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Economics 201 Consumer Behavior

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    Chapter 07 Consumer Behavior Multiple Choice Questions 1. Utility: A. is synonymous with usefulness. B. is want-satisfying power. C. is easy to quantify. D. rarely varies from person to person. 2. Marginal utility can be: A. positive, but not negative. B. positive or negative, but not zero. C. positive, negative, or zero. D. decreasing, but not negative. 4. The ability of a good or service to satisfy wants is called: A. utility maximization. B. opportunity cost. C. revenue potential. D. utility. 9. The above data illustrate the: A. law of comparative advantage. B. utility-maximizing rule. C. law of diminishing marginal utility.

    D. law of increasing opportunity costs. 10. Refer to above data. Marginal utility becomes negative beginning with the: A. first unit. B. second unit. C. third unit. D. fourth unit. 11. A product has utility if it: A. takes more and more resources to produce successive units of it. B. violates the law of demand. C. satisfies consumer wants. D. is useful. 12. The law of diminishing marginal utility states that: A. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.

    C. price must be lowered to induce firms to supply more of a product. D. it will take larger and larger amounts of resources beyond some point to produce successive units of a product. 13. The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is: A. 26 units of utility. B. 6 units of utility. C. 8 units of utility. D. 38 units of utility. 14. If the price of product X rises, then the resulting decline in the amount purchased will: A. ecessarily increase the consumer’s total utility from his total purchases. B. increase the marginal utility of this good. C. increase the total utility from purchases of this good. D. reduce the marginal utility of this good. 15. Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility obtained by consuming one more unit of a good. C. change in total utility obtained by consuming another unit of a good divided by the change in the price of that good. D. total utility associated with the consumption of a certain number of units of a good ivided by the number of units consumed. 16. Utility refers to the: A. satisfaction that a consumer derives from a good or service. B. rate of decline in a product demand curve. C. relative scarcity of a product. D. usefulness of a product. 17. Total utility may be determined by: A. multiplying the marginal utility of the last unit consumed by the number of units consumed. B. summing the marginal utilities of each unit consumed. C. multiplying the marginal utility of the last unit consumed by product price. D. multiplying the marginal utility of the first unit consumed by the number of units consumed. 8. Refer to the above diagram. The marginal utility of the third unit of X is: A. 5. B. 4. C. 2. D. 1. 19. Refer to the above diagram. The total utility yielded by 4 units of X is: A. 4. B. 15. C. 17. D. 18.

    20. Refer to the above diagram. Total utility is at a maximum at _____ units of X. A. 2 B. 3 C. 4 D. 6 21. Refer to the above diagram. Total utility: A. increases so long as additional units of Y are purchased. B. becomes negative at 4 units. C. increases at a diminishing rate, reaches a maximum, and then declines. D. is maximized at 2 units. 22. Refer to the above diagram. Marginal utility: A. ncreases at an increasing rate. B. becomes negative after consuming 4 units of output. C. is found by dividing total utility by the number of units purchased. D. cannot be calculated from the total utility information. 23. If total utility is increasing, marginal utility: A. is positive, but may be either increasing or decreasing. B. must also be increasing. C. may be either positive or negative. D. will be increasing at an increasing rate. 24. Where total utility is at a maximum, marginal utility is: A. negative. B. positive and increasing. C. zero. D. positive but decreasing. 25. Marginal utility: A. s equal to total utility divided by the number of units consumed. B. is equal to total utility if the demand curve is linear. C. increases as more of a product is consumed. D. diminishes as more of a product is consumed. 26. Which of the following is correct? A. There is no firm mathematical relationship between marginal utility and total utility. B. Total utility is equal to the change in marginal utility from consuming an additional unit of a product. C. If marginal utility is diminishing and is a positive amount, total utility will increase. D. If marginal utility is diminishing, total utility must also be diminishing. 7. Which of the following statements is correct? A. Utility and usefulness are synonymous. B. The marginal utility derived from successive units of a product tends to be similar for all consumers. C. Because utility is not measurable, the utility-maximizing rule provides no useful insights as to consumer behavior. D. A product may yield utility, but not be functionally useful. 28. The law of diminishing marginal utility explains why: A. supply curves slope upward. B. demand curves slope downward. C. drug addicts can never get enough. D. people will only consume their favorite goods and not try new things. 29.

