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Copyright © 2011 Pearson Education, Inc.
Foundations of Microeconomics, 5e (Bade/Parkin)
Chapter 12 Consumer Choice and Demand
12.1 Consumption Possibilities
1) A budget line shows the
A) quantities of goods a buyer can purchase with given income and prices.
B) relationship between price and quantity demanded.
C) total utility a consumer realizes from consuming different quantities of a good.
D) quantities of consumption that maximizes marginal utility.
E) the prices of the two goods a buyer can purchase.
Skill: Level 1: Definition
Section: Checkpoint 12.1
Author: TS
AACSB: Reflective thinking
2) A consumption point inside the budget line
A) is unaffordable.
B) is possible to afford but has some unspent income.
C) shows that the consumer has chosen to spend all of his or her income on both products.
D) shows that the consumer spends income on only one of the goods.
E) is affordable and, because it is inside the budget line, means that all the person's budget has
been spent.
Skill: Level 1: Definition
Section: Checkpoint 12.1
Author: SA
AACSB: Reflective thinking
3) Which of the following statements is correct?
A) Consumers have the ability to buy everything they desire.
B) A consumer's budget line shows the limits to what a consumer can buy.
C) A consumer's budget line shows the goods with the highest marginal utilities.
D) Rich consumers are unaffected by prices.
E) A budget line changes only if the person's budget changes.
Skill: Level 1: Definition
Section: Checkpoint 12.1
Author: SA
AACSB: Reflective thinking
2
Copyright © 2011 Pearson Education, Inc.
4) Which of the following statements is correct?
A) The slope of the budget line shows the opportunity cost of the good measured along the x-
axis.
B) Along the budget line, consuming more of one good implies consuming more of the other.
C) The slope of the budget line shows there is no tradeoff between the two goods because the
consumer can buy each of them.
D) If the consumer's budget increases, the budget line shifts leftward and its slope does not
change.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SA
AACSB: Reflective thinking
5) Which of the following is shown by a budget line?
i. The combinations of goods a person can afford.
ii. The production possibilities for a person.
iii. The combinations of goods a person cannot afford.
A) i only
B) i and ii
C) i and iii
D) ii and iii
E) ii only
Skill: Level 1: Definition
Section: Checkpoint 12.1
Author: CD
AACSB: Reflective thinking
6) The budget line is the boundary between
A) preferred and nonpreferred consumption combinations.
B) affordable and unaffordable consumption combinations.
C) goods and bads.
D) income and expenditure.
E) income and consumption.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SB
AACSB: Reflective thinking
3
Copyright © 2011 Pearson Education, Inc.
7) Where the budget line intersects the y-axis represents a combination of goods that contains
A) some of both goods.
B) only the good measured on the y-axis.
C) only the good measured on the x-axis.
D) no goods.
E) the quantity of the good measured on the y-axis that has zero marginal utility.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: SB
AACSB: Reflective thinking
8) A budget line
A) shows the limits to what can be consumed.
B) has a slope equal to a relative price.
C) rotates or shifts only when the consumer's budget changes.
D) Answers B and C are both correct.
E) Answers A and B are both correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SA
AACSB: Reflective thinking
9) In order to draw Lucky's budget line, we need to know
A) only Lucky's budget.
B) only the prices of the goods Lucky consumes.
C) both Lucky's budget and the prices of the goods Lucky consumes.
D) Lucky's budget, the prices of the goods lucky consumes, and the utilities of the goods Lucky
does not consume.
E) the utilities of the goods Lucky consumes.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: SA
AACSB: Reflective thinking
4
Copyright © 2011 Pearson Education, Inc.
10) Katie has $15. She likes M&M candies and Hershey's white chocolate bars. M&M candies
are $1.50 a pack and (the large) Hershey bars are $3.00 each. Katie can choose to buy
A) 4 Hershey bars and 2 packs of M&Ms.
B) 2 Hershey bars and 6 packs of M&Ms.
C) 5 Hershey bars and 10 packs of M&Ms.
D) Both answer A and answer B are correct.
E) Answer A, answer B, and answer C are correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SA
AACSB: Analytical reasoning
11) Suppose a consumer has $100 to spend on two goods, shoes and shirts. If the price of a pair
of shoes is $20 per pair and the price of a shirt is $15 each, which of the following combinations
is unaffordable to the consumer?
A) 5 pairs of shoes and 0 shirts
B) 2 pairs of shoes and 4 shirts
C) 0 pairs of shoes and 7 shirts
D) 2 pairs of shoes and 3 shirts
E) 0 pairs of shoes and 0 shirts
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: SB
AACSB: Analytical reasoning
12) If a consumer has $30 to spend on apples and bananas, where on the apple axis would the
consumer's budget line intersect if the price of apples is $3 a pound?
