Question 1

Which of the following results in a rightward shift of your indifference curves for gasoline and movie rentals?
A)an increase in the price of a litre of gasoline with no change in the price of a movie rental
B)an increase in the price of a movie rental with no change in the price of a litre of gasoline
C)an increase in income if gasoline and movie rentals are normal goods
D)a decrease in the price of a litre of gasoline or a decrease in the price of a movie rental
E)none of the above

Accepted Answer

The answer of Which of the following results in a...

Question 2

When the iPhone5 was introduced, the demand for iPhone5 protective cases increased. This information tells us that the iPhone5 and iPhone5 protective cases are
A)substitutes and their indifference curves are close to straight lines.
B)substitutes and their indifference curves are close to L-shaped.
C)complements and their indifference curves are close to L-shaped.
D)complements and their indifference curves have a constant marginal rate of substitution.
E)substitutes and their indifference curves have a constant marginal rate of substitution.

Accepted Answer

The increase in demand for iPhone5 protective cases when the iPhone5 is introduced suggests that the two goods are complements. This is because an increase in the demand for one (iPhone5) leads to an increase in the demand for the other (protective cases), indicating that they are typically consumed together. Additionally, the fact that their indifference curves are L-shaped suggests that the consumer's desire for iPhone5 cases is not very high unless they also have an iPhone5.

Question 3

Use the figure below to answer the following questions.
  
Figure 9.2.3
-Refer to Figure 9.2.3. Rashid buys only books and albums. The figure shows his preferences. When Rashid chooses the consumption point of 3 books and 2 albums, his marginal rate of substitution is
A)1 book per album.
B)zero.
C)3/2 books per album.
D)2/3 books per album.
E)0.5 books per album.

Accepted Answer

The marginal rate of substitution (MRS) is the rate at which a consumer is willing to trade one good for another while keeping their level of satisfaction constant. In this case, Rashid is willing to give up 1 book for 2 albums, so the MRS is 1 book per album.

Question 4

At the best affordable point, what is the relationship between the indifference curve and the budget line?
A)The budget line and the indifference curve are identical.
B)The slope of the indifference curve exceeds the slope of the budget line.
C)The slope of the budget line exceeds the slope of the indifference curve.
D)The slope of the indifference curve equals the slope of the budget line.
E)The slope of the indifference curve is one-half the slope of the budget line.

Accepted Answer

At the best affordable point, the consumer is maximizing utility subject to the budget constraint. This means that the slope of the indifference curve at that point should be equal to the slope of the budget line. Therefore, D is the correct answer. Choices A, B, C, and E are incorrect because they do not accurately describe the relationship between the indifference curve and the budget line at the point of utility maximization.

Question 5

As a consumer moves rightward along an indifference curve,
A)the relative price of the good measured on the x-axis falls.
B)the relative price of the good measured on the y-axis falls.
C)the income required to buy the combinations of the goods increases.
D)the consumer remains indifferent among the different combinations of goods.
E)the consumer prefers the combinations of goods that are farther rightward along the indifference curve.

Accepted Answer

Moving rightward along an indifference curve means the consumer is considering different combinations of goods that provide the same level of utility or satisfaction, hence the term "indifferent." The other options imply changes in prices, income requirements, or preferences, which are not relevant to the concept of moving along an indifference curve.

Question 6

A consumer's best affordable point occurs
A)inside the budget line.
B)outside the budget line.
C)on the budget line.
D)at a point that cannot be determined.
E)at a corner on the budget line, with only one good consumed.

Accepted Answer

The consumer's best affordable point occurs on the budget line, where the consumer maximizes utility by spending all of their income on a combination of goods that gives them the most satisfaction. Any point inside the budget line represents consumption that is not optimal, and any point outside the budget line is unattainable given the consumer's income. A point at a corner on the budget line with only one good consumed may be optimal in certain cases, but not in general.

Question 7

Use the figure below to answer the following question.
  
Figure 9.2.5
-Refer to Figure 9.2.5. The graphs show indifference curves for various goods. Graph ________ best describes the pair of goods baseballs and baseball bats. Graph ________ best describes the pair of goods desktop computers and laptop computers.
A)2; 3
B)2; 1
C)1; 1
D)1; 3
E)3; 2

Accepted Answer

Graph 2 is the best description for the pair of goods baseballs and baseball bats because it shows a diminishing marginal rate of substitution between the two goods, indicating that as the consumer gets more of one good, they are willing to give up less of the other good.
Graph 3 is the best description for the pair of goods desktop computers and laptop computers because it shows that the consumer is willing to give up more of one good for another, indicating that the two goods are not perfect substitutes.

Question 8

Use the figure below to answer the following questions.
  
Figure 9.2.3
-Refer to Figure 9.2.3. When Rashid chooses the consumption point of 2 books and 6 albums, his marginal rate of substitution is
A)1/3 books per album.
B)0.5 books per album.
C)3 books per album.
D)1 book per album.
E)2 books per album.

Accepted Answer

The answer of Use the figure below to answer the...

