Question 1

-The above figure shows Katie's consumption possibilities. The relative price of a movie ticket is

Accepted Answer

A)  1 restaurant meal. 
B)  0.25 restaurant meals. 
C)  4 restaurant meals. 
D)  2 restaurant meals. 
A)  1 restaurant meal. 
B)  0.25 restaurant meals. 
C)  4 restaurant meals. 
D)  2 restaurant meals.

Question 2

-The figure above shows Sam's budget line. The magnitude of the slope of Sam's budget line is equal to the

Accepted Answer

A)  quantity of coffee purchased divided by the quantity of gasoline purchased. 
B)  price of coffee divided by the price of gasoline. 
C)  quantity of gasoline purchased divided by the quantity of coffee purchased. 
D)  price of gasoline divided by the price of coffee. 
A)  quantity of coffee purchased divided by the quantity of gasoline purchased. 
B)  price of coffee divided by the price of gasoline. 
C)  quantity of gasoline purchased divided by the quantity of coffee purchased. 
D)  price of gasoline divided by the price of coffee.

Question 3

"Consumption possibilities are limited by total utility." True or false? Explain.

Accepted Answer

A) True 
 B)False

Question 4

Real income is equal to ________ and a relative price is given by ________.

Accepted Answer

A)  the dollar amount of income divided by the dollar price of a good; the dollar price of one good divided by the dollar price of the good whose relative price is being calculated 
B)  the dollar price of one good divided by the dollar price of the good whose relative price is being calculated; the dollar amount of income divided by the dollar price of a good 
C)  The dollar price of one good divided by the dollar price of another good; the dollar price of one good divided by the dollar price of the good whose relative price is being calculated 
D)  the dollar amount of income; real income divided by the dollar amount of income 
A)  the dollar amount of income divided by the dollar price of a good; the dollar price of one good divided by the dollar price of the good whose relative price is being calculated 
B)  the dollar price of one good divided by the dollar price of the good whose relative price is being calculated; the dollar amount of income divided by the dollar price of a good 
C)  The dollar price of one good divided by the dollar price of another good; the dollar price of one good divided by the dollar price of the good whose relative price is being calculated 
D)  the dollar amount of income; real income divided by the dollar amount of income

Question 5

-The indifference curves in the figure above (I1, I2, and I3) reflect Peter's consumption preferences. Which of the following combinations of goods does Peter prefer the most?

Accepted Answer

A)  48 slices of pizza and 12 chocolate bars 
B)  24 slices of pizza and 24 chocolate bars 
C)  40 slices of pizza and 20 chocolate bars 
D)  32 slices of pizza and 8 chocolate bars 
A)  48 slices of pizza and 12 chocolate bars 
B)  24 slices of pizza and 24 chocolate bars 
C)  40 slices of pizza and 20 chocolate bars 
D)  32 slices of pizza and 8 chocolate bars

Question 6

Junkfood Jill spends all of her income on jellybeans and Jolt cola. Suppose that Jill's income is $30, the price of a bag of jellybeans is $6, and the price of a bottle of Jolt cola is $2. Which of the following combinations of jellybeans and Jolt cola lies inside of Jill's budget line?

Accepted Answer

A)  5 bags of jellybeans and 0 bottles of Jolt 
B)  4 bags of jellybeans and 4 bottles of Jolt 
C)  3 bags of jellybeans and 6 bottles of Jolt 
D)  2 bags of jellybeans and 8 bottles of Jolt 
A)  5 bags of jellybeans and 0 bottles of Jolt 
B)  4 bags of jellybeans and 4 bottles of Jolt 
C)  3 bags of jellybeans and 6 bottles of Jolt 
D)  2 bags of jellybeans and 8 bottles of Jolt

Question 7

-The marginal rate of substitution is the rate at which a person is willing to substitute one good for another good while remaining on the same indifference curve.