    While eating at Alex’s “Pizza by the Slice” restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed, and would only receive 5 units of satisfaction from consuming a second slice. Based on this information we can conclude that: A. Alex may have to lower the price to convince Kara to buy a second slice. B. Kara will not eat a second slice, even if it is given to her at no charge. C. Kara will definitely want to buy a second slice of pizza. D. even if Kara buys a second slice, she will not buy a third slice. 30. The theory of consumer behavior assumes that:

    A. consumers behave rationally, attempting to maximize their satisfaction. B. consumers have unlimited money incomes. C. consumers do not know how much marginal utility they obtain from successive units of various products. D. marginal utility is constant. 31. To maximize utility a consumer should allocate money income so that the: A. elasticity of demand on all products purchased is the same. B. marginal utility obtained from the last dollar spent on each product is the same. C. total utility derived from each product consumed is the same. D. marginal utility of the last unit of each product consumed is the same. 32.

    Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy: A. less of X only if its price rises. B. more of Y only if its price rises. C. more of Y and less of X. D. more of X and less of Y. 33. Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $. 60 per bottle and $. 40 per bag respectively. It can be concluded that: A. the two commodities are substitute goods.

    B. Mrs. Arnold should spend more on pretzels and less on soda. C. Mrs. Arnold should spend more on soda and less on pretzels. D. Mrs. Arnold is buying soda and pretzels in the utility-maximizing amounts. Answer the next question(s) on the basis of the following two schedules which show the amounts of additional satisfaction (marginal utility) which a consumer would get from successive quantities of products J and K. 34. Refer to the above data. If the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing: A. units of J and 7 units of K. B. 5 units of J and 5 units of K. C. 4 units of J and 5 units of K. D. 6 units of J and 3 units of K. 35. Refer to the above data. What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively? A. 156 utils B. 124 utils C. 276 utils D. 36 utils 36. Refer to the above data. If the consumer’s money income were cut from $52 to $28, and the prices of J and K remain at $8 and $4 respectively, she would maximize her satisfaction by purchasing: A. 3 units of J and 3 units of K.

    B. 1 unit of J and 3 units of K. C. 4 units of J and 1 unit of K. D. 2 units of J and 3 units of K. 37. Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase: A. more of A and less of B. B. more of B and less of A. C. more of both A and B. D. less of both A and B. 38. The marginal utility of the last unit of apples consumed is 12 and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium? A. $4 and $6 B. $6 and $4 C. $8 and $12

    D. $16 and $9 39. Suppose you have a limited money income and you are purchasing products A and B whose prices happen to be the same. To maximize your utility you should purchase A and B in such amounts that: A. their marginal utilities are the same. B. their total utilities are the same. C. their marginal and total utilities are proportionate. D. the income and substitution effects associated with each are equal. 40. A consumer is maximizing her utility with a particular money income when: A. the total utility derived from each product consumed is the same. B. MUa/Pa = MUb/Pb = MUc/Pc = … = MUn/Pn. C.

    MUa = MUb = MUc = … = MUn. D. Pa = Pb = Pc = … = Pn. 41. Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Thomson: A. has preferences that are at odds with the principle of diminishing marginal utility. B. considers A and B to be complementary goods. C. should buy less A and more B. D. should buy less B and more A. 42. If a rational consumer is in equilibrium, which of the following conditions will hold true? A.

    MUa = MUb = MUc = … = MUn. B. The marginal utility of each good purchased will be zero. C. The marginal utility of the last dollar spent on each good purchased will be the same. D. The total utility obtained from each good purchased will be the same. 43. Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc and Pd. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially: A. B. C. D. 45. A consumer who has a limited budget will maximize utility or satisfaction when the: A. atios of the marginal utility of each product purchased divided by its price are equal. B. total utility derived from each product purchased is the same. C. marginal utility of each product purchased is the same. D. price of each product purchased is the same. 46. Mr. Chan has an income of $20 that he is spending on donuts and cheese in such amounts that he derives 25 utils of satisfaction from the donuts and 25 utils of satisfaction from the cheese. On the basis of this information we: A. cannot say whether or not Chan is buying donuts and cheese in equilibrium amounts. B. can say that Chan should buy more cheese and fewer donuts.

