Question 1

(Figure: Mushrooms and Spinach I) The consumer maximizes utility by consuming: A) 7 mushrooms and no spinach. B) 8 units of spinach and no mushrooms. C) on indifference curve U₂. D) approximately 4 mushrooms and 4 units of spinach.

Accepted Answer

B

Question 2

Veronika's utility function for regular-flavored toothpaste (R) and mint-flavored toothpaste (M) is given by U = 2R + 4M. Which of the following statements is TRUE? A) MRS_MR = 2M/R. B) Veronika's indifference curves are vertical. C) Veronika's indifference curves are horizontal. D) Veronika is willing to give up two tubes of regular-flavored toothpaste for one tube of mint-flavored toothpaste.

Accepted Answer

The marginal rate of substitution (MRS) between two goods is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility. In Veronika's utility function U = 2R + 4M, the coefficients in front of R and M (2 and 4, respectively) indicate the relative importance of each type of toothpaste to her utility. The MRS can be calculated as the ratio of these coefficients (2/4 = 1/2), meaning Veronika is willing to give up 2 tubes of regular-flavored toothpaste (R) for 1 tube of mint-flavored toothpaste (M) to maintain the same level of utility, which is what option D states.

Question 3

The equation for the marginal rate of substitution of good X for good Y (that is, MRS_XY) is given by: A) ΔU(X,Y)/ΔX. B) -ΔY/ΔX. C) ΔY × ΔX. D) -X/Y.

Accepted Answer

The marginal rate of substitution (MRS) of good X for good Y is defined as the rate at which a consumer can give up some amount of Y to get more of X while keeping their utility level constant. Mathematically, it is represented by the negative of the slope of the indifference curve, which is -ΔY/ΔX.

Question 4

Martha loves to eat chili, especially an award-winning chili recipe that calls for using 2 tablespoons of chili powder for every 1 pound of ground buffalo. Which of the following utility functions could represent Martha's preferences, where U is a function of tablespoons of chili powder (P) and pounds of ground buffalo (B)?
A) U = min{2B, P}
B) U = min{0.50B, P}
C) U = 2P + B
D) U = 2PB

Accepted Answer

The utility function U = min{2B, P} correctly represents Martha's preferences because it captures the idea that her enjoyment (utility) depends on the minimum between twice the amount of buffalo (2B) and the amount of chili powder (P), reflecting the recipe's requirement of 2 tablespoons of chili powder for every 1 pound of ground buffalo.

Question 5

(Figure: Coats and Sweaters I) Which of the following statements is FALSE?  I. At point A, the consumer is willing to give up three winter coats for one wool sweater.
II) At point B, the consumer is willing to give up one winter coat for four wool sweaters.
III) At point A, the consumer is willing to give up three wool sweaters for one winter coat.
IV) At point B, the consumer is willing to give up four wool sweaters for one winter coat.
A) I only
B) I and II
C) III
D) IV

Accepted Answer

The answer of (Figure: Coats and Sweaters I) Which of...

Question 6

(Figure: Good Y and Good X III) The indifference curve _____ indicates that the two goods, X and Y, are relatively poor substitutes for one another, whereas the indifference curve _____ indicates that the two goods are close substitutes for one another. A) U₁; U₃ B) U₃; U₂ C) U₂; U₁ D) U₃; U₁

Accepted Answer

The answer of (Figure: Good Y and Good X III)...

Question 7

Rohan is maximizing utility subject to his limited income. As a result, which of the following statements is TRUE? A) The slope of the indifference curve is twice the slope of the budget constraint. B) The indifference curve intersects the budget constraint at precisely two points. C) The budget constraint is tangent to the indifference curve. D) The MRS_XY = P_XP_Y.

Accepted Answer

The point of tangency between the budget constraint and an indifference curve represents the combination of goods that maximizes utility given the consumer's budget. This is because at the tangency point, the slope of the indifference curve (which represents the rate at which the consumer is willing to substitute one good for another) equals the slope of the budget constraint (which represents the rate at which the market allows the consumer to substitute one good for another).