Accepted Answer

A) True 
 B)False

Question 8

The variables that determine a household's budget line are

Accepted Answer

A)  its preferences and income. 
B)  its preferences and prices. 
C)  prices and income. 
D)  None of the above are correct. 
A)  its preferences and income. 
B)  its preferences and prices. 
C)  prices and income. 
D)  None of the above are correct.

Question 9

For a consumer, a budget line shows the boundary between

Accepted Answer

A)  what is desired and what is not desired. 
B)  what is needed and what is not needed. 
C)  what is affordable and what is not affordable. 
D)  what is available and what is not available. 
A)  what is desired and what is not desired. 
B)  what is needed and what is not needed. 
C)  what is affordable and what is not affordable. 
D)  what is available and what is not available.

Question 10

What information do you need to draw your budget line? What is your budget line? What does it show for any pair of goods?

Accepted Answer

To draw a budget line for any pair of go

Question 11

Larry spends all his $800 monthly income on pizza and gasoline. The price of pizza is $4 a slice, and the price of gasoline is $2 per gallon. If Larry buys 150 slices of pizza per month, his budget constraint will allow him to buy ________ gallons of gas per month.

Accepted Answer

A)  100 
B)  80 
C)  120 
D)  200 
A)  100 
B)  80 
C)  120 
D)  200

Question 12

Ron spends $150 on movie tickets and pizza. The price of a pizza is $10 and a movie ticket is $7.50. With the quantity of movies measured along the vertical axis, the slope of Ron's budget line (with movies on the vertical axis) is ________ per pizza

Accepted Answer

A)  1.33 movies 
B)  -1.33 movies 
C)  0.75 of a movie 
D)  -0.75 of a movie 
A)  1.33 movies 
B)  -1.33 movies 
C)  0.75 of a movie 
D)  -0.75 of a movie

Question 13

-Record companies, faced with the growing competitions from digital music download services, lower the price of a music CD from $18.00 to $13.50. The price of a DVD is $18. Olivia's income is $216 a year and she spends all of it on music CDs and movies on DVDs.
a) What is Olivia's real income in terms of CDs? What is her real income in terms of DVDs?
b) What is the relative price of a CD in terms of DVDs? What is the opportunity cost of a DVD?
c) Calculate the equation for Olivia's budget line. Place the quantity of DVDs on the left side of the equation.
d) Draw a graph of Olivia's budget line (with CDs on the horizontal axis). What is the slope of Olivia's budget line? What determines its magnitude?
The figure above illustrates Olivia's preferences.
e) Given the price of a CD, the price of a DVD, and Olivia's income, what quantities of CDs and DVDs does Olivia buy? Explain your solution.
f) What is Olivia's marginal rate of substitution at the point at which she consumes? Explain.
g) Determine how many CDs Olivia buys if the price of a CD is $18 and there is no change in the price of DVD nor in Olivia's income. Derive Olivia's demand curve for CDs for the price change from $18 to $13.50 per CD.

Accepted Answer

a) Olivia's real income in terms of CDs

Question 14

If the price of a good rises and the consumer's budget remains the same, what happens to the consumer's consumption possibilities?

Accepted Answer

The consumer's consumption possibilities

Question 15

-In the figure above, suppose the original budget line is BD. A rise in the price of a compact disc will

Accepted Answer

A)  rotate the budget line to AD. 
B)  rotate the budget line to CD. 
C)  not move the budget line. 
D)  result in a parallel leftward shift of the budget line. 
A)  rotate the budget line to AD. 
B)  rotate the budget line to CD. 
C)  not move the budget line. 
D)  result in a parallel leftward shift of the budget line.

Question 16

-According to the budget line in the above figure, which of the following combinations is unaffordable?

Accepted Answer

A)  1 pizza and 3 CDs 
B)  3 pizzas and 2 CDs 
C)  2 pizzas and 4 CDs 
D)  All of the above are affordable. 
A)  1 pizza and 3 CDs 
B)  3 pizzas and 2 CDs 
C)  2 pizzas and 4 CDs 
D)  All of the above are affordable.