    C. can say that Chan should buy more donuts and less cheese. D. can say that Chan is buying the utility-maximizing amounts of donuts and cheese. 47. If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/? , the prices of products b and c in consumer equilibrium: A. cannot be determined from the information given. B. are $105 and $140 respectively. C. are $105 and $175 respectively. D. are $100 and $200 respectively. 48. Assume that a consumer purchases products A, B, and C in quantities such that the last dollar spent on each yields the same marginal utility and the consumer’s income is totally spent. We can conclude that: A. otal utility is being minimized. B. production costs are being minimized. C. marginal utility exceeds total utility. D. total utility is being maximized. Answer the next question(s) on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4 respectively and that the consumer’s income is $18. 49. Refer to the above data. How many units of the two products will the consumer purchase? A. 3 of L and none of M B. 4 of L and 2 of M C. 3 of L and 5 of M D. 2 of L and 3 of M 50. Refer to the above data. What level of total utility does the consumer realize in equilibrium? A. 87 utils B. 14 utils C. 51 utils D. 58 utils 51. An increase in the price of product A will: A. increase the marginal utility per dollar spent on A. B. decrease the marginal utility per dollar spent on A. C. not affect the marginal utility per dollar spent on A. D. cause utility-maximizing consumers to buy more of A. 52. Rosenbaum is purchasing products C and D in utility-maximizing amounts. If the price of C is $4 and the price of D is $2, then:

    A. the marginal utility of D is twice that of C. B. the marginal utility of D is the same as that of C. C. the marginal utility of C is twice that of D. D. the marginal utility of C is four times that of D. 5. When a consumer shifts purchases from product X to product Y the marginal utility of: A. X falls and the marginal utility of Y rises. B. X rises and the marginal utility of Y falls. C. both X and Y rises. D. both X and Y falls. 56. Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth: A. is relatively unappreciative of the arts. B. obtains more marginal utility from the play than from the hockey game. C. has a higher “marginal utility to price ratio” for the hockey game than for the play. D. as recently attended several other Broadway plays. 57. Suppose that Dave normally orders two tacos, but on seeing they are on sale, decides to buy three. Dave’s decision is best explained by the: A. law of increasing opportunity costs. B. law of supply. C. principle of comparative advantage. D. the principle of utility maximization. 58. Diminishing marginal utility explains why: A. the income effect exceeds the substitution effect. B. the substitution effect exceeds the income effect. C. supply curves are upsloping. D. demand curves are downsloping. 60. A consumer’s demand curve for a product is downsloping because: A. otal utility falls below marginal utility as more of a product is consumed. B. marginal utility diminishes as more of a product is consumed. C. time becomes less valuable as more of a product is consumed. D. the income and substitution effects precisely offset each other. 61. The utility-maximizing rule: A. is inconsistent with the law of demand. B. implies a perfectly elastic demand curve. C. implies a leftward shifting demand curve. D. is consistent with the law of demand. Answer the next question(s) on the basis of the following marginal utility data for products X and Y.

    Assume that the prices of X and Y are $4 and $2 respectively and that the consumer’s income is $18. 62. Refer to the above data. What quantities of X and Y should be purchased to maximize utility? A. 2 of X and 1 of Y B. 4 of X and 5 of Y C. 2 of X and 5 of Y D. 2 of X and 6 of Y 63. Refer to the above data. What level of total utility will the utility-maximizing consumer realize? A. 96 utils B. 108 utils C. 72 utils D. 142 utils 64. Refer to the above data. If the price of X decreases to $2, then the utility-maximizing combination of the two products is: A. 2 of X and 5 of Y. B. 4 of X and 6 of Y. C. 6 of X and 3 of Y. D. 4 of X and 5 of Y. 5. Refer to the above data. Which of the following represents the demand schedule for X? A. B. C. D. 66. If the prices of X and Y are $2 and $4 per unit, respectively, and this consumer has $10 in income to spend, to maximize total utility this consumer should buy: A. 1 units of X and 1 units of Y. B. 2 units of X and 2 units of Y. C. 1 units of X and 2 units of Y. D. 5 units of X and no units of Y. 67. Refer to the above table and graph. Suppose that the price of X falls from $2 to $1, while the price of Y remains at $4. Which of the following represents the demand curve for X if the consumer has money income of $10 to spend on X and Y?

