Question 1

If a consumer's budget line for food (F)and shelter (S)is represented as F = 250 - 5S, we know that
A)the consumer's income is 250.
B)the price of shelter is 5.
C)the price of shelter is 5 times the price of food.
D)All of the above.

Accepted Answer

The answer of If a consumer's budget line for food...

Question 2

Suppose a taco costs $4 and a burrito costs $2. Moreover, this Mexican restaurant has a special deal. After you've bought 6 burritos, you can buy each extra burrito for $1.50. Assume that tacos are on the vertical axis and burritos on the horizontal axis. What is the marginal rate of transformation (MRT)when 8 burritos are purchased?
A)MRT = 0.375
B)MRT = 0.50
C)MRT = 2
D)MRT = 2.67

Accepted Answer

The MRT indicates the rate at which a person can trade burritos for tacos while keeping the same level of satisfaction. At first, a customer needs to trade two burritos to get one taco ($4 taco = $2 burrito x 2). However, after purchasing six burritos, the price of an extra burrito decreases to $1.50. Therefore, the MRT changes to $4 taco = $1.50 burrito x 2.67. So, the MRT is 2.67 when trading the first six burritos. 
To find out the MRT when the customer has purchased eight burritos, we need to compare the utility of the 8th burrito with that of the taco. At this point, the customer has spent $14 on burritos, allowing him/her to buy burritos at $1.50 each. An additional burrito costs $1.50, which means that the customer gives up two-thirds of a taco (=$1.50/$4) to get one burrito. Therefore, the MRT is 0.375 (= 2/3) when purchasing the 8th burrito.

Question 3

-Keith is indifferent between canned soup and fresh soup. In the figure above, Keith's indifference curves are represented by I1, I2, I3, and I4 curves. What is the marginal rate of transformation (MRT)of Keith's budget constraint?
A)MRT = -2
B)MRT = -1
C)MRT = -4
D)MRT = -0.5

Accepted Answer

The marginal rate of transformation (MRT) is the slope of the budget constraint line, which can be determined by looking at the trade-off between the two goods (in this case, canned soup and fresh soup) that keeps the consumer on the same budget. Given that Keith is indifferent between canned soup and fresh soup, and without a specific figure to reference, the correct answer cannot be determined directly from the question. However, if the answer choices are considered, assuming a typical linear budget constraint and given the options provided, a common approach to determining the MRT is by understanding it represents the opportunity cost of one good in terms of the other. Without the figure, this explanation is based on the assumption that the correct answer is provided among the choices.

Question 4

Assume the price of beer is $4, the price of pizza is $10 and the consumer's income is $250. Which consumption bundle will NOT be the consumer's choice?
A)5 Beer, 5 Pizza
B)0 Beer, 25 Pizza
C)25 Beer, 15 Pizza
D)None of the bundle will be chosen.

Accepted Answer

The answer of Assume the price of beer is $4,...

Question 5

The intuition behind the budget constraint is that
A)more options are preferred to less.
B)money is the root of all happiness.
C)information is power.
D)scarcity is avoidable with prosperity.

Accepted Answer

The budget constraint illustrates the concept of scarcity, where an individual has to allocate limited resources (income) to satisfy their unlimited wants and needs (preferences). The constraint shows the different combinations of two goods that an individual can afford given their income and the prices of the goods. Therefore, the intuition behind the budget constraint is that more options are preferred to less.

Question 6

A consumer derives utility for "all other goods," g, and cigarettes, s. The price of "all other goods" equals $9 and the price of cigarettes is $10. Now suppose the government implements a $0.50 per-unit tax on cigarettes to encourage a decrease in smoking. How does the tax affect the marginal rate of transformation, MRT?
A)The MRT will decrease to -  .
B)The MRT will increase to -  .
C)The MRT will increase to -  + 0.05.
D)The MRT will decrease to -  - 0.05.

Accepted Answer

The answer of A consumer derives utility for "all other...

Question 7

The consumer is in equilibrium when
A)MRT = MRS.
B)  /
 =
 /
 .
C)the budget line is tangent to the indifference curve at the bundle chosen.
D)All of the above.

Accepted Answer

The answer of The consumer is in equilibrium when
A)MRT =...

