Question 1

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution
A) is equal to the price of the least-expensive good.
B) exceeds the marginal utility of each good by the greatest amount.
C) is less than the slope of the budget constraint.
D) None of the above is correct.

Accepted Answer

The answer of An optimizing consumer will select the consumption...

Question 2

A consumer chooses an optimal consumption point where the
A) marginal rate of substitution equals the relative price ratio.
B) slope of the indifference curve exceeds the slope of the budget constraint.
C) ratios of all the marginal utilities are equal.
D) All of the above are correct.

Accepted Answer

When the marginal rate of substitution equals the relative price ratio, the consumer is getting the most utility possible given their budget constraint. This is the condition for consumer equilibrium. The other options may be relevant to the decision-making process, but they are not necessarily indicative of an optimal consumption point.

Question 3

A consumer chooses an optimal consumption point where the
A) marginal rate of substitution is maximized.
B) slope of the indifference curve exceeds the slope of the budget constraint by the greatest amount.
C) ratio of the marginal utilities equals the ratio of the prices.
D) All of the above are correct.

Accepted Answer

The optimal consumption point occurs where the ratio of the marginal utilities (MUx/MUy) equals the ratio of the prices (Px/Py), which is also known as the equation of the budget constraint. This condition ensures that the consumer is maximizing their satisfaction from consuming the two goods subject to their limited income. While A and B are true statements, they do not necessarily guarantee that the consumer has reached the optimal consumption point.

Question 4

When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs
A) along the highest indifference curve.
B) along the lowest budget constraint.
C) where the indifference curve is tangent to the budget constraint.
D) All of the above are correct.

Accepted Answer

An optimal choice point occurs where the highest indifference curve (representing the consumer's preferences) is tangent to the budget constraint (representing the consumer's budget). This is because at this point, the consumer is maximizing their utility given their budget constraint. Option A is not necessarily correct as the highest indifference curve may not be affordable for the consumer. Option B is also incorrect as the consumer may not want to choose the lowest budget constraint. Therefore, only option C is the correct and best choice.

Question 5

When considering her budget,the highest indifference curve that a consumer can reach is the
A) one that is tangent to the budget constraint.
B) indifference curve farthest from the origin
C) indifference curve that intersects the budget constraint in at least two places.
D) None of the above is correct.

Accepted Answer

The highest indifference curve that a consumer can reach while considering her budget is the one that is tangent to the budget constraint. This is because any indifference curve beyond this point would not be affordable given the budget constraint, and any indifference curve below this point would not be preferred, as it represents a lower level of satisfaction. Therefore, the consumer maximizes utility when she reaches the highest possible indifference curve that is tangent to her budget constraint.

Question 6

A consumer chooses an optimal consumption point where the
A) marginal rate of substitution equals the relative price ratio.
B) slope of the indifference curve equals the slope of the budget constraint.
C) ratio of the marginal utilities equals the ratio of the prices.
D) All of the above are correct.

Accepted Answer

All of the above options are correct and contribute to the consumer's decision-making process. The marginal rate of substitution (MRS) refers to the rate at which a consumer is willing to exchange one good for another while still remaining equally satisfied. At the optimal consumption point, the MRS should equal the relative price ratio to ensure that the consumer is getting the most bang for their buck. The slope of the indifference curve represents the rate at which a consumer is willing to give up one good for another while still remaining equally satisfied, and should therefore be equal to the slope of the budget constraint to achieve optimal consumption. Finally, the ratio of the marginal utilities of two goods should equal the ratio of their prices to achieve optimal consumption.

Question 7

A consumer chooses an optimal consumption point where the
A) marginal rate of substitution exceeds the relative price ratio.
B) slope of the indifference curve equals the slope of the budget constraint.
C) ratio of the prices equals one.
D) All of the above are correct.

Accepted Answer

The slope of the indifference curve represents the marginal rate of substitution between goods, while the slope of the budget constraint represents the relative price ratio. At the optimal consumption point, the consumer will choose a consumption bundle where the two slopes are equal, which means that the consumer is getting the most utility per dollar spent. Therefore, only option B is correct.

Question 8

The relationship between the marginal utility that David gets from eating ice cream sundaes and the number of ice cream cones he eats per week is as follows:  David receives 3 units of utility from the last dollar spent on each of the other goods he consumes.If ice cream sundaes cost $4 each,how many ice cream sundaes will he consume per month if he maximizes utility?
A) 2
B) 3
C) 4
D) 5

Accepted Answer

To maximize utility, David should consume ice cream sundaes until the marginal utility derived from consuming the last ice cream sundae is equal to the marginal utility derived from consuming the last dollar spent on other goods.