    A. D1 B. D2 C. D3 D. D4 68. Suppose that Steve heads to the local hamburger shop with $3, expecting to spend $2 for his favorite burger and $1 for French fries. When he gets there he discovers that his favorite burger is on sale for $1, so he buys two burgers and one order of French fries. Steve’s consumption behavior is best explained by: A. the income effect. B. the substitution effect. C. diminishing marginal utility. D. increasing marginal utility. 69. Susie buys two goods – rounds of golf and massages. Suppose that the price of a round of golf is $20, and the price of a massage is $30.

    In a typical week Susie will play two rounds of golf, getting 20 units of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 units of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 units of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur? A. Susie would leave her consumption choices unchanged because of diminishing marginal utility in the consumption of massages. B. Susie would buy more massages and fewer rounds of golf, as predicted by the income effect.

    C. Susie would buy more massages and more rounds of golf, as predicted by the substitution effect. D. Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect. 71. In introducing the opportunity cost of time into the theory of consumer behavior we find that, all else equal: A. one should consume less of time-intensive goods. B. one should consume more of time-intensive goods. C. the consumer’s equilibrium position is not altered. D. the marginal utility derived from each product must be multiplied by consumption time in determining equilibrium. 2. Assume you are spending your full budget and purchasing such amounts of X and Y that the marginal utility from the last units consumed is 40 and 20 utils respectively. Assume (a) the prices of X and Y are $8 and $4 respectively; (b) it takes 3 hours to consume a unit of X and 1 hour to consume a unit of Y; and (c) your time is worth $2 per hour. You A. should substitute X for Y until the marginal utility per hour is the same for both products. B. are consuming X and Y in the optimal amounts. C. should consume less of Y and more of X. D. should consume less of X and more of Y. 73.

    Which of the following has been a significant factor in iPods replacing portable CD players? A. iPods are now less than one-half the price of CD players. B. A scarcity of production capacity has curtailed the manufacture of CD players. C. Most consumers perceive iPod portability and storage to be superior to CD players. D. The price of iPods has increased dramatically. 74. How did Apple overcome consumers’ diminishing marginal utility for iPods? A. Apple lowered the price of iPods so that previous buyers would purchase another unit. B. Apple introduced new features to entice previous buyers to purchase new models.

    C. Apple ignored the problem and focused solely on attracting new buyers. D. Apple was unable to overcome the problem and has faced steadily declining sales. 75. The diamond-water paradox arises because: A. essential goods may be cheap while nonessential goods may be expensive. B. the marginal utility of certain products increases, rather than diminishes. C. essential goods are always higher priced than nonessential goods. D. we sometimes fail to use money as a standard of value. 77. “Essential” water is cheaper than “nonessential” diamonds because: A. new industrial uses for diamonds have been discovered. B. he supply of water is great relative to demand and the supply of diamonds is small relative to demand. C. although the total utility of diamonds is greater, their marginal utility is small. D. the supply of diamonds is great relative to demand and the supply of water is small relative to demand. 78. The fact that most medical care purchases are financed through insurance: A. has no effect on health care consumption because aggregate costs are the same regardless of payment method. B. reduces the amount of health care consumed. C. has decreased health care costs and therefore reduced aggregate health care expenditures. D. ncreases the amount of health care consumed. 79. Most economists contend that: A. noncash transfers are more efficient than cash transfers. B. noncash transfers are less efficient than cash transfers. C. noncash and cash transfers are equally efficient. D. government can assess consumer preferences better than can consumers themselves. 80. Which of the following statements is correct? A. Both cash and noncash gift-giving cause value losses. B. Neither cash nor noncash gift-giving cause value losses. C. Noncash gift-giving create a value loss, but cash gifts do not. D. Cash gifts creates a value loss, but noncash gifts do not. 82.