A) 30 pounds
B) 10 pounds
C) 3 pounds
D) 0 pounds
E) It is impossible to determine with the given information.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: TS
AACSB: Analytical reasoning
5
Copyright © 2011 Pearson Education, Inc.
13) Timmy makes $100 per week as a taxidermist. He spends all this income to buy pizza and
hair gel. The price of a pizza is $10 and the price of a bottle of hair gel is $4. If Timmy buys 5
bottles of hair gel, then he buys ________ pizzas.
A) 10
B) 4
C) 8
D) 20
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: JC
AACSB: Analytical reasoning
14) Timmy makes $100 per week as a taxidermist. He spends all this income to buy pizza and
hair gel. The price of a pizza is $10 and the price of a bottle of hair gel is $4. If Timmy buys 6
pizzas per week, how many bottles of gel can he purchase?
A) 10
B) 60
C) 20
D) 40
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: JC
AACSB: Analytical reasoning
15) Reb earns $1,000 per week as a fishing guide in Texas. With this money he buys fishing
lures and steaks. Lures cost $5 each, steaks cost $10 each. With this level of income, which
consumption points are not possible?
A) 200 lures, 0 steaks
B) 100 lures, 60 steaks
C) 80 lures, 20 steaks
D) 0 lures, 50 steaks
E) 50 lures, 50 steaks
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: JC
AACSB: Analytical reasoning
6
Copyright © 2011 Pearson Education, Inc.
16) Reb earns $1,000 per week as a fishing guide in Texas. With this money he buys fishing
lures and steaks. Lures cost $5 each, steaks cost $10 each. If Reb purchases 124 lures per week,
how many steaks can he buy?
A) 620
B) 38
C) 123
D) 380
E) 100
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: JC
AACSB: Analytical reasoning
17) Sarah earns $500 per week selling baskets made out of tree vines. With this money she buys
sushi and rose bushes. Each piece of sushi costs $1 and each rose bush costs $10. If Sarah spends
$170 per week on sushi, the maximum quantity of rose bushes can she buy each week is
________ bushes.
A) 33
B) 330
C) 3
D) 17
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: JC
AACSB: Analytical reasoning
7
Copyright © 2011 Pearson Education, Inc.
18) Susan can watch movies or attend plays. The table above gives combinations of movies and
plays that are on her budget line. If the price of a movie is $10, then her budget for movies and
plays is
A) $10 per month.
B) $50 per month.
C) $60 per month.
D) $120 per month.
E) unknown from the information.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: WM
AACSB: Analytical reasoning
8
Copyright © 2011 Pearson Education, Inc.
19) The figure above shows Sarah's budget line. Sarah earns $500 per week selling baskets made
out of tree vines. With this money she buys sushi and rose bushes. Each piece of sushi costs $1
and each rose bush costs $10. Sarah will be at what point on her budget line if she spends $200
per week on sushi?
A) Point a
B) Point b
C) Point c
D) Point f
E) Point d
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: JC
AACSB: Analytical reasoning
9
Copyright © 2011 Pearson Education, Inc.
20) The figure above shows Sarah's budget line. Sarah earns $500 per week selling baskets made
out of tree vines. With this money she buys sushi and rose bushes. Each piece of sushi costs $1
and each rose bush costs $10. Sarah will be at what point on her budget line if she spends $500
per week on rose bushes?
A) Point a
B) Point c
C) Point e
D) Point f
E) Point b
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: JC
AACSB: Analytical reasoning
21) The figure above shows Sarah's budget line. Sarah earns $500 per week selling baskets made
out of tree vines. With this money she buys sushi and rose bushes. Each piece of sushi costs $1
and each rose bush costs $10. Sarah will be at what point on her budget line if she spends $300
per week on rose bushes?
A) Point a
B) Point b
C) Point c
D) Point f
E) Point e
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: JC
AACSB: Analytical reasoning
22) The figure above shows Sarah's budget line. Sarah earns $500 per week selling baskets made
out of tree vines. With this money she buys sushi and rose bushes. Each piece of sushi costs $1
and each rose bush costs $10. Sarah is NOT able to purchase the combination of
A) 50 roses bushes and 0 pieces of sushi.
B) 20 rose bushes and 200 pieces of sushi.
C) 0 roses bushes and 300 pieces of sushi.
D) 30 roses bushes and 300 pieces of sushi.
E) None of the above answers is correct because Sarah is able to purchase all the listed
combinations of roses and sushi.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: MR
AACSB: Analytical reasoning
10
Copyright © 2011 Pearson Education, Inc.
23) The figure above shows a consumer's budget line for sodas and DVD rentals. Point a
represents an
A) affordable combination of sodas and DVDs that spends the entire budget.
