27 from AC to AB represents a(n)

Exhibit 6-26 Consider Exhibit 6-26.Three budget lines are shown.Which of the following statements is true about the budget lines?

Exhibit 6-29 Which graph in Exhibit 6-29 shows the effect of an increase in the price of clothing, other things constant?

Exhibit 6-29 Which graph in Exhibit 6-29 shows the effect of a decrease in the price of clothing, other things constant?

Exhibit 6-28 The rotation of the budget line in Exhibit 6-28 from AB to AC represents

If the price of apples falls, the substitution effect will cause a consumer to reduce her consumption of apples.

Exhibit 6-28 The rotation of the budget line in Exhibit 6-28 from AC to AB represents a(n)

Exhibit 6-27 Consider Exhibit 6-27.The rotation of the budget line from AB to AC represents a(n)

Exhibit 6-29 Which graph in Exhibit 6-29 shows an increase in the price of food?

If the marginal utilities per dollar are not equal among the final set of goods Joe is planning to consume, he can increase his total utility by changing the amounts of what he intends to purchase.

If a consumer allocates income between goods x and y, consumer equilibrium occurs when

Which of the following would not cause the budget line between books and food to shift?

Economists assume that, within a given budget, consumers will

Only a change in income can affect a consumer's budget line.

If two goods have the same price, a consumer will buy equal quantities of those two goods.

A consumer maximizes utility where the

Which of the following statements about indifference curves is not true?

If a good is offered to a rational individual for free, she will

A rotation of the budget line indicates a change in the price of one of the goods under consideration.