    If you receive a gift whose market price is $20, but you consider it to be worth only $10, then: A. there is a $10 or 50 percent value gain. B. there may or may not be a value loss. C. there is a $10 or 50 percent value loss. D. you can be relatively certain the giver was a sibling or other close relative. 83. According to economists, gift registries, returning gifts for cash refunds, and “recycling gifts”: A. are inefficient because the time spent is these activities is never worth the benefit recipients receive from doing them. B. are selfish acts and morally wrong. C. are more efficient than if givers simply gave cash gifts. D. ncrease the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying. 88. Behavioral economists use the concept of time inconsistency to explain why: A. younger workers save more for retirement than older workers. B. humans have an instinct for variety. C. students would be willing to pay to delay the final exam the day before the exam, but not earlier in the term. D. people like to eat brightly colored M&Ms. 89. According to behavioral economists, older workers tend to save more for retirement than younger workers because: A. lder workers have less faith that the Social Security will be able to pay out promised benefits. B. older workers experience greater diminishing marginal utility from saving additional dollars. C. younger workers like to consume a greater variety of goods than older workers. D. even though younger workers know it is important to save for retirement, they feel less of a sense of urgency. True / False Questions 90. The income effect explains an exception to the law of demand. FALSE 91. If marginal utility is diminishing, total utility must also be declining. FALSE 92.

    The substitution effect suggests that when consumers judge product quality by price, they will substitute high-priced products for low-priced products. FALSE 93. When the price of a product falls, the income effect induces the consumer to purchase more of it while the substitution effect prompts her to buy less. FALSE 94. A rational consumer will cease purchasing a product at that quantity where marginal utility begins to diminish. FALSE 95. Marginal utility is total utility divided by the number of units consumed. FALSE 96. When total utility is at a maximum, marginal utility is zero. TRUE 97.

    The limited money income of consumers results in a so-called budget constraint. TRUE 98. When a consumer is maximizing total utility, he or she cannot increase total utility by reallocating expenditures among different products. TRUE 99. The consumer demand curve for a product is downsloping because marginal utility is constant when price declines. FALSE 100. Water has greater marginal utility than diamonds, yet diamonds have greater total utility than water. FALSE 101. Noncash gift giving involves value loss when the marginal utility of the gift to the receiver is less than the product price. TRUE 102.

    When a consumer shifts purchases from X to Y, the marginal utility of X falls and the marginal utility of Y rises. FALSE Multiple Choice Questions 103. The budget line shows: A. the amount of product A that a consumer is willing to give up to obtain one more unit of product B. B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods. C. all equilibrium points on an indifference map. D. all possible combinations of two goods that yield the same level of utility to the consumer. 105. Refer to the budget line shown in the diagram above. If the consumer’s money income is $20, the: A. rices of C and D cannot be determined. B. price of C is $2 and the price of D is $4. C. consumer can obtain a combination of 5 units of both C and D. D. price of C is $4 and the price of D is $2. 106. Refer to the budget line shown in the diagram above. Given the same money income, reductions in the prices of both products C and D will: A. shift the budget line outward on the horizontal axis, but leave it anchored at “10” on the vertical axis. B. shift the budget line to the left. C. shift the budget line to the right. D. have no effect on the budget line. 107. Refer to the budget line shown in the diagram above.