Question 8

An optimum that occurs as a corner solution
A)includes only one good.
B)cannot be an equilibrium.
C)cannot exhaust the budget constraint.
D)includes the exact same amounts of each good.

Accepted Answer

An optimum that occurs as a corner solution means that the consumer is consuming only one good to exhaust their budget constraint. This can happen when the consumer has a strong preference for one good over the others or when the prices of the other goods are too high. Therefore, choice A is the correct answer. Choice B is incorrect because a corner solution can be an equilibrium if it is the best choice given the consumer's preferences and budget constraint. Choice C is incorrect because a corner solution does exhaust the budget constraint by definition. Choice D is incorrect because a corner solution involves consuming only one good, not the exact same amounts of each good.

Question 9

The slope of the budget line represents the rate at which the consumer is willing to trade one good for another at any given bundle.

Accepted Answer

This describes the slope of the indifference curve. The slope of the budget line represents the rate at which the consumer must trade one good for another at any given bundle.

Question 10

Economists assume consumers select a bundle of goods that maximizes their well-being subject to
A)their budget constraint.
B)their income.
C)relative prices.
D)their marginal rate of substitution.

Accepted Answer

The budget constraint determines the limit to what the consumer can afford to purchase. Since consumers want to maximize their well-being, they are assumed to choose a combination of goods that is on or within their budget constraint. Therefore, A is the best choice. The other options (B, C, and D) are important factors that consumers consider, but they do not alone determine the optimal bundle of goods.

Question 11

By selecting a bundle where MRS = MRT, the consumer is
A)achieving a corner solution.
B)reaching the highest possible indifference curve she can afford.
C)not behaving in an optimal way.
D)All of the above.

Accepted Answer

When the consumer selects a bundle where MRS (marginal rate of substitution) = MRT (marginal rate of transformation), she is reaching the highest possible indifference curve she can afford, which means she is maximizing her utility. This is the optimal behavior. A corner solution would imply that the consumer can only afford one good and is not making a choice between two goods. Therefore, option A is incorrect. Option C is also incorrect as the consumer is behaving in an optimal way.

Question 12

By selecting a bundle where MRS = MRT, the consumer is saying
A)"I value my last unit of each good equally."
B)"I am willing to trade one good for the other at the same rate that I am required to do so."
C)"I will equate the amounts spent on all goods consumed."
D)All of the above.

Accepted Answer

MRS (Marginal Rate of Substitution) represents the rate at which a consumer is willing to trade one good for another, while MRT (Marginal Rate of Transformation) represents the rate at which the market is willing to trade one good for another. If a consumer selects a bundle where MRS = MRT, they are indicating that they are willing to trade one good for the other at the same rate that the market requires, which is what choice B states. Choices A and C are not necessarily accurate statements given this context.

Question 13

-Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in the above figure. Which bundle will Max choose?
A)a
B)b
C)c
D)d

Accepted Answer

Max will choose the bundle where his budget line is tangent to the highest indifference curve he can reach, which represents the highest level of satisfaction he can achieve given his budget. Bundle B is at this tangency point.

Question 14

Quotas, such as limiting the amount of residential water use during a drought, restricts an individual's preference set and
A)reduces utility because an individual cannot consume as much as they would without the quota.
B)increases utility because quotas restrict output and raise profits for the water company.
C)reduces utility because an individual is forced to substitute to other goods.
D)does not affect overall utility.

Accepted Answer

Quotas limit an individual's options and therefore reduce their ability to consume as much as they would without the quota. This reduction in options typically leads to a reduction in overall utility.

Question 15

Explain the difference between the marginal rate of substitution and the marginal rate of transformation.

Accepted Answer

The answer of Explain the difference between the marginal rate...

Question 16

-Keith is indifferent between canned soup and fresh soup. In the figure above, Keith's indifference curves are represented by I1, I2, I3, and I4 curves. Which of the following choices Keith cannot afford?
A)3 canned soups and 2 fresh soups
B)2 canned soups and 1 fresh soup
C)only 4 canned soups
D)only 2 fresh soups

Accepted Answer

Given Keith's indifference between canned and fresh soup, the affordability of options depends on his budget constraint, which isn't explicitly provided. However, the question implies that one of the options lies outside his budget constraint. Since indifference curves represent combinations of goods that provide the same level of utility, if an option is on a higher indifference curve than the others, it implies it provides more utility and thus might be unaffordable if we assume higher utility combinations require more resources. Without the figure, we infer based on typical economic principles.