B) affordable combination of sodas and DVDs that does not spend the entire budget.
C) unaffordable combination of sodas and DVDs.
D) affordable combination of sodas and DVDs but whether it spends the entire budget cannot be
determined from the figure.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: PH
AACSB: Analytical reasoning
11
Copyright © 2011 Pearson Education, Inc.
24) The figure above shows a consumer's budget line between sodas and DVD rentals. Point b
represents an
A) affordable combination of sodas and DVDs that spends the entire budget.
B) affordable combination of sodas and DVDs that does not spend the entire budget.
C) unaffordable combination of sodas and DVDs.
D) affordable combination of sodas and DVDs but whether it spends the entire budget cannot be
determined from the figure.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: PH
AACSB: Analytical reasoning
25) The figure above shows a consumer's budget line between sodas and DVD rentals. Point c
represents an
A) affordable combination of sodas and DVDs that spends the entire budget.
B) affordable combination of sodas and DVDs that does not spend the entire budget.
C) unaffordable combination of sodas and DVDs.
D) affordable combination of sodas and DVDs but whether it spends the entire budget cannot be
determined from the figure.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: PH
AACSB: Analytical reasoning
26) The figure above shows a consumer's budget line between sodas and DVD rentals. Point d
represents an
A) affordable combination of sodas and DVDs that spends the entire budget.
B) affordable combination of sodas and DVDs that does not spend the entire budget.
C) unaffordable combination of sodas and DVDs.
D) affordable combination of sodas and DVDs but whether it spends the entire budget cannot be
determined from the figure.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: PH
AACSB: Analytical reasoning
12
Copyright © 2011 Pearson Education, Inc.
27) Bobby buys cat food for his cat, Pearl. If the price of cat food falls, then Bobby's budget line
will
A) rotate outward and its slope will change.
B) rotate inward and its slope will change.
C) shift outward and its slope will not change.
D) shift inward and its slope will not change.
E) either rotate or shift outward depending on whether cat food has positive or negative marginal
utility.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: PH
AACSB: Analytical reasoning
28) If one of the products a consumer buys rises in price, the consumer's budget line will
A) shift farther away from the origin of the graph and not change its slope.
B) rotate inward, closer to the origin.
C) vanish.
D) undergo no change.
E) shift farther away from the origin of the graph and become steeper.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: TS
AACSB: Analytical reasoning
29) When the price of a good a consumer buys rises, the consumer's budget line
A) shifts inward and its slope does not change.
B) shifts outward and its slope does not change.
C) rotates inward and its slope changes.
D) rotates outward and its slope changes.
E) does not change.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: CD
AACSB: Analytical reasoning
13
Copyright © 2011 Pearson Education, Inc.
30) You consume hamburgers and hot dogs. If the price of a hamburger increases while the price
of a hot dog and your budget do not change, then your budget line will
A) not change because your budget hasn't changed.
B) shift outward and not change its slope.
C) rotate outward and change its slope.
D) rotate inward and change its slope.
E) shift inward and not change its slope
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: WM
AACSB: Analytical reasoning
31) If the slope of the budget line changes, there must have been
A) a change in the consumer's preferences.
B) an increase in the consumer's income.
C) a change in the price of at least one good.
D) a change in the price of both goods.
E) None of these could cause a change in the slope of the budget line.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: TS
AACSB: Analytical reasoning
32) An increase in the price of a good
A) rotates the budget line inward and changes its slope.
B) rotates the budget line outward and changes its slope.
C) results in a movement downward along the budget line.
D) results in a movement upward along the budget line.
E) shifts the budget line inward and does not change its slope.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SB
AACSB: Analytical reasoning
14
Copyright © 2011 Pearson Education, Inc.
33) If the price of the good measured on the x-axis becomes relatively cheaper, the budget line
will
A) become vertical.
B) become steeper.
C) become flatter.
D) become horizontal.
E) shift rightward and not change its slope.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: TS
AACSB: Analytical reasoning
34) Suppose Alice spends her budget on books and CDs. If her budget does not change and the
price of a book stays the same but the price of a CD falls, her budget line
A) shifts outward and its slope does not change.
B) shifts inward and its slope does not change.
C) rotates inward and its slope changes.
D) rotates outward and its slope changes.
E) does not change because her budget has not changed.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SA
AACSB: Analytical reasoning
35) Reb buys fishing lures and steaks. If his budget does not change and the price of a fishing
lure decreases, the maximum number of fishing lures he can purchase ________ and the
maximum number of steaks he can purchase ________.
A) increases; increases
B) increases; decreases
C) increases; does not change
D) decreases; increases
E) does not change; does not change
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: MR
AACSB: Analytical reasoning
15
Copyright © 2011 Pearson Education, Inc.