    The absolute value of the slope of the budget line is: A. MUC/MUD. B. one-half. C. PD/PC. D. PC/PD. 108. In moving along a given budget line: A. the prices of both products and money income are assumed to be constant. B. each point on the line will be equally satisfactory to consumers. C. money income varies, but the prices of the two goods are constant. D. the prices of both products are assumed to vary, but money income is constant. 109. Increases in product prices shift the consumer’s: A. budget line to the right. B. budget line to the left. C. indifference curves to the left. D. indifference curves to the right. 12. A change in the slope of a budget line is solely the result of a change in: A. consumer preferences. B. the price of one good relative to the other. C. money income. D. the slope of the indifference curve that is tangent to the budget line. 113. In drawing a budget line it is assumed that: A. consumer preferences are fixed. B. the prices of the two products are variable. C. money income is fixed. D. consumer willingness to substitute between the two products is fixed. 114. The shift of the budget line from cd to ab in the above figure is consistent with: A. decreases in the prices of both M and N. B. n increase in the price of M and a decrease in the price of N. C. a decrease in money income. D. an increase in money income. 115. The budget line shift from ab to cd in the above figure is consistent with: A. decreases in the prices of both M and N. B. an increase in the price of M and a decrease in the price of N. C. a decrease in money income. D. an increase in money income.

    117. If money income increases and the prices of products A and B both increase, then the budget line: A. must shift to the right. B. must shift to the left. C. may shift either to the right or the left. D. will no longer be tangent to an indifference curve. 18. The movement of the budget line from BB to bb in the above figure suggests that income has: A. increased and the price of X has decreased. B. fallen and the price of Y has increased. C. fallen and the price of X has decreased. D. decreased but there have been no price changes. 119. Suppose you have a money income of $10, all of which you spend on Coke and popcorn. In the above diagram, the prices of Coke and popcorn respectively are: A. $. 50 and $1. 00. B. $1. 00 and $. 50. C. $1. 00 and $2. 00. D. $. 40 and $. 50. 120. If the budget line shifts from BB to bb in the above diagram we can infer that the: A. rice of Y has increased and the price of X has decreased. B. price of Y has decreased and the price of X has increased. C. prices of both X and Y have increased. D. prices of both X and Y have decreased. 121. A budget line shows the: A. alternative combinations of two goods that a consumer can purchase with a given money income. B. alternative combinations of two goods that will yield the same level of total utility to a consumer. C. quantities of a particular good that a consumer will buy at various prices. D. ratio of money income to product price. 122. Other things equal, an increase in a consumer’s money income: A. hifts her indifference curves rightward because she can now satisfy more of her wants. B. shifts her budget line rightward because she can now purchase more of both products. C. will be subject to the substitution effect, but not the income effect. D. will not alter the location of consumer equilibrium.

    123. The slope of a budget line reflects the: A. elasticity of demand for the two products. B. price ratio of the two products. C. amount of the consumer’s income. D. utility ratio of the two products. 124. If the price of A is $12 and the price of B is $3, the budget line tells us that a consumer in effect can trade: A. 2 units of A for 3 of B. B. 1 unit of A for 4 of B. C. 1 unit of A for 3 of B. D. 1 unit of B for 4 of A. 125. Assume the price of product Y (the quantity of which is plotted on the vertical axis) is initially $15 and the price of X (the quantity of which is plotted on the horizontal axis) is initially $3. Assume money income is initially $60. If the prices of Y and X now increase to $30 and $6 respectively and money income increases to $120, then the budget line will: A. shift rightward and become steeper. B. shift rightward and become flatter. C. shift rightward, but its slope will not change. D. be unchanged. 26. Assume initially that the price of X (measured on the horizontal axis) is $9 and the price of Y (measured on the vertical axis) is $4. If the price of X now declines to $6, the budget line will: A. be unaffected. B. shift outward on the vertical axis. C. shift inward on the horizontal axis. D. shift outward on the horizontal axis. 127. Suppose Elroy’s budget line is as shown on the above diagram. If his tastes change in favor of Coke and against popcorn, the budget line will: A. become steeper. B. become flatter. C. shift rightward. D. be unaffected. 128. Edith is buying products X and Y with her money income.

