Question 1

A constant marginal rate of substitution between two goods implies that they are

Accepted Answer

A)  perfect complements. 
B)  perfect substitutes. 
C)  independent goods. 
D)  unattainable.

Question 2

"Every point on a demand curve represents a consumer equilibrium in the indifference curve model." Explain why the previous statement is correct or not.

Accepted Answer

The answer of "Every point on a demand curve represents...

Question 3

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

Question 4

Ernie has an income of $40 which he plans to spend on cookies and milk. The price of milk is $1 per gallon, and the price of cookies is $2 per dozen. If Ernie buys 12 gallons of milk, how many dozens of cookies will he buy if he spends all of his income?

Accepted Answer

A)  28 
B)  20 
C)  14 
D)  12

Question 5

As a consumer moves along an indifference curve and decreases consumption of the good on the x-axis, the consumer needs ________ of the good on the y-axis to give up an additional unit of the good on the x-axis.

Accepted Answer

A)  less and less 
B)  more and more 
C)  none 
D)  a constant amount

Question 6

Ramen noodles were hotter than ever in 2010. Considered a bargain meal for cash-starved college students... in 2010, 4 billion individual packets were devoured in the United States, a 4 percent increase over 2006. If once college students graduated, they stopped eating ramen, would ramen be considered a normal or inferior good?

Accepted Answer

A)  inferior because students only eat ramen when income is low 
B)  normal because students only eat ramen when income is low 
C)  inferior because students only eat ramen when income is high 
D)  normal because students only eat ramen when income is high

Question 7

-Kristen has an income of $450 per year to spend on music CDs and movies on DVDs. Initially the price of a CD is $15 and the price of a DVD is $22.50. The indifference curves in the figure above (I1, I2, and I3) reflect Kristen's preferences. If the price of a DVD falls to $18, Kristen will buy

Accepted Answer

A)  10 DVDs and 15 CDs per year. 
B)  15 DVDs and 12 CDs per year. 
C)  12.5 DVDs and 11 CDs per year. 
D)  13 DVDs and 15 CDs per year.

Question 8

Bart consumes food and clothing, which are both normal goods. Suppose that the price of food falls. The substitution effect of this price decrease is ________ and the income effect of this price decrease is ________.

Accepted Answer

A)  that Bart buys more clothing and less food; that Bart buys more of both food and clothing 
B)  reflected by a change in the relative prices of food and clothing; is represented by a movement along the original indifference curve 
C)  reflected by a parallel shift outward of the budget line; that Bart earns more money each month 
D)  reflected by the change in the slope of the budget line; that Bart has greater purchasing power

Question 9

-The indifference curves in the above figure could represent your indifference curves between

Accepted Answer

A)  Coke and Pepsi, which you consider perfect substitutes. 
B)  eyeglass frames and eyeglass lenses, which you think are perfect complements. 
C)  hot dogs and textbooks, which you think are neither perfect substitutes nor perfect complements. 
D)  none of the above.

Question 10

-Lizzie's budget line is shown in the figure above. The relative price of a cookie is ________ per cookie.

Accepted Answer

A)  2 magazines 
B)  0.5 of a magazine 
C)  $1 
D)  $2

Question 11

-Lizzie's budget line is shown in the figure above. The relative price of a magazine is ________ per magazine.

Accepted Answer

A)  2 cookies 
B)  0.5 of a cookie 
C)  $1 
D)  $2

Question 12

Along an indifference curve

Accepted Answer

A)  the marginal rate of substitution is constant but not equal to zero. 
B)  the consumer does not prefer one consumption point to another. 
C)  the marginal rate of substitution is equal to 0. 
D)  the consumer prefers some of the consumption points to others.

Question 13

An indifference curve diagram has movies on the vertical axis and sodas on the horizontal. As the consumption of sodas increases and movies decreases (moving southeast along an indifference curve) the marginal rate of substitution of sodas for movies

Accepted Answer

A)  rises. 
B)  falls. 
C)  does not change. 
D)  probably changes, but more information is needed to determine if it rises or falls.

Question 14

-Lizzie's budget line is shown in the figure above. Lizzie's real income in terms of magazines is ________ magazines

Accepted Answer

A)  5 
B)  10 
C)  15 
D)  20

Question 15

The magnitude of the slope of an indifference curve is the marginal

Accepted Answer

A)  rate of substitution. 
B)  rate of relative prices. 
C)  utility of substitution. 
D)  rate of utility of income.

Question 16

The concept of diminishing marginal rate of substitution indicates that

Accepted Answer

A)  as the consumption of good X increases, individuals are willing to give up an increasing amount of good Y in order to obtain one more unit of good X. 
B)  as the consumption of good X increases, individuals are willing to give up a decreasing amount of good Y in order to obtain one more unit of good X. 
C)  along an indifference curve, a consumer prefers the consumption combinations moving to the northwest along the curve. 
D)  None of the above answers is correct.

Question 17

If the combination of goods consumed at point C is preferred to combination D then

Accepted Answer

A)  point C is on a higher indifference curve. 
B)  point C is on the same indifference cure but at a point where the vertical axis value is greater than point D's vertical axis value. 
C)  point C is on a lower indifference curve. 
D)  point C is on the same indifference curve but at a point where the horizontal axis value is greater than point D's horizontal axis value.

Question 18

-In the figure above, suppose the original budget line is BD. A fall 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.

Question 19

"If Ivan says he is indifferent between the consumption of a new pair of jeans or a set of earrings, he means that he does not want either product." Is the previous analysis CORRECT? Explain your answer.

Accepted Answer

The answer of "If Ivan says he is indifferent between...

Question 20

-The above figure shows Jane's budget line and two of her indifference curves. How many steak dinners will Jane purchase each month?

Accepted Answer

A)  4 steak dinners 
B)  6 steak dinners 
C)  8 steak dinners 
D)  10 steak dinners

Exam 9: Possibilities, Preferences, and Choices