36) Samantha has a budget of $40 and buys beef jerky and fried pork rinds. Her budget does not
change and the price of both beef jerky and fried pork rinds increases. As a result,
A) Samantha's consumption possibilities have decreased.
B) Samantha's budget line shifts inward.
C) Samantha can still buy the combination of beef jerky and fried pork rinds she was initially
consuming because her budget did not change.
D) Answers A and B are correct.
E) Answers A and C are correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SA
AACSB: Analytical reasoning
37) Nadir and Nina consume the same goods. If Nadir has more income than Nina, then Nina's
budget line will
A) lie to the left of Nadir's budget line.
B) be steeper than Nadir's budget line.
C) lie to the right of Nadir's budget line.
D) be flatter than Nadir's budget line.
E) More information is needed to determine how Nina's and Nadir's budget lines compare.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SA
AACSB: Reflective thinking
38) Which of the following describes what happens to a consumer's budget line if that
consumer's budget increases? The budget line
A) becomes steeper.
B) becomes more horizontal.
C) shifts farther away from the origin of the graph.
D) shifts closer to the origin of the graph.
E) does not change.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: TS
AACSB: Analytical reasoning
16
Copyright © 2011 Pearson Education, Inc.
39) When a consumer's budget increases, the budget line
A) becomes steeper.
B) becomes flatter.
C) shifts outward.
D) shifts inward.
E) does not change.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: SB
AACSB: Analytical reasoning
40) An increase in a consumer's budget
A) shifts the budget line outward and does not change its slope.
B) shifts the budget line inward and does not change its slope.
C) rotates the budget line outward around the point where it intersects the x-axis.
D) rotates the budget line inward around the point where it intersects the x-axis.
E) rotates the budget line outward around the point where it intersects the y-axis.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SA
AACSB: Analytical reasoning
41) An increase in a consumer's budget
A) changes the relative prices of the goods.
B) changes the slope of the budget line.
C) decreases consumption possibilities.
D) increases consumption possibilities.
E) has no effect on the consumer's budget line.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SB
AACSB: Reflective thinking
17
Copyright © 2011 Pearson Education, Inc.
42) A budget line will shift outward and not change its slope if
A) there is an increase in the consumer's budget.
B) the consumer's preferences change.
C) the price of one good changes.
D) the price of both goods increase by the same percentage.
E) None of the above shift the budget line outward.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: TS
AACSB: Analytical reasoning
43) If you consume hot dogs and hamburgers and your budget increases, while the prices of hot
dogs and hamburgers do not change, then your budget line
A) does not change.
B) shifts outward and its slope does not change.
C) rotates outward and its slope changes.
D) shifts inward and its slope does not change.
E) rotates inward and its slope changes.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: WM
AACSB: Analytical reasoning
18
Copyright © 2011 Pearson Education, Inc.
44) In the above figures, which one reflects an increase in the price of chicken?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) Both Figure B and Figure C
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: PH
AACSB: Analytical reasoning
19
Copyright © 2011 Pearson Education, Inc.
45) In the above figures, which one reflects a decrease in the price of chicken?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) Both Figure A and Figure D
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: PH
AACSB: Analytical reasoning
46) In the above figures, which one reflects an increase in the price of fish?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) Both Figure B and Figure C
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: PH
AACSB: Analytical reasoning
47) In the above figures, which one reflects an increase in the consumer's income?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
E) Both Figure A and Figure D
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: PH
AACSB: Analytical reasoning
20
Copyright © 2011 Pearson Education, Inc.
48) The slope of the budget line can be interpreted as which of the following?
A) an opportunity cost
B) the consumer's budget divided by the price of the good measured on the y-axis
C) the consumer's budget divided by the price of the good measured on the x-axis
D) the number of units of the good measured on the y-axis plus the number of units of the good
measured on the x-axis
E) the budget necessary to buy the combinations of goods on the budget line
Skill: Level 1: Definition
Section: Checkpoint 12.1
Author: TS
AACSB: Reflective thinking
49) The slope of the budget line represents an opportunity cost because, moving along the line,
A) income is increasing.
B) income is decreasing.
C) additional income must be earned in order to purchase more of one good.
D) a consumer must give up some of one good in order to get more of the other.
E) it is possible to consume more of both goods.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SB
AACSB: Reflective thinking
50) Sue consumes oysters and clams. Pounds of oysters are measured on the y-axis and pounds
of clams on the x-axis. If the slope of Sue's budget line is 5 pounds of oysters per pound of
clams, Sue must
A) give up 5 pounds of clams to obtain 1 pound of oysters.
B) give up 5 pounds of oysters to obtain 1 pound of clams.
C) pay $5 for a pound of clams only.