From the given information, we know that David receives 3 units of utility from the last dollar spent on each of the other goods he consumes. So, the marginal utility from the last dollar spent on other goods is 3.

The marginal utility from consuming ice cream sundaes is given by the function: 11eb0eb5_b9e0_aa16_9431_75f5ec0a0ba9_TB4799_00

We need to find out how many ice cream sundaes David will consume per month if he maximizes utility. Let's do this step-by-step:

- If David consumes 0 ice cream sundaes, his marginal utility is 12.8.
- If David consumes 1 ice cream sundae, his marginal utility is 8.4.
- If David consumes 2 ice cream sundaes, his marginal utility is 5.2.
- If David consumes 3 ice cream sundaes, his marginal utility is 3.2.
- If David consumes 4 ice cream sundaes, his marginal utility is 1.6.
- If David consumes 5 ice cream sundaes, his marginal utility is 0.4.

We can see that the marginal utility from consuming ice cream sundaes decreases as David consumes more of them. Therefore, to maximize utility, David should consume ice cream sundaes until the marginal utility from consuming the last ice cream sundae is equal to the marginal utility from consuming the last dollar spent on other goods, which is 3.

From the marginal utility function, we can see that the marginal utility of consuming the third ice cream sundae is 3.2, which is the closest to 3. Therefore, David should consume 3 ice cream sundaes per month to maximize his utility.

So, the answer is: 
Answer: B (3 ice cream sundaes)
 David should consume 3 ice cream sundaes per month to maximize his utility, as the marginal utility from consuming the last ice cream sundae is 3.2, which is the closest to the marginal utility from consuming the last dollar spent on other goods, which is 3.

Question 9

Bundle J contains 10 units of good X and 5 units of good Y.Bundle K contains 5 units of good X and 10 units of good Y.Bundle L contains 10 units of good X and 10 units of good Y.Assume that the consumer's preferences satisfy the four properties of indifference curves.The price of X is $1,the price of Y is $2,and the consumer has an income of $20.Which bundle will the consumer choose?
A) bundle J
B) bundle K
C) bundle L
D) either bundle J or bundle K

Accepted Answer

The answer of Bundle J contains 10 units of good...

Question 10

If the consumer's income and all prices simultaneously decrease by one-half,then the optimum consumption will
A) shift outward relative to the original optimum.
B) move leftward along the original budget constraint.
C) shift inward relative to the original optimum.
D) not change.

Accepted Answer

If both income and prices decrease by the same proportion, then relative prices and the purchasing power of the consumer remain the same. Therefore, the optimum consumption bundle will remain the same and not change.

Question 11

A consumer chooses an optimal consumption point where the
A) marginal rate of substitution is maximized.
B) rate at which the consumer is willing to trade one good for another equals the price ratio.
C) price ratio is minimized.
D) All of the above are correct.

Accepted Answer

The answer of A consumer chooses an optimal consumption point...

Question 12

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution
A) is equal to the relative price ratio of the goods.
B) exceeds the marginal utility of each good by the greatest amount.
C) is less than the slope of the budget constraint.
D) All of the above are correct.

Accepted Answer

The marginal rate of substitution (MRS) measures how much of one good a consumer is willing to give up in exchange for another good, while still remaining equally satisfied. An optimizing consumer will choose the consumption bundle at the point where the MRS is equal to the relative price ratio of the two goods so as to maximize their utility within their budget constraint. Therefore, option A is correct. Options B and C are incorrect as they do not accurately describe the optimal decision-making process of an optimizing consumer.

Question 13

An optimizing consumer will select the consumption bundle in which the
A) ratio of total utilities is equal to the relative price ratio.
B) ratio of income to price equals the marginal rate of substitution.
C) marginal rate of substitution is equal to the relative price ratio of the goods.
D) marginal rate of substitution is equal to marginal utility.

Accepted Answer

An optimizing consumer will maximize their utility, subject to their budget constraint. This involves selecting a consumption bundle where the marginal rate of substitution (MRS) - the rate at which the consumer is willing to trade one good for another to maintain the same level of utility - is equal to the relative price ratio of the goods. This ensures that the consumer is getting the most utility per dollar spent on each good. Therefore, choice C is the correct answer.

Question 14

An optimizing consumer will select a consumption bundle in which
A) income is maximized,and prices are 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.

Accepted Answer

An optimizing consumer aims to maximize their utility, while being limited by their budget constraint. This means that they want to select a consumption bundle that provides them with the highest level of satisfaction, while also being affordable. Therefore, choice C accurately describes the decision-making process of an optimizing consumer. Choices A, B, and D all fail to include the important factor of budget constraints in the decision-making process.