Question 17

Larry spends all his $800 monthly income on pizza and milk. The price of pizza is $4 a slice, and the price of milk is $2 per quart. Larry's real monthly income in terms of pizza is

Accepted Answer

A)  400 slices. 
B)  $800 
C)  200 slices. 
D)  $400 
A)  400 slices. 
B)  $800 
C)  200 slices. 
D)  $400

Question 18

For goods and services that are perfect substitutes, the consumer's indifference curves are ________ lines.

Accepted Answer

A)  straight, negatively sloped 
B)  L-shaped 
C)  negatively sloped, bowed-outward 
D)  negatively sloped, bowed-inward 
A)  straight, negatively sloped 
B)  L-shaped 
C)  negatively sloped, bowed-outward 
D)  negatively sloped, bowed-inward

Question 19

The substitution effect from a rise in the price of pizza

Accepted Answer

A)  leads to a movement along the fixed budget line, due to a change in relative prices. 
B)  increases the quantity demanded of pizza. 
C)  decreases the quantity demanded of pizza. 
D)  Both answers A and B are correct. 
A)  leads to a movement along the fixed budget line, due to a change in relative prices. 
B)  increases the quantity demanded of pizza. 
C)  decreases the quantity demanded of pizza. 
D)  Both answers A and B are correct.

Question 20

Describe the consumer equilibrium in the indifference curve/budget line model.

Accepted Answer

A consumer equilibrium occurs when the c

Exam 9: Possibilities, Preferences, and Choices

-The above figure shows Katie's consumption possibilities. The relative price of a movie ticket is

-The figure above shows Sam's budget line. The magnitude of the slope of Sam's budget line is equal to the

"Consumption possibilities are limited by total utility." True or false? Explain.

Real income is equal to ________ and a relative price is given by ________.

-The indifference curves in the figure above (I1, I2, and I3) reflect Peter's consumption preferences. Which of the following combinations of goods does Peter prefer the most?

Junkfood Jill spends all of her income on jellybeans and Jolt cola. Suppose that Jill's income is $30, the price of a bag of jellybeans is $6, and the price of a bottle of Jolt cola is $2. Which of the following combinations of jellybeans and Jolt cola lies inside of Jill's budget line?

-The marginal rate of substitution is the rate at which a person is willing to substitute one good for another good while remaining on the same indifference curve.

The variables that determine a household's budget line are

For a consumer, a budget line shows the boundary between

What information do you need to draw your budget line? What is your budget line? What does it show for any pair of goods?

Larry spends all his $800 monthly income on pizza and gasoline. The price of pizza is $4 a slice, and the price of gasoline is $2 per gallon. If Larry buys 150 slices of pizza per month, his budget constraint will allow him to buy ________ gallons of gas per month.

Ron spends $150 on movie tickets and pizza. The price of a pizza is $10 and a movie ticket is $7.50. With the quantity of movies measured along the vertical axis, the slope of Ron's budget line (with movies on the vertical axis) is ________ per pizza

If the price of a good rises and the consumer's budget remains the same, what happens to the consumer's consumption possibilities?

-In the figure above, suppose the original budget line is BD. A rise in the price of a compact disc will

-According to the budget line in the above figure, which of the following combinations is unaffordable?

Larry spends all his $800 monthly income on pizza and milk. The price of pizza is $4 a slice, and the price of milk is $2 per quart. Larry's real monthly income in terms of pizza is

For goods and services that are perfect substitutes, the consumer's indifference curves are ________ lines.

The substitution effect from a rise in the price of pizza

Describe the consumer equilibrium in the indifference curve/budget line model.

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Choices and Public Goods

Externalities and the Environment

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Extension A: Review

Extension B: Review

Extension C: Review

Extension D: Review

Extension E: Review

Extension F: Review

Filters

Real income is equal to and a relative price is given by .

-The indifference curves in the figure above (I₁, I₂, and I₃) reflect Peter's consumption preferences. Which of the following combinations of goods does Peter prefer the most?