Question 1

Indifference curves can never cross.

Accepted Answer

A) True 
 B)False

Question 2

Use the following to answer questions:
Figure: Budget Constraint 2  
-(Figure: Budget Constraint 2) Refer to the figure. What is the relative price of music downloads to movie downloads?

Accepted Answer

A)  3 
B)  1/3 
C)  5 
D)  4 
A)  3 
B)  1/3 
C)  5 
D)  4

Question 3

As one moves down along an indifference curve, the curve typically:

Accepted Answer

A)  falls at a faster rate. 
B)  falls at a constant rate. 
C)  falls at a slower rate. 
D)  begins to rise. 
A)  falls at a faster rate. 
B)  falls at a constant rate. 
C)  falls at a slower rate. 
D)  begins to rise.

Question 4

Within consumer choice, apples and oranges cannot be compared.

Accepted Answer

A) True 
 B)False

Question 5

Assume that the unit price of good A is $4, and the unit price of good B is $5. If an individual has income of $44, which consumption bundles of (good A, good B) is on the edge of the budget constraint?

Accepted Answer

A)  (5,5) 
B)  (5,4) 
C)  (6,4) 
D)  (6,5) 
A)  (5,5) 
B)  (5,4) 
C)  (6,4) 
D)  (6,5)

Question 6

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming ______ peanut butter and ______ chocolate.

Accepted Answer

A)  less; more 
B)  more; less 
C)  more; more 
D)  less; less 
A)  less; more 
B)  more; less 
C)  more; more 
D)  less; less

Question 7

The slope of the indifference curve is equal to the marginal rate of substitution.

Accepted Answer

A) True 
 B)False

Question 8

In consumer choice, one maximizes ______ subject to a budget constraint.

Accepted Answer

A)  quantity 
B)  price savings 
C)  utility 
D)  utility, price savings, and quantity 
A)  quantity 
B)  price savings 
C)  utility 
D)  utility, price savings, and quantity

Question 9

Diminishing marginal utility means that one's first apple in a sitting is ______ one's second apple in the same sitting.

Accepted Answer

A)  worse than 
B)  better than 
C)  incomparable with 
D)  equally good as 
A)  worse than 
B)  better than 
C)  incomparable with 
D)  equally good as

Question 10

Use the following to answer questions:
Figure: Music and Movie Downloads  
-(Figure: Music and Movie Downloads) Refer to the figure. This figure shows Stan's $45 budget constraint for movie and music downloads each month. What is the price per movie and music download?

Accepted Answer

A)  $15 per movie download and $0.45 per music download 
B)  $3 per movie download and $1 per music download 
C)  $2.50 per movie download and $1.50 per music download 
D)  $10 per movie download and $0.80 per music download 
A)  $15 per movie download and $0.45 per music download 
B)  $3 per movie download and $1 per music download 
C)  $2.50 per movie download and $1.50 per music download 
D)  $10 per movie download and $0.80 per music download

Question 11

A budget constraint shows all affordable bundles of goods given income and prices.

Accepted Answer

A) True 
 B)False

Question 12

When the income effect from a wage increase is greater than the substitution effect, the supply curve for labor:

Accepted Answer

A)  slopes upward. 
B)  is vertical. 
C)  is horizontal. 
D)  slopes downward. 
A)  slopes upward. 
B)  is vertical. 
C)  is horizontal. 
D)  slopes downward.

Question 13

At the consumer's utility maximizing bundle that uses all of her budget, the slope of the budget constraint is ______ the slope of the indifference curve.

Accepted Answer

A)  greater than 
B)  equal to 
C)  less than 
D)  indeterminately different from 
A)  greater than 
B)  equal to 
C)  less than 
D)  indeterminately different from

Question 14

Use the following to answer questions:
Figure: Budget Constraint  
-(Figure: Budget Constraint) Refer to the figure. The slope of the budget constraint in the figure above is equal to:

Accepted Answer

A)  the price of sneakers divided by the price of flip-flops. 
B)  the price of flip-flops divided by the price of gas. 
C)  the quantity of flip-flops divided by the quantity of sneakers. 
D)  the quantity of sneakers divided by the quantity of flip-flops. 
A)  the price of sneakers divided by the price of flip-flops. 
B)  the price of flip-flops divided by the price of gas. 
C)  the quantity of flip-flops divided by the quantity of sneakers. 
D)  the quantity of sneakers divided by the quantity of flip-flops.