Question 9

The shape of a person's indifference curves between two goods depends on
A)the prices of the two goods.
B)the person's income.
C)the degree of substitutability between the two goods.
D)the level of satisfaction for the person.
E)the person's income and the prices of the two goods.

Accepted Answer

The shape of indifference curves between two goods depends on the degree of substitutability between the two goods, as this determines how much of one good a person is willing to give up for an additional unit of the other good. Other factors such as prices and income affect the quantity of the goods a person can purchase and their budget constraint, but not the shape of their indifference curves.

Question 10

Use the information below to answer the following questions.
Fact 9.2.1 You May Be Paid More (or Less)Than You Think
It's so hard to put a price on happiness, isn't it?
 But if you've ever had to choose between a jobs you like and a better-paying one that you like less, you probably wished some economist would tell you how much job satisfaction is worth. Trust in management is by far the biggest component to consider. Say you get a new boss and your trust in management goes up a bit (say, up 1 point on a 10-point scale). That's like getting a 36 percent pay raise. In other words, that increased level of trust will boost your level of overall satisfaction in life by about the same amount as a 36 percent raise would.
Source: CNN, March 29, 2006
-Refer to Fact 9.2.1. What is the marginal rate of substitution?
A)3.6
B)1
C)36
D)10
E)10 + 36

Accepted Answer

The marginal rate of substitution is the rate at which a person is willing to trade one good for another while maintaining the same level of satisfaction. Here, a 1-point increase in trust is equivalent to a 36% pay raise, so the marginal rate of substitution is 3.6 (36% divided by 10 points).

Question 11

Leah consumes at a point on her budget line where her marginal rate of substitution is less than the magnitude of the slope of her budget line. As Leah moves towards her best affordable point, she will move to
A)a lower budget line.
B)a higher budget line.
C)a lower indifference curve.
D)a higher indifference curve.
E)a tangent point on the same indifference curve.

Accepted Answer

Leah's current consumption point is not optimal because it violates the condition of equalizing the marginal rate of substitution (MRS) and the price ratio. As she moves towards her best affordable point, she will adjust her consumption bundle such that her MRS approaches the price ratio. This adjustment will involve moving to a higher indifference curve (since the MRS is decreasing along the current indifference curve). Therefore, the correct answer is (D) a higher indifference curve.

Question 12

An indifference curve slopes downward because
A)it shows that people are only happy when they increase consumption of all goods.
B)it shows that when a person gives up some of good X they must increase their consumption of good Y to remain indifferent.
C)it shows that when a person gives up some of good X they can afford to increase their consumption of good Y.
D)it is a demand curve without prices.
E)the quantity demanded increases as the price falls.

Accepted Answer

An indifference curve shows the various combinations of two goods that give a consumer the same level of satisfaction or utility. It slopes downward because when a person gives up some of good X, they must increase their consumption of good Y to remain indifferent (i.e. equally satisfied). This is known as the principle of diminishing marginal utility, which implies that as a person consumes more of a particular good (holding all other factors constant), the satisfaction or utility they derive from consuming each additional unit of that good decreases. Therefore, to maintain the same level of overall satisfaction or utility, they must consume more of another good.

Question 13

Leah consumes at a point on her budget line where her marginal rate of substitution is less than the magnitude of the slope of her budget line. As Leah moves along her budget line toward her best affordable point, she will move
A)down and left.
B)down and right.
C)up and left.
D)up and right.
E)straight up.

Accepted Answer

The answer of Leah consumes at a point on her...

Question 14

Which of the following statements is false?
A)A consumer possesses a preference map.
B)An indifference curve is a line that shows combinations of goods among which a consumer is indifferent.
C)A consumer has only one indifference curve.
D)The marginal rate of substitution is the rate at which a consumer will give up good y to get an additional unit of good x and remain on the same indifference curve.
E)If the indifference curve is steep, the marginal rate of substitution is high.

Accepted Answer

A consumer typically has multiple indifference curves, each representing a different level of satisfaction or utility.

Question 15

Use the figure below to answer the following question.
  
Figure 9.2.4
-Refer to Figure 9.2.4. Rashid buys only books and albums. The figure shows his preferences. Rashid's indifference curves ________ display diminishing marginal rate of substitution because ________.
A)do; Rashid is indifferent between consuming 6 albums and 2 books and consuming 2 albums and 3 books
B)do not; the magnitude of the slope of both indifference curves decreases as Rashid consumes more albums and fewer books
C)do not; Rashid is indifferent between consuming 6 albums and 2 books and consuming 2 albums and 3 books
D)do; the magnitude of the slope of both indifference curves decreases as Rashid consumes more albums and fewer books
E)do; the price of an album decreases as Rashid increases the quantity he buys

Accepted Answer

Rashid's indifference curves do display diminishing marginal rate of substitution because the magnitude of the slope of both indifference curves decreases as Rashid consumes more albums and fewer books. This means that as Rashid consumes more albums and fewer books, he is willing to give up less and less books to obtain an additional album, indicating a decrease in the marginal utility of albums relative to books.

Question 16

If two consumption points are on different indifference curves, then one point is
A)a substitute for the other.
B)preferred to the other.
C)a complement of the other.
D)a normal good and the other point is an inferior good.
E)more expensive than the other.