D) pay $5 for a pound of oysters only.
E) pay $5 for a pound of clams and pay $5 for a pound of oysters.
Skill: Level 4: Applying models
Section: Checkpoint 12.1
Author: SB
AACSB: Analytical reasoning
21
Copyright © 2011 Pearson Education, Inc.
51) When the price of one good changes while another good's price does not change, then there
has been a change in the
A) relative price.
B) marginal utility price.
C) absolute price.
D) marginal price.
E) utility price.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: WM
AACSB: Reflective thinking
52) A budget line shows the
A) limits to production possibilities.
B) limits to production opportunities.
C) slope of the demand curve.
D) limits to consumption possibilities.
E) way the demand curve shifts if the consumer's budget changes.
Skill: Level 1: Definition
Section: Checkpoint 12.1
Author: STUDY GUIDE
AACSB: Reflective thinking
53) A budget line
A) represents combinations of goods a consumer desires.
B) marks the boundary between what a consumer can afford and cannot afford.
C) has a positive slope.
D) is the same as the production possibilities frontier.
E) is the same as a demand curve.
Skill: Level 1: Definition
Section: Checkpoint 12.1
Author: STUDY GUIDE
AACSB: Reflective thinking
22
Copyright © 2011 Pearson Education, Inc.
54) Linda has $10 a month to spend on ice cream cones and chocolate bars. If the price of an ice
cream cone is $2 a cone and the price of a chocolate bar is $1 a bar, which of the following is a
point on Linda's budget line?
A) 4 cones and 0 chocolate bars
B) 1 cone and 8 chocolate bars
C) 3 cones and 1 chocolate bar
D) 5 cones and 10 chocolate bars
E) 0 cones and 0 chocolate bars
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: STUDY GUIDE
AACSB: Analytical reasoning
55) If a budget line rotates inward and becomes steeper, then the
A) consumer's budget decreased.
B) consumer's budget increased.
C) price of one of the goods decreased.
D) price of one of the goods increased.
E) price of both of the goods must have decreased.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: STUDY GUIDE
AACSB: Analytical reasoning
56) If the budget line rotates inward and becomes steeper, there is a
A) higher opportunity cost of the good measured on the x-axis.
B) lower opportunity cost of the good measured on the x-axis.
C) larger budget.
D) higher price for the good measured on the y-axis.
E) lower price for the good measured on the x-axis.
Skill: Level 4: Applying models
Section: Checkpoint 12.1
Author: STUDY GUIDE
AACSB: Reflective thinking
23
Copyright © 2011 Pearson Education, Inc.
57) A relative price is the
A) price of a substitute.
B) price of a related good.
C) price of one good divided by the price of another.
D) absolute price of a good.
E) price of one good multiplied by the price of another.
Skill: Level 1: Definition
Section: Checkpoint 12.1
Author: STUDY GUIDE
AACSB: Reflective thinking
58) If a consumer's budget increases, the budget line
A) rotates outward and its slope changes.
B) rotates inward and its slope changes.
C) shifts outward and its slope does not change.
D) shifts inward and its slope does not change.
E) does not change.
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: STUDY GUIDE
AACSB: Analytical reasoning
59) Reb buys fishing lures and steaks. If his budget increases, the maximum number of fishing
lures he can purchase ________ and the maximum number of steaks he can purchase ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: STUDY GUIDE
AACSB: Analytical reasoning
24
Copyright © 2011 Pearson Education, Inc.
12.2 Marginal Utility Theory
1) Utility is the
A) benefit or satisfaction that a person gets from the consumption of a good or service.
B) measure of how useful a resource is in the production process.
C) measure of productivity associated with a good or service.
D) economic term for consumption possibilities.
E) economic term for how changes in price affect a consumer's purchases.
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: SB
AACSB: Reflective thinking
2) The benefit that John gets from eating an additional grape is called the ________ the grape.
A) net gain from
B) demand for
C) quantity demanded of
D) total utility from
E) marginal utility from
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: JC
AACSB: Reflective thinking
3) As more of a good is consumed, total utility
A) increases.
B) decreases.
C) remains the same.
D) becomes negative and then turns positive.
E) might change but whether or not it changes depends on why more of the good is consumed.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: SB
AACSB: Reflective thinking
25
Copyright © 2011 Pearson Education, Inc.
4) If you get 40 units of utility from eating the first bag of pretzels, 30 from the second bag, and
20 from the third bag, the total utility of three bags of pretzels is ________ units of utility.
A) 40
B) 70
C) 90
D) 50
E) 20
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: SB
AACSB: Analytical reasoning
5) If a consumer obtains 20 units of utility for the first unit consumed, 10 for the second, and 5
for the third, what is the total utility of consuming three units?
