Question 1

A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals. How many meals could the family afford if they gave up two nights in the hotel?
A)1
B)2
C)5
D)8

Accepted Answer

If the family can afford 8 nights in a hotel without buying any meals, then the cost of 8 hotel nights is $800, which means each night costs $100.

If the family gives up two nights in the hotel, then they have a total of $100 x 2 = $200 to spend on meals.

They can buy a maximum of $200 ÷ $40 = 5 meals with that budget. Therefore, the family could afford 5 meals if they gave up two nights in the hotel.

Question 2

An increase in a consumer's income
A)increases the slope of the consumer's budget constraint.
B)has no effect on the slope of the consumer's budget constraint.
C)decreases the slope of the consumer's budget constraint.
D)has no effect on the consumer's budget constraint.

Accepted Answer

An increase in a consumer's income shifts the budget constraint outward but does not change its slope, as the slope is determined by the relative prices of the goods.

Question 3

If the price of bread is zero and the price of cheese is positive, then the budget constraint between bread (on the horizontal axis) and cheese (on the vertical axis) would
A)be vertical.
B)coincide with the vertical axis.
C)coincide with the horizontal axis.
D)be horizontal.

Accepted Answer

If the price of bread is zero, then the horizontal axis represents the amount of bread a consumer can get for free. The budget constraint would be a straight line along the vertical axis, indicating that the consumer can only purchase cheese with their budget. Therefore, the budget constraint would be horizontal.

Question 4

A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?
A)$4
B)$8
C)$12
D)$20

Accepted Answer

Let's assume the price of a DVD is D and the price of a CD is C. We know that currently the consumer is spending twice as much on CDs as DVDs, so we can set up the following equation:

2D = C

We also know that the consumer has $120 of income and is spending all of it on CDs and DVDs, so we can set up the following budget constraint:

10C + 2D = 120

Now we can substitute 2D for C in the budget constraint to get:

10(2D) + 2D = 120

Simplifying this equation, we get:

22D = 120

D = $5.45, which is not one of the answer choices. However, we can estimate the price of a CD by using the fact that the consumer is spending twice as much on CDs as DVDs. If the consumer is spending $10.90 on CDs (twice as much as $5.45), then the remaining budget for DVDs is:

$120 - $10.90 = $109.10

Since the consumer is buying 2 DVDs, the total cost of DVDs is:

2D = 2 x $5.45 = $10.90

So the remaining budget for CDs is:

$109.10 - $10.90 = $98.20

The consumer is buying 10 CDs, so the price of a CD is:

$98.20 ÷ 10 = $9.82

This is closest to answer choice B) $8, so that is the best choice.

Question 5

Gerald spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Gerald's income has stayed fixed at $46 per week. Since the price changes, Gerald has been buying 4 bottles of gin and 2 jars of cocktail olives per week. At the original prices, 4 bottles of gin and 2 jars of cocktail olives would have
A)exactly exhausted his income.
B)cost more than his income.
C)cost less than his income.
D)could have maximized his satisfaction given his budget constraint.

Accepted Answer

At the original prices, Gerald's weekly expenditure on gin and olives would have been:

4 bottles of gin at $7 per bottle: 4 x 7 = $28
2 jars of olives at $6 per jar: 2 x 6 = $12
Total expenditure = $28 + $12 = $40

Since Gerald's weekly income is $46, this means that at the original prices, he would have spent less than his income on gin and olives. Therefore, the answer is C.

Question 6

Mark spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Mark's income has stayed fixed at $46 per week. If you measure gin on the vertical axis and cocktail olives on the horizontal axis, then the budget constraint
A)is steeper after the price changes.
B)is flatter after the price changes.
C)is the same after the price changes.
D)shifts in a parallel fashion to the old budget constraint after the price changes.

Accepted Answer

The answer of Mark spends his weekly income on gin...

Question 7

A family on a trip budgets $1,000 for meals and gasoline. If the price of a meal for the family is $50 and if gasoline costs $3.50 per gallon, then how many meals can the family buy if they buy 100 gallons of gasoline?
A)13
B)16
C)19
D)21

Accepted Answer

The answer of A family on a trip budgets $1,000...

Question 8

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of CDs the consumer can purchase?
A)10
B)20
C)40
D)50

Accepted Answer

The consumer has $200 and each CD costs $10. Therefore, the maximum number of CDs she can purchase is $200 / $10 = 20 CDs.

Question 9

Suppose a consumer spends her income on two goods: iTunes music downloads and books. The consumer has $100 to allocate to these two goods, the price of a downloaded song is $1, and the price of a book is $20. What is the maximum number of books the consumer can purchase?
A)100
B)20
C)10
D)5

Accepted Answer

The consumer has $100 and each book costs $20. Therefore, the maximum number of books she can purchase is $100 / $20 = 5 books.

Question 10

A decrease in a consumer's income
A)increases the slope of the consumer's budget constraint.
B)has no effect on the consumer's budget constraint.
C)decreases the slope of the consumer's budget constraint.
D)has no effect on the slope of the consumer's budget constraint.

Accepted Answer

A decrease in a consumer's income shifts the budget constraint inward but does not affect its slope, which is determined by the relative prices of the goods.

Question 11

The slope of the budget constraint is determined by the
A)relative price of the goods measured on the axes.
B)relative price of the goods measured on the axes and the consumer's income.
C)endowment of productive resources.
D)preferences of the consumer.

Accepted Answer

The slope of the budget constraint depends only on the relative price of the goods measured on the axes. The consumer's income affects the position of the budget constraint, but not its slope. The endowment of productive resources and preferences of the consumer do not directly determine the slope of the budget constraint.

Question 12

The slope of the budget constraint is all of the following except
A)the relative price of two goods.
B)the rate at which a consumer can afford to trade one good for another.
C)the marginal rate of substitution.
D)constant.