Question 17

Lisa has an income of $100. She spends all of her income on pizza and burritos. A pizza costs $10 and a burrito costs $5. However, the store where Lisa buys her burritos has a special deal. After you've bought 6 burritos, then you can buy each burrito for $2.50. Draw Lisa's opportunity set.

Accepted Answer

The answer of Lisa has an income of $100. She...

Question 18

Johnny has allocated $30 toward coffee and tea and feels that coffee and tea are perfect substitutes. Due to differences in caffeine levels, his MRS of tea for coffee equals 2. If coffee and tea sell for the same price, Johnny will
A)spend all $30 on tea.
B)spend all $30 on coffee.
C)spend $20 on coffee and $10 on tea.
D)be indifferent between any bundle of coffee and tea costing $30.

Accepted Answer

The answer of Johnny has allocated $30 toward coffee and...

Question 19

With respect to consuming food and shelter, two consumers face the same prices and both claim to be in equilibrium. We therefore know that
A)they both have the same marginal utility for food.
B)they both have the same marginal utility for shelter.
C)they both have the same MRS of food for shelter.
D)All of the above.

Accepted Answer

The correct answer is C because when two consumers are in equilibrium and face the same prices, it means that their marginal rate of substitution (MRS) of food for shelter must be the same. This is because the MRS, which is the rate at which a consumer is willing to substitute one good for another while maintaining the same level of utility, must equal the price ratio for the consumer to be in equilibrium. The MRS being the same for both consumers implies that they are optimizing their utility given the prices, but it does not necessarily mean they have the same marginal utility for food or shelter individually.

Question 20

Joe subscribes to an Internet provider that charges $2 per hour. Draw his budget line for Internet access on the horizontal axis and money spent on all other goods on the vertical axis assuming he has $100 per month to spend. Another company offers unlimited Internet access for a flat monthly fee of $20. Draw this budget line.

Accepted Answer

The answer of Joe subscribes to an Internet provider that...

Quiz 4: Consumer Choice

If a consumer's budget line for food (F) and shelter (S) is represented as F = 250 - 5S, we know that

-Keith is indifferent between canned soup and fresh soup. In the figure above, Keith's indifference curves are represented by I1, I2, I3, and I4 curves. What is the marginal rate of transformation (MRT) of Keith's budget constraint?

Assume the price of beer is $4, the price of pizza is $10 and the consumer's income is $250. Which consumption bundle will NOT be the consumer's choice?

The intuition behind the budget constraint is that

The consumer is in equilibrium when

An optimum that occurs as a corner solution

The slope of the budget line represents the rate at which the consumer is willing to trade one good for another at any given bundle.

Economists assume consumers select a bundle of goods that maximizes their well-being subject to

By selecting a bundle where MRS = MRT, the consumer is

By selecting a bundle where MRS = MRT, the consumer is saying

-Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in the above figure. Which bundle will Max choose?

Quotas, such as limiting the amount of residential water use during a drought, restricts an individual's preference set and

Explain the difference between the marginal rate of substitution and the marginal rate of transformation.

-Keith is indifferent between canned soup and fresh soup. In the figure above, Keith's indifference curves are represented by I1, I2, I3, and I4 curves. Which of the following choices Keith cannot afford?

Lisa has an income of $100. She spends all of her income on pizza and burritos. A pizza costs $10 and a burrito costs $5. However, the store where Lisa buys her burritos has a special deal. After you've bought 6 burritos, then you can buy each burrito for $2.50. Draw Lisa's opportunity set.

Johnny has allocated $30 toward coffee and tea and feels that coffee and tea are perfect substitutes. Due to differences in caffeine levels, his MRS of tea for coffee equals 2. If coffee and tea sell for the same price, Johnny will

With respect to consuming food and shelter, two consumers face the same prices and both claim to be in equilibrium. We therefore know that