Accepted Answer

The concept of indifference curves implies that all the points on a particular curve are equally desirable or preferred by the consumer. Therefore, if two consumption points are on different indifference curves, one point must be preferred over the other.

Question 17

Use the information below to answer the following questions.
Fact 9.2.1 You May Be Paid More (or Less)Than You Think
It's so hard to put a price on happiness, isn't it?
 But if you've ever had to choose between a jobs you like and a better-paying one that you like less, you probably wished some economist would tell you how much job satisfaction is worth. Trust in management is by far the biggest component to consider. Say you get a new boss and your trust in management goes up a bit (say, up 1 point on a 10-point scale). That's like getting a 36 percent pay raise. In other words, that increased level of trust will boost your level of overall satisfaction in life by about the same amount as a 36 percent raise would.
Source: CNN, March 29, 2006
-Refer to Fact 9.2.1. The news clip implies that the marginal rate of substitution is ________, which is likely ________ implication.
A)constant; a correct
B)constant; an incorrect
C)decreasing; an incorrect
D)decreasing; a correct
E)incorrect; an incorrect

Accepted Answer

The answer of Use the information below to answer the...

Question 18

If two goods are perfect substitutes, then their
A)indifference curves are positively-sloped straight lines.
B)indifference curves are negatively-sloped straight lines.
C)indifference curves are L-shaped.
D)marginal rate of substitution is zero.
E)marginal rate of substitution is infinity.

Accepted Answer

When two goods are perfect substitutes, their indifference curves are negatively-sloped straight lines, indicating a constant rate of substitution between the two goods.

Question 19

Jay has an income of $10 to buy peanuts and popcorn. The price of peanuts is $1 a bag and the price of popcorn is $2 a bag. He chooses to consume 5 bags of peanuts and 2 bags of popcorn. What can we say about this consumption choice?
A)It is not the best affordable choice. He should consume more peanuts, more popcorn, or more of both.
B)It is the best affordable choice, and his marginal rate of substitution equals the slope of the budget line.
C)The consumption choice is on the budget line.
D)The consumption choice is outside the budget line.
E)both B and C

Accepted Answer

The answer of Jay has an income of $10 to...

Question 20

Which one of the following statements is true about the indifference curves for two goods that are close but not perfect substitutes?
A)The indifference curves are negatively-sloped straight lines.
B)The indifference curves are L-shaped.
C)The marginal rate of substitution is constant.
D)The marginal rate of substitution decreases as more of the good measured on the x-axis and less of the good measured on the y-axis are consumed.
E)The marginal rate of substitution is negative.

Accepted Answer

When two goods are close but not perfect substitutes, the indifference curves are not straight lines or L-shaped but bowed inward toward the origin. The marginal rate of substitution (MRS) decreases as more of the good measured on the x-axis and less of the good measured on the y-axis are consumed, reflecting the diminishing marginal utility of each good. Hence, option D is the correct answer.

Quiz 9: Possibilities, Preferences, and Choices

Which of the following results in a rightward shift of your indifference curves for gasoline and movie rentals?

When the iPhone5 was introduced, the demand for iPhone5 protective cases increased. This information tells us that the iPhone5 and iPhone5 protective cases are

Use the figure below to answer the following questions. Figure 9.2.3 -Refer to Figure 9.2.3. Rashid buys only books and albums. The figure shows his preferences. When Rashid chooses the consumption point of 3 books and 2 albums, his marginal rate of substitution is

At the best affordable point, what is the relationship between the indifference curve and the budget line?

As a consumer moves rightward along an indifference curve,

A consumer's best affordable point occurs

Use the figure below to answer the following question. Figure 9.2.5 -Refer to Figure 9.2.5. The graphs show indifference curves for various goods. Graph best describes the pair of goods baseballs and baseball bats. Graph best describes the pair of goods desktop computers and laptop computers.

Use the figure below to answer the following questions. Figure 9.2.3 -Refer to Figure 9.2.3. When Rashid chooses the consumption point of 2 books and 6 albums, his marginal rate of substitution is

The shape of a person's indifference curves between two goods depends on

Leah consumes at a point on her budget line where her marginal rate of substitution is less than the magnitude of the slope of her budget line. As Leah moves towards her best affordable point, she will move to

An indifference curve slopes downward because

Leah consumes at a point on her budget line where her marginal rate of substitution is less than the magnitude of the slope of her budget line. As Leah moves along her budget line toward her best affordable point, she will move

Which of the following statements is false?

Use the figure below to answer the following question. Figure 9.2.4 -Refer to Figure 9.2.4. Rashid buys only books and albums. The figure shows his preferences. Rashid's indifference curves display diminishing marginal rate of substitution because .

If two consumption points are on different indifference curves, then one point is

If two goods are perfect substitutes, then their

Jay has an income of $10 to buy peanuts and popcorn. The price of peanuts is $1 a bag and the price of popcorn is $2 a bag. He chooses to consume 5 bags of peanuts and 2 bags of popcorn. What can we say about this consumption choice?

Which one of the following statements is true about the indifference curves for two goods that are close but not perfect substitutes?