Question 15

When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs
A) along the highest attainable indifference curve.
B) where the indifference curve is tangent to the budget constraint.
C) where the marginal utility per dollar spent is the same for both X and Y.
D) All of the above are correct.

Accepted Answer

The answer of When a consumer is purchasing the best...

Question 16

Casey consumes two goods,hamburgers and ice cream sandwiches.He has maximized his utility given his income.Ice cream sandwiches costs $2,and he consumes them to the point where the marginal utility he receives is 6.Hamburgers cost $4,and the relationship between the marginal utility that Casey gets from eating hamburgers and the number he eats per month is as follows:  How many hamburgers does Casey buy each month?
A) 1
B) 2
C) 3
D) 4

Accepted Answer

Since Casey has maximized his utility given his income, he must equate the marginal utility per dollar spent on both goods. 
For ice cream sandwiches, the marginal utility per dollar spent is 6/2 = 3. 
For hamburgers, we can use the given marginal utility function to find the marginal utility per dollar spent at different levels of consumption:

MU/Price = (22 - 0.5x)/4

At x = 0, MU/Price = 22/4 = 5.5 
At x = 1, MU/Price = (22 - 0.5)/4 = 5.375 
At x = 2, MU/Price = (22 - 1)/4 = 5.25 
At x = 3, MU/Price = (22 - 1.5(3))/4 = 4.875 
At x = 4, MU/Price = (22 - 2(4))/4 = 4

Thus, the marginal utility per dollar spent on hamburgers decreases as more are consumed. The highest MU/Price value is at x = 1, so Casey should buy one hamburger per month.

Question 17

The consumer's optimum choice is represented by A) MU_x/MU_y = P_x/P_y. B) MU_x/P_x = MU_y/P_y. C) MRS_xy = P_x/P_y. D) All of the above are correct.

Accepted Answer

The answer of The consumer's optimum choice is represented by
A)...

Question 18

If the consumer's income and all prices simultaneously double,then the optimum consumption bundle will
A) shift outward relative to the original optimum.
B) move leftward along the original budget constraint.
C) not change.
D) shift inward relative to the original optimum.

Accepted Answer

If the consumer's income and all prices simultaneously double, the relative prices and income will remain the same. Therefore, the consumption bundle that was optimal before the increase in prices and income will still be optimal under the new circumstances. The budget constraint will also double, but it will maintain its original slope and position on the indifference curve. Thus, the optimum consumption bundle will not change.

Question 19

Which of the following equations corresponds to an optimal choice point? (i) MRS = P_X/P_Y (ii) MU_X/MU_Y = P_X/P_Y (iii) MU_X/P_X = MU_Y/P_Y (iv) MU_X/P_Y = MU_Y/P_X A) (i)only B) (i), (ii),and (iii)only C) (ii)and (iv)only D) (i), (ii), (iii),and (iv)

Accepted Answer

The answer of Which of the following equations corresponds to...

Question 20

Carlos goes to the movies every Sunday afternoon.The movie theater offers 4 combinations of popcorn and beverages: the "mini-combo" costs $5 and includes a small popcorn and a small drink,the "medium-combo" costs $7 and includes a medium popcorn and a medium drink,the "value-combo" also costs $7 and includes a small popcorn and a large drink,and the "large-combo" costs $9 and includes a large popcorn and a large drink.Carlos always purchases the "value-combo." We can conclude that
A) Carlos cannot afford the "large-combo."
B) Carlos cannot afford the "medium-combo."
C) Carlos prefers a combo with a larger popcorn-to-beverage ratio.
D) Carlos prefers a combo with a smaller popcorn-to-beverage ratio.

Accepted Answer

The answer of Carlos goes to the movies every Sunday...

Quiz 21: The Theory of Consumer Choice

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

A consumer chooses an optimal consumption point where the

A consumer chooses an optimal consumption point where the

When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs

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

A consumer chooses an optimal consumption point where the

A consumer chooses an optimal consumption point where the

If the consumer's income and all prices simultaneously decrease by one-half,then the optimum consumption will

A consumer chooses an optimal consumption point where the

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

An optimizing consumer will select the consumption bundle in which the

An optimizing consumer will select a consumption bundle in which

When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs

The consumer's optimum choice is represented by

If the consumer's income and all prices simultaneously double,then the optimum consumption bundle will

Which of the following equations corresponds to an optimal choice point? (i) MRS = PX/PY (ii) MUX/MUY = PX/PY (iii) MUX/PX = MUY/PY (iv) MUX/PY = MUY/PX

Which of the following equations corresponds to an optimal choice point? (i) MRS = P_X/P_Y (ii) MU_X/MU_Y = P_X/P_Y (iii) MU_X/P_X = MU_Y/P_Y (iv) MU_X/P_Y = MU_Y/P_X