A) 20 units
B) 30 units
C) 35 units
D) 5 units
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: TS
AACSB: Analytical reasoning
6) Marginal utility is equal to which of the following?
A) total income divided by the price of the product
B) the change in total utility from consuming one more unit of a good
C) the satisfaction obtained from consuming any number of units of a good
D) total utility divided by the number of units of the good
E) None of the above answers is correct.
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: TS
AACSB: Reflective thinking
26
Copyright © 2011 Pearson Education, Inc.
7) Marginal utility is the change in total utility that results from
A) an increase in the price of the good.
B) a change in the budget line.
C) a one-unit change in the quantity of a good consumed.
D) a decrease in the price of the good.
E) an increase in the consumer's income.
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: JC
AACSB: Reflective thinking
8) If the total utility of 2 bags of chips is 25, the total utility of 3 bags is 33, and the total utility
of 4 bags is 40 units, then the marginal utility of the 3rd and 4th bags are
A) 8 and 7, respectively.
B) 12.5 and 11, respectively.
C) 11 and 10, respectively.
D) 58 and 73, respectively.
E) 33 and 40, respectively.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: SA
AACSB: Analytical reasoning
9) If Joan consumes 1 dinner roll, she has total utility of 15; if she consumes 2, she has total
utility of 27; if she consumes 3, she has total utility of 37; and if she consumes 4, she has total
utility of 45. What is the marginal utility of the fourth dinner roll consumed?
A) 124 units of utility
B) 45 units of utility
C) 11.25 units of utility
D) 8 units of utility
E) 37 units of utility
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: TS
AACSB: Analytical reasoning
27
Copyright © 2011 Pearson Education, Inc.
10) If Sarah gets 40 units of utility from her first piece of toast for breakfast and a total of 70
units from two pieces of toast, then the marginal utility of the first piece is ________ units and
the marginal utility of the second piece is ________ units.
A) 40; 70
B) 40; 110
C) 40; 30
D) 40; 35
E) 70; 40
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: SB
AACSB: Analytical reasoning
Box of
doughnuts
Homer's total
utility
1 30
2 55
3 75
4 90
5 100
6 103
11) The above table shows Homer's total utility from boxes of doughnuts. As Homer's
consumption of doughnuts increases,
A) both his total utility and his marginal utility increase.
B) his total utility increases, but his marginal utility decreases.
C) his total utility decreases, but his marginal utility increases.
D) both his total utility and his marginal utility decrease.
E) None of the above answers are correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
28
Copyright © 2011 Pearson Education, Inc.
12) The above table shows Homer's utility from boxes of doughnuts. If Homer decreases his
consumption of doughnuts from 4 boxes to 3 boxes, his
A) total utility and marginal utility will both decrease.
B) total utility will decrease, but his marginal utility will increase.
C) total utility will increase, but his marginal utility will decrease.
D) total utility and marginal utility will both increase.
E) None of the above answers are correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
13) The above table shows Homer's utility from boxes of doughnuts. The marginal utility that
Homer receives from the third box of doughnuts is equal to
A) 75.
B) 25.
C) 20.
D) 3.
E) 50.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
14) The above table shows Homer's utility from boxes of doughnuts. As Homer's consumption of
doughnuts increases, his
A) marginal utility is positive and increasing.
B) marginal utility is positive but decreasing.
C) marginal utility is negative but increasing.
D) marginal utility is negative and decreasing.
E) total utility is not related to his marginal utility.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
29
Copyright © 2011 Pearson Education, Inc.
Quantity of
ice cream
Total utility
from ice
cream
0 0
1 80
2 150
3 210
4 260
15) Give the data in the above table, what is the marginal utility of the third unit of ice cream?
A) 80
B) 70
C) 60
D) 230
E) 210
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
16) Give the data in the above table, what is the marginal utility of the second unit of ice cream?
A) 80
B) 70
C) 60
D) 75
E) 150
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
30
Copyright © 2011 Pearson Education, Inc.
17) Give the data in the above table, what is the marginal utility of the fourth unit of ice cream?
A) 210
B) 50
C) 60
D) 65
E) 260
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
18) If a consumer's total utility increases when another unit of a good is consumed, which of the
following is true? Marginal utility must be
A) negative.
B) equal to one.
C) positive.
D) increasing.
E) some amount, but more information is needed to determine if marginal utility is positive,
negative, or equal to zero.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: TS
AACSB: Analytical reasoning
19) Diminishing marginal utility means that as more of a good is consumed,
A) the price of the good rises.
B) the price of the good falls.
C) more income is spent.
D) the utility of an additional unit decreases.
E) the consumption of some other good must diminish.
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: SB
AACSB: Reflective thinking
31
Copyright © 2011 Pearson Education, Inc.