Question 8

Sonia says she prefers two theater tickets and one bottle of French wine to three games of bowling and one pitcher of draft beer. In this example, Sonia is demonstrating the _____ assumption of consumer behavior.
A) more is better than less
B) completeness and rankability
C) transitivity
D) diminishing marginal utility

Accepted Answer

Sonia is demonstrating the completeness and rankability assumption by being able to compare and rank her preferences between two sets of goods (theater tickets and wine vs. bowling and beer).

Question 9

Mika spends all of her income on pizza and gasoline. Suppose Mika is presented with two options: A and B. Option A will subsidize gasoline by decreasing its price by 50%. Option B will increase Mika's income by the cost of the subsidy in Option A. Which of the following must be true?
A) Mika will always strictly prefer Option A to Option B.
B) Mika will always strictly prefer Option B to Option A.
C) Mika will never prefer Option A to Option B.
D) Mike will never prefer Option B to Option A.

Accepted Answer

The answer of Mika spends all of her income on...

Question 10

Hideki spends all of his money on movie tickets and groceries. Suppose Hideki is presented with two options: A and B. Option A gives him a voucher of $X that he can only spend on groceries. Option B gives him $X that he can spend on either or both of the goods. Which of the following is correct?
A) Hideki always prefers Option A to Option B.
B) Hideki can never be indifferent between Option A and Option B.
C) Hideki is always indifferent between Option A and Option B.
D) Hideki can prefer Option B to Option A but cannot prefer Option A to Option B.

Accepted Answer

Option B provides more flexibility than Option A because it allows Hideki to spend the money on either or both goods according to his preferences, making it potentially more valuable to him.

Question 11

If a consumer's budget constraint has a slope that is less than -1:
A) the consumer gets more utility from good X than from good Y.
B) the price of good X is less than the price of good Y.
C) the consumer gets less utility from good X than from good Y.
D) the price of good X is greater than the price of good Y.

Accepted Answer

The slope of a consumer's budget constraint is given by the negative ratio of the prices of the two goods (-Px/Py). If the slope is less than -1, it means that the price of good X (Px) is greater than the price of good Y (Py).

Question 12

A consumer spends his limited income on three goods such that the MU_X = 4, MU_Y = 4, MU_Z = 4; and P_X = 4, P_Y = 2, P_Z = 1. Which of the following statements is (are) TRUE? I. Because the marginal utilities of all three goods are equal, the consumer is maximizing utility. II. The consumer receives the most bang for the buck from good Z. III. The marginal utility per dollar spent is not equal across all three goods, so the consumer is not maximizing utility. A) I B) II C) III D) II and III

Accepted Answer

The consumer maximizes utility when the marginal utility per dollar spent (MU/P) is equal across all goods. Here, MU/P for X = 4/4 = 1, for Y = 4/2 = 2, and for Z = 4/1 = 4. Since these ratios are not equal, the consumer is not maximizing utility (III is true). The highest MU/P ratio is for good Z, indicating the consumer gets the most utility per dollar spent on Z (II is true).

Question 13

Suppose that MU_Y = 15, MU_X = 10, P_Y = $2, and P_X = $1. Which of the following statements is TRUE? A) The consumer is maximizing utility. B) The consumer could increase utility by giving up 1 unit of good Y for 2 units of good X. C) The consumer could increase utility by giving up 2 units of good X for 1 unit of good Y. D) The consumer is receiving more marginal utility per dollar from good Y than from good X.

Accepted Answer

The consumer could increase utility by giving up 1 unit of good Y for 2 units of good X.

Question 14

Suppose that MRS_XY = Y/X. As X increases: A) MRS_XY increases. B) MRS_XY decreases. C) MRS_XY remains constant. D) MRS_XY increases and then decreases.

Accepted Answer

Given that MRS_XY = Y/X, as X increases, the value of Y/X decreases, assuming Y remains constant. This is because the denominator of the fraction is getting larger, which reduces the overall value of the fraction.

Question 15

Kalini spends all of her income on movie tickets and groceries. Suppose Kalini is presented with two options: A and B. Option A gives her a voucher of $X that she can only spend on groceries. Option B gives her $X that she can spend on either or both of the goods (a transfer of cash). Assuming Kalini prefers Option B to Option A and purchases positive values of movie tickets and groceries, which of the following is correct?
A) Kalini values the choice that the cash transfer offers.
B) Kalini does not gain any utility by consuming groceries.
C) Kalini does not value the choice that the cash transfer offers.
D) Kalini does not gain any utility by consuming movie tickets.