    Suppose her budget line shifts rightward (outward). This might be the result of: A. the prices of X and Y increasing while her money income remains constant. B. her money income decreasing while the prices of X and Y remain constant. C. her money income increasing more than proportionately to increases in the prices of X and Y. D. none of these. 129. Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line: A. is 5. B. is 1/5. C. s 4. D. is 20. 130. The indifference curve in the above diagram yields Juan 100 units of utility. If Juan’s money income were to increase by 20 percent, the indifference curve would: A. shift leftward. B. shift rightward. C. become steeper. D. not be affected. 132. An indifference curve shows all: A. possible equilibrium positions on an indifference map. B. equilibrium combinations of two products that are obtainable with a given money income. C. combinations of two products yielding the same total utility to a consumer. D. possible combinations of two products that a consumer can purchase, given her income and the prices of the products. 33. An indifference curve: A. may be either upsloping or downsloping, depending on whether the two products are complements or substitutes. B. is downsloping and convex to the origin. C. is upsloping and has a constant slope. D. is downsloping and concave to the origin. 34. An indifference map implies that: A. money income is constant, but the prices of the two products vary directly with the quantities purchased. B. the two products under consideration are perfectly substitutable for one another. C. a consumer is better off to be at some point high on a given curve as opposed to a point low on the same curve.

    D. curves farther from the origin yield higher levels of total utility. 135. The marginal rate of substitution measures the: A. magnitude of the substitution effect. B. total utility received by a consumer when equilibrium is achieved. C. extra utility that a consumer derives from successive units of a product. D. consumer’s willingness to substitute one product for another so that total utility will remain constant. 136. The marginal rate of substitution: A. may increase or decrease on a given indifference curve, depending on whether the substitution or the income effect is dominant. B. ncreases as one moves southeast along an indifference curve. C. is constant at all points on the budget line. D. declines as one moves southeast along an indifference curve. 138. Which of the following is correct? A. Budget lines are linear and upsloping; indifference curves are downsloping and concave to the origin. B. Budget lines are linear and downsloping; indifference curves are downsloping and concave to the origin. C. Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin. D. Budget lines are downsloping and convex to the origin; indifference curves are linear and downsloping. 39. Indifference curve analysis: A. presumes, as does utility analysis, that satisfaction is numerically measurable. B. presumes, unlike utility analysis, that satisfaction is numerically measurable. C. presumes only that the consumer can say one combination of two goods yields more or less utility than some other combination. D. is in conflict with the idea of a downsloping demand curve. 140. Refer to the above diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. The equilibrium position for the consumer is at: A. any point on xy. B. point M. C. point K. D. point J. 141.

    Refer to the above diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. If the consumer is initially at point L, he or she should: A. strive for point N by obtaining a larger money income. B. purchase more of X and less of Y. C. remain at that point to maximize utility. D. purchase more of Y and less of X. 142. Refer to the above diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. Point M: A. is the consumer’s equilibrium position. B. is unattainable. C. is inferior to point N. D. entails the highest attainable level of total utility. 143.

    Refer to the above diagram where xy is the relevant budget line and I1, I2, and I3 are indifference curves. At point K: A. MUx = MUy. B. MRS = Px/Py. C. MRS = Py/Px. D. Px exceeds Py. 144. AA is Al’s indifference curve and BB is Betty’s. Al and Betty have the same budget line, LL. This information implies that: A. Al’s demand for X is stronger than Betty’s. B. Al’s demand for Y is stronger than Betty’s. C. Al and Betty have the same demand for both products. D. Al will buy some of X, but Betty will not. 145. In the above diagram: A. the consumer is indifferent between points A and B, but neither point maximizes his utility. B. he consumer is indifferent between points A and B and either point will maximize his utility. C. any combination of X and Y entailing more of Y and less of X than shown at B would be preferred. D. any combination of X and Y entailing more of X and less of Y than shown at A would be preferred. 147. Assume a diagram in which a budget line is imposed on an indifference map. A consumer will maximize her utility: A. at any point where the budget line and an indifference curve intersect. B. at either point where the budget line intersects the horizontal and vertical axes. C. where the budget line is tangent to an indifference curve.