Accepted Answer

The slope of the budget constraint represents the relative price of two goods and is constant, indicating the rate at which a consumer can trade one good for another. The marginal rate of substitution, however, refers to the rate at which a consumer is willing to trade one good for another, which is not necessarily constant.

Question 13

A consumer who doesn't spend all of her income
A)would be at a point outside of her budget constraint.
B)would be at a point inside her budget constraint.
C)must not be consuming positive quantities of all goods.
D)must be consuming at a point where her budget constraint touches one of the axes.

Accepted Answer

If a consumer doesn't spend all of their income, it means they are consuming less than what they can afford according to their budget constraint. Thus, they must be at a point inside their budget constraint. Option A is incorrect because spending less than their income does not necessarily mean they are outside their budget constraint. Option C is incorrect because there is no information provided regarding positive consumption of goods. Option D is incorrect because a consumer could potentially be consuming at any point inside the budget constraint.

Question 14

Suppose a consumer spends her income on two goods: music CDs and DVDs. The price of a CD is $8, and the price of a DVD is $20. If we graph the budget constraint by measuring the quantity of CDs purchased on the vertical axis and the quantity of DVDs on the horizontal axis, what is the slope of the budget constraint?
A)-5.0
B)-2.5
C)-0.4
D)The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods.

Accepted Answer

The slope of the budget constraint is calculated as the ratio of the price of the good on the vertical axis (CDs) to the price of the good on the horizontal axis (DVDs), with a negative sign. Thus, the slope = -($8/$20) = -0.4. However, since the question asks for the slope when CDs are on the vertical axis and DVDs on the horizontal axis, and considering the typical representation of a budget constraint, the correct calculation should consider the negative price ratio of CDs to DVDs, leading to a mistake in the initial explanation. The correct interpretation for the slope, given the prices, should reflect the trade-off between the two goods, indicating how many CDs must be given up to afford an additional DVD, or vice versa. Given the prices, the slope should indeed represent the trade-off rate between CDs and DVDs, which is not directly represented by the options provided, pointing to a misunderstanding in the initial explanation provided. The correct slope, in economic terms, would be the price of CDs divided by the price of DVDs, indicating the rate at which the consumer can substitute DVDs for CDs, but the options given and the explanation do not align with this economic principle correctly. Therefore, the correct answer should reflect the trade-off between CDs and DVDs based on their prices, but a reevaluation of the explanation and the options provided is necessary to accurately determine the slope of the budget constraint.

Question 15

Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs. If the price of a CD is $9, the price of a DVD is $18, and she is currently consuming 10 CDs and 5 DVDs, what is the consumer's income?
A)$90
B)$180
C)$270
D)$360

Accepted Answer

The answer of Suppose a consumer is currently spending all...

Question 16

A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a DVD?
A)$4
B)$8
C)$12
D)$20

Accepted Answer

The answer of A consumer is currently spending all of...

Question 17

A decrease in income will cause a consumer's budget constraint to
A)shift outward, parallel to its initial position.
B)shift inward, parallel to its initial position.
C)pivot along the horizontal axis.
D)pivot along the vertical axis.

Accepted Answer

A decrease in income reduces the amount of goods a consumer can afford, causing the budget constraint to shift inward, parallel to its initial position.

Question 18

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of DVDs the consumer can purchase?
A)10
B)20
C)40
D)50

Accepted Answer

The consumer has $200 and each DVD costs $20. Therefore, the maximum number of DVDs she can purchase is $200 / $20 = 10 DVDs.

Question 19

Suppose the only two goods that Charlie consumes are wine and cheese. When wine sells for $10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100. One day the price of wine falls to $5 a bottle and the price of cheese increases to $20 a pound, while his income does not change. The bundle of wine and cheese that he purchased at the old prices now costs
A)the same amount at the new prices.
B)less than Charlie's income at the new prices.
C)more than Charlie's income at the new prices.
D)We do not have enough information to answer the question.

Accepted Answer

At the new prices, 6 bottles of wine cost $30 and 4 pounds of cheese cost $80, totaling $110, which is more than Charlie's income of $100.

Question 20

A family on a trip budgets $800 for meals and gasoline. If the price of a meal for the family is $50, how many meals can the family buy if they do not buy any gasoline?
A)8
B)16
C)24
D)32

Accepted Answer

With a budget of $800 and each meal costing $50, the family can buy $800 / $50 = 16 meals.

Quiz 21: The Theory of Consumer Choice

A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals. How many meals could the family afford if they gave up two nights in the hotel?

An increase in a consumer's income

If the price of bread is zero and the price of cheese is positive, then the budget constraint between bread (on the horizontal axis) and cheese (on the vertical axis) would

A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?

A family on a trip budgets $1,000 for meals and gasoline. If the price of a meal for the family is $50 and if gasoline costs $3.50 per gallon, then how many meals can the family buy if they buy 100 gallons of gasoline?

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of CDs the consumer can purchase?

Suppose a consumer spends her income on two goods: iTunes music downloads and books. The consumer has $100 to allocate to these two goods, the price of a downloaded song is $1, and the price of a book is $20. What is the maximum number of books the consumer can purchase?

A decrease in a consumer's income

The slope of the budget constraint is determined by the

The slope of the budget constraint is all of the following except

A consumer who doesn't spend all of her income

Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs. If the price of a CD is $9, the price of a DVD is $18, and she is currently consuming 10 CDs and 5 DVDs, what is the consumer's income?

A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a DVD?

A decrease in income will cause a consumer's budget constraint to

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of DVDs the consumer can purchase?

A family on a trip budgets $800 for meals and gasoline. If the price of a meal for the family is $50, how many meals can the family buy if they do not buy any gasoline?