Accepted Answer

The answer of Kalini spends all of her income on...

Question 16

For the utility function U(X,Y) = 10X + 4Y, the marginal utility of X is:
A) 10X.
B) 10.
C) 10X + 4Y.
D) 10 + 4Y.

Accepted Answer

The marginal utility of a good (in this case, X) is found by taking the partial derivative of the utility function with respect to that good. For U(X,Y) = 10X + 4Y, the partial derivative with respect to X is 10, indicating the marginal utility of X is constant at 10.

Question 17

(Figure: Tomatoes and Carrots III) This figure violates the assumption: 
A) of convex indifference curves.
B) of transitivity.
C) of rankability.
D) that the more you have of a good, the less you are willing to give up to get even more of it.

Accepted Answer

The answer of (Figure: Tomatoes and Carrots III) This figure...

Question 18

(Figure: Good Y and Good X IV) Which of the following changes could have rotated the budget constraint in the direction indicated by the arrow in the graph? 
A) an increase in the price of good X
B) a decrease in the price of good Y
C) a decrease in income
D) an increase in the price of good Y

Accepted Answer

The answer of (Figure: Good Y and Good X IV)...

Question 19

(Figure: Tomatoes and Carrots IV) Which of these indifference curves is convex to the origin? A) U₁ B) U₂ C) U₃ D) U₄

Accepted Answer

The answer of (Figure: Tomatoes and Carrots IV) Which of...

Question 20

Randy likes baseball more than football, football more than basketball, and basketball more than baseball. Which assumption about consumer preferences does this violate?
A) completeness and rankability
B) more is better
C) transitivity
D) The more a consumer has of a particular good, the less she is willing to give up of something else to get even more of that good.

Accepted Answer

Transitivity is violated because if Randy likes baseball more than football and football more than basketball, then he should like baseball more than basketball, but the statement contradicts this.

Quiz 4: Consumer Behavior

(Figure: Mushrooms and Spinach I) The consumer maximizes utility by consuming:

Veronika's utility function for regular-flavored toothpaste (R) and mint-flavored toothpaste (M) is given by U = 2R + 4M. Which of the following statements is TRUE?

The equation for the marginal rate of substitution of good X for good Y (that is, MRS_XY) is given by:

(Figure: Good Y and Good X III) The indifference curve _ indicates that the two goods, X and Y, are relatively poor substitutes for one another, whereas the indifference curve _ indicates that the two goods are close substitutes for one another.

Rohan is maximizing utility subject to his limited income. As a result, which of the following statements is TRUE?

Sonia says she prefers two theater tickets and one bottle of French wine to three games of bowling and one pitcher of draft beer. In this example, Sonia is demonstrating the _____ assumption of consumer behavior.

Mika spends all of her income on pizza and gasoline. Suppose Mika is presented with two options: A and B. Option A will subsidize gasoline by decreasing its price by 50%. Option B will increase Mika's income by the cost of the subsidy in Option A. Which of the following must be true?

Hideki spends all of his money on movie tickets and groceries. Suppose Hideki is presented with two options: A and B. Option A gives him a voucher of $X that he can only spend on groceries. Option B gives him $X that he can spend on either or both of the goods. Which of the following is correct?

If a consumer's budget constraint has a slope that is less than -1:

Suppose that MU_Y = 15, MU_X = 10, P_Y = $2, and P_X = $1. Which of the following statements is TRUE?

Suppose that MRS_XY = Y/X. As X increases:

For the utility function U(X,Y) = 10X + 4Y, the marginal utility of X is:

(Figure: Tomatoes and Carrots III) This figure violates the assumption:

(Figure: Good Y and Good X IV) Which of the following changes could have rotated the budget constraint in the direction indicated by the arrow in the graph?

(Figure: Tomatoes and Carrots IV) Which of these indifference curves is convex to the origin?

Randy likes baseball more than football, football more than basketball, and basketball more than baseball. Which assumption about consumer preferences does this violate?