    D. where the ratio of the two product prices equals the reciprocal of the consumer’s income. 148. Indifference curve analysis indicates that consumer equilibrium exists: A. where an indifference curve has a slope of 1. B. where any two indifference curves intersect. C. at any point where the budget line intersects an indifference curve. D. where the budget line touches the highest possible indifference curve. 149. Refer to the above diagram in which the downsloping linear lines are budget lines and I1, I2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 2, and 5 are such that: A. oint 2 yields more utility than either 1 or 5. B. points 1 and 5 yield more utility than point 2. C. points 1, 2, and 5 yield equal amounts of utility. D. the levels of utility associated with these three points cannot be compared. 150. Refer to the above diagram in which the downsloping linear lines are budget lines and I1, I2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 3, and 5 are such that: A. all three imply the same level of utility. B. 1 and 5 imply a higher level of utility than does 3. C. 3 implies a higher level of utility than does 1 or 5. D. he person is indifferent among the three combinations. 151. Refer to the above diagram in which the downsloping linear lines are budget lines and I1, I2, and I3 comprise an indifference map. With respect to points 2, 3, and 4, we can say that: A. point 4 entails more utility than 3, but less than 2. B. point 4 entails more utility than 2, but less than 3. C. point 4 yields more utility than either 2 or 3. D. the levels of utility associated with these three points cannot be compared. 152. If a consumer chooses a combination of goods that lies inside of her budget line, the consumer: A. is maximizing utility. B. s spending in excess of her current income. C. could obtain more goods with her money income. D. has upsloping indifference curves. 153. Refer to the above diagram. If the budget line shifts from ab to ac the: A. price of K has increased. B. consumer’s money income has fallen. C. price of K has decreased. D. price of J has increased. 154. Refer to the above diagram. If the budget line shifts from ab to ac the: A. consumer’s level of total utility will increase. B. consumer will purchase more of both J and K. C. consumer will purchase less of both J and K. D. consumer will purchase more of J and less of K. 155.

    Refer to the above diagram. The equilibrium points shown in the diagram along with the price change that produced the shift of the budget line from ab to ac: A. are consistent with a downsloping demand curve for product K. B. imply that the consumer’s money income has declined, but his or her real income has increased. C. imply consumer irrationality since the dearer product is being substituted for the cheaper product. D. suggest that K is an inferior good. 156. Refer to the above diagram. Suppose the budget line shifts so that the consumer’s equilibrium changes from point A to point B. This means that the: A. rice of Y has increased. B. price of Y has decreased. C. price of X has increased. D. consumer’s money income has increased. 157. Refer to the above diagram. The budget line shift that moves the consumer’s equilibrium from point A to point B suggests: A. an increase in the demand for product X. B. a decrease in the demand for product X. C. no change in the demand for product X. D. that X is an inferior good. 158. Refer to the above diagram. The budget line shift which moves the consumer’s equilibrium position from point A to point B suggests: A. an increase in the quantity of Y demanded. B. a decrease in the quantity of Y demanded.

    C. a leftward shift in the demand curve for Y. D. a rightward shift in the demand curve for Y. 159. (Consider This) The lines on a topographical map are analogous to a(n): A. series of demand curves. B. series of supply curves. C. indifference map. D. series of budget constraints. 160. (Consider This) A topographical map shows successively higher equal-elevation lines, whereas an indifference map shows successively higher levels of total: A. utility. B. revenue. C. profit. D. cost. True / False Questions 161. Indifference curves are linear and budget lines are convex to the origin. FALSE 162.

    Graphically, the consumer maximizes total utility where the budget line is tangent to an indifference curve. TRUE 163. In drawing a particular budget line, money income and the prices of the two products are fixed. TRUE 164. With fixed money income, an increase in the price of one good and a decrease in the price of the other will cause the new budget line to intersect the original budget line. TRUE 165. In moving northeasterly from the origin we encounter indifference curves that reflect higher and higher levels of total utility. TRUE 166. Each point on a single indifference curve reflects the same level of total utility for a consumer.

    TRUE 167. It is possible for a consumer’s indifference curves to intersect. FALSE 168. A rational consumer will try to achieve the highest indifference curve that his or her income will allow. TRUE 169. Indifference analysis assumes that utility is numerically measurable. FALSE 170. As a consumer moves down a given indifference curve, his or her total utility will diminish. FALSE 171. Marginal utility theory and indifference curve analysis are both consistent with the law of demand. TRUE 172. The lower the consumer’s income, the higher his or her budget line. FALSE

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