20) Diminishing marginal utility means that
A) marginal utility decreases as consumption decreases.
B) marginal utility increases as consumption increases.
C) marginal utility decreases as consumption increases.
D) total utility decreases as marginal utility decreases.
E) total utility decreases as marginal utility increases.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: CD
AACSB: Reflective thinking
21) Brenda's marginal utility per dollar from the second hamburger is 20. Her marginal utility
from the third hamburger would be
A) less than 20.
B) more than 20.
C) equal to 20.
D) not comparable to the marginal utility per dollar from the second hamburger.
E) some amount, but we need more information to determine how it compares to 20.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: SA
AACSB: Reflective thinking
22) Total utility ________ as a person consumes more of one good and marginal utility
________.
A) increases; increases
B) increases; decreases
C) remains constant; decreases
D) fluctuates; decreases
E) decreases; increases
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: TS
AACSB: Reflective thinking
32
Copyright © 2011 Pearson Education, Inc.
23) Diminishing marginal utility means that an increase in the consumption of a good leads to
A) a decrease in total utility.
B) a decrease in marginal utility.
C) a decrease in the fall of the price of the good.
D) a decrease in the consumer's budget.
E) an increase in the consumer's budget.
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: JC
AACSB: Reflective thinking
24) Kevin likes weasel leg stew. But every bite of the stew that he eats provides him with less
and less total utility. This fact means that Kevin's marginal utility is
A) decreasing.
B) increasing, but at a decreasing rate.
C) increasing at an increasing rate.
D) not changing.
E) changing but the rate of change is not certain without more information.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: JC
AACSB: Reflective thinking
33
Copyright © 2011 Pearson Education, Inc.
25) The table above shows Buffy's utility from wooden stakes and cloves of garlic. The total
utility Buffy gets from 5 wooden stakes is
A) 7.
B) 65.
C) 222.
D) 122.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: JC
AACSB: Analytical reasoning
26) The table above shows Buffy's utility from wooden stakes and cloves of garlic. If Buffy
increases her consumption of wooden stakes from 4 to 5 stakes, her marginal utility from the 5th
stake is
A) 65.
B) 7.
C) 58.
D) 7÷ 5 = 1.29.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: JC
AACSB: Analytical reasoning
34
Copyright © 2011 Pearson Education, Inc.
27) The table above shows Buffy's utility from wooden stakes and cloves of garlic. The marginal
utility of which clove of garlic is the largest?
A) the first clove
B) the second clove
C) the fifth clove
D) the third clove
E) The marginal utility of all cloves is the same.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: JC
AACSB: Analytical reasoning
28) The table above shows Buffy's utility from wooden stakes and cloves of garlic. As Buffy
uses more stakes, the marginal utility of a stake ________ and as she uses more cloves of garlic,
the marginal utility of a clove of garlic ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: JC
AACSB: Analytical reasoning
35
Copyright © 2011 Pearson Education, Inc.
29) The table above gives Matt's utility from consuming slices of pizza. His marginal utility from
the 3rd slice is
A) 27 units.
B) 5 units.
C) 9 units.
D) 11 units.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: WM
AACSB: Analytical reasoning
30) The table above gives Matt's utility from consuming slices of pizza. His marginal utility from
the 4th slice is
A) 30 units.
B) 3 units.
C) 94 units.
D) 23.5 units.
E) 7.5 units.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: WM
AACSB: Analytical reasoning
36
Copyright © 2011 Pearson Education, Inc.
31) The table above gives Matt's utility from consuming slices of pizza. As Matt consumes more
slices of pizza, he
A) obtains greater amounts of marginal utility.
B) obtains less total utility.
C) has diminishing marginal utility.
D) has diminishing total utility.
E) has unchanging marginal utility.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: WM
AACSB: Analytical reasoning
32) For a consumer to maximize utility, in part the consumer must
A) allocate the entire available budget.
B) make the marginal utility per dollar from each good as much different as possible for all
goods.
C) make the marginal utility per dollar from each good as small as possible for all goods.
D) spend as little of the budget as possible.
E) Answers A and B are both correct.
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: JC
AACSB: Reflective thinking
33) In order to maximize his or her utility, a consumer must
A) not allocate his or her entire available budget.
B) allocate his or her entire available budget in order to buy the combination of goods that
equalizes the total utility per dollar from all goods.
C) allocate his or her entire available budget and do nothing else because when the entire budget
is allocated, utility is maximized.
D) allocate his or her entire available budget in order to buy the combination of goods that
equalizes the marginal utility per dollar from all goods.
E) allocate his or her entire available budget in order to buy the combination of goods that makes
the marginal utility per dollar from all goods as large as possible.