Question 15

Use the following to answer questions:
Figure: Budget Constraint  
-(Figure: Budget Constraint) Refer to the figure. If the price of sneakers rises, then the budget constraint in the figure will:

Accepted Answer

A)  not change. 
B)  become steeper. 
C)  become flatter. 
D)  shift to the left. 
A)  not change. 
B)  become steeper. 
C)  become flatter. 
D)  shift to the left.

Question 16

In equilibrium, the ratio of marginal utility to price for two respective goods is equal.

Accepted Answer

A) True 
 B)False

Question 17

If an indifference curve is straight (i.e., it doesn't "bow" inward), the marginal rate of substitution is always constant.

Accepted Answer

A) True 
 B)False

Question 18

By assuming diminishing marginal utility, we mean that:

Accepted Answer

A)  consumers get less overall value from goods as their income rises. 
B)  consumers value some goods more than others. 
C)  the cost of producing goods declines as output increases. 
D)  consumers value additional units of a good less than the previous unit. 
A)  consumers get less overall value from goods as their income rises. 
B)  consumers value some goods more than others. 
C)  the cost of producing goods declines as output increases. 
D)  consumers value additional units of a good less than the previous unit.

Question 19

Figure: Marginal Rate of Substitution   Refer to the figure. What is the marginal rate of substitution (MRS) between Bundle A and Bundle B?

Accepted Answer

A)  4.5; the consumer is willing to trade 4.5 movie downloads for one music download. 
B)  three; the consumer is willing to give up three movie downloads for an additional music download. 
C)  1.5; the consumer will buy 1.5 times as many music downloads as movie downloads. 
D)  one; the consumer faces a one-to-one trade-off. 
A)  4.5; the consumer is willing to trade 4.5 movie downloads for one music download. 
B)  three; the consumer is willing to give up three movie downloads for an additional music download. 
C)  1.5; the consumer will buy 1.5 times as many music downloads as movie downloads. 
D)  one; the consumer faces a one-to-one trade-off.

Question 20

The income effect is:

Accepted Answer

A)  represented by a pivot in the budget constraint from a change in price. 
B)  the change in consumption caused by a change in purchasing power from a price change. 
C)  an increase in price caused by a change in market demand from an increase in income. 
D)  the increase in the price of leisure caused by higher wages. 
A)  represented by a pivot in the budget constraint from a change in price. 
B)  the change in consumption caused by a change in purchasing power from a price change. 
C)  an increase in price caused by a change in market demand from an increase in income. 
D)  the increase in the price of leisure caused by higher wages.

Exam 25: Consumer Choice

Indifference curves can never cross.

Use the following to answer questions: Figure: Budget Constraint 2 -(Figure: Budget Constraint 2) Refer to the figure. What is the relative price of music downloads to movie downloads?

As one moves down along an indifference curve, the curve typically:

Within consumer choice, apples and oranges cannot be compared.

Assume that the unit price of good A is $4, and the unit price of good B is $5. If an individual has income of $44, which consumption bundles of (good A, good B) is on the edge of the budget constraint?

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming ______ peanut butter and ______ chocolate.

The slope of the indifference curve is equal to the marginal rate of substitution.

In consumer choice, one maximizes ______ subject to a budget constraint.

Diminishing marginal utility means that one's first apple in a sitting is ______ one's second apple in the same sitting.

Use the following to answer questions: Figure: Music and Movie Downloads -(Figure: Music and Movie Downloads) Refer to the figure. This figure shows Stan's $45 budget constraint for movie and music downloads each month. What is the price per movie and music download?

A budget constraint shows all affordable bundles of goods given income and prices.

When the income effect from a wage increase is greater than the substitution effect, the supply curve for labor:

At the consumer's utility maximizing bundle that uses all of her budget, the slope of the budget constraint is ______ the slope of the indifference curve.

Use the following to answer questions: Figure: Budget Constraint -(Figure: Budget Constraint) Refer to the figure. The slope of the budget constraint in the figure above is equal to:

Use the following to answer questions: Figure: Budget Constraint -(Figure: Budget Constraint) Refer to the figure. If the price of sneakers rises, then the budget constraint in the figure will:

In equilibrium, the ratio of marginal utility to price for two respective goods is equal.

If an indifference curve is straight (i.e., it doesn't "bow" inward), the marginal rate of substitution is always constant.

By assuming diminishing marginal utility, we mean that:

Figure: Marginal Rate of Substitution Refer to the figure. What is the marginal rate of substitution (MRS) between Bundle A and Bundle B?

The income effect is:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Filters

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming peanut butter and chocolate.