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: WM
AACSB: Reflective thinking
37
Copyright © 2011 Pearson Education, Inc.
34) The utility-maximizing rule says that consumers must
A) only allocate the entire available budget.
B) only make the marginal utility per dollar the same for all goods.
C) allocate the entire available budget and make the marginal utility per dollar the same for all
goods.
D) either allocate the entire available budget or make the marginal utility per dollar the same for
all goods but not both.
E) None of the above answers are correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: SB
AACSB: Reflective thinking
35) Suppose the consumer has allocated his or her entire budget. Which of the following
conditions is also required for total utility to be maximized?
A) Marginal utility has decreased to zero for all goods.
B) The least inexpensive combination of goods has been purchased.
C) The marginal utility for each good is equal.
D) The marginal utility divided by price for each good is equal.
E) The number of units of each good consumed must be the same.
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: TS
AACSB: Reflective thinking
36) Carter spends his entire budget on pizza and Pepsi. He maximizes his utility when he
allocates his entire available budget and buys pizza and Pepsi so that the
A) marginal utility from pizza is equal to the marginal utility from Pepsi.
B) total utility from both pizza and Pepsi is maximized.
C) marginal utility per dollar from pizza is equal to the marginal utility per dollar from Pepsi.
D) total utility per dollar from both pizza and Pepsi are equal.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: SA
AACSB: Reflective thinking
38
Copyright © 2011 Pearson Education, Inc.
37) For David, the marginal utility from an additional car is 2,000 units and the marginal utility
from an additional vacation is 1,000 units. David is allocating all his budget. Hence to maximize
his utility, David will
A) shift his consumption from the vacation to the car.
B) shift his consumption from the car to the vacation.
C) save his budget by not spending it until he can afford both the car and the vacation.
D) buy both the car and the vacation now.
E) possibly do something, but there is not enough information available to determine what he
would do.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: SA
AACSB: Analytical reasoning
38) If a consumer has allocated his or her budget and found the combination of goods where all
marginal utilities divided by price are equal, what would happen if the consumer were forced to
consume some other combination of goods? The consumer
A) will definitely have higher total utility.
B) will definitely have lower total utility.
C) will definitely not experience any change in total utility.
D) might be have higher, lower, or the same total utility but more information is needed to
determine which.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: TS
AACSB: Analytical reasoning
39) If Raul's marginal utility per dollar from bread is 25 and the marginal utility per dollar from
butter is 30,
A) Raul should purchase more butter and less bread to increase his total utility.
B) Raul's marginal utility from butter will fall if he buys more butter.
C) Raul's marginal utility from bread will rise if he buys less bread.
D) Only answer B and answer C are correct.
E) Answer A, answer B, and answer C are correct.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: SA
AACSB: Analytical reasoning
39
Copyright © 2011 Pearson Education, Inc.
40) Sheryl is maximizing her utility. She notices that her marginal utility from the last package
of bubble gum consumed is greater than her marginal utility from the last package of mints
consumed. This result means that the
A) price of a package of gum is greater than the price of a package of mints.
B) price of a package of mints is greater than the price of a package of gum.
C) total utility of gum must be falling as more gum is consumed.
D) total utility of mints must be falling as more mints are consumed.
E) More information is needed which, if any, of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: SA
AACSB: Analytical reasoning
41) Assume you are in a store looking at a shirt you want. You expect to buy the shirt until you
look at the price, then you decide the shirt is not a good buy. How can your decision be viewed
in economic terms?
A) The shirt's marginal utility divided by price was too low compared to other goods.
B) The shirt has zero marginal utility for you.
C) The opportunity cost of the shirt was too low.
D) The shirt's marginal utility divided by price was too high compared to other goods.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: TS
AACSB: Analytical reasoning
42) In a month, Samantha consumes the quantity of lobster dinners so that her marginal utility
from a lobster dinner is 500 units. The price of a lobster dinner is $25. She also is consuming the
quantity of spaghetti dinners so that its marginal utility is 300 units, while its price is $15.
Samantha is allocating her entire budget. What should she do to maximize her total utility?
A) consume more lobster dinners and fewer spaghetti dinners
B) consume more spaghetti dinners and fewer lobster dinners
C) consume the current combination of lobster and spaghetti dinners
D) consume fewer lobster dinners and fewer spaghetti dinners
E) Not enough information is given to answer the question.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: TS
AACSB: Analytical reasoning
40
Copyright © 2011 Pearson Education, Inc.
43) Suppose the price of a pair of jeans is $25 and the price of a T-shirt is $15. The consumer's
budget is entirely allocated. If the marginal utility from a pair of jeans is 100 units and the
marginal utility from a T-shirt is 75 units, the consumer is
A) in equilibrium because his or her utility is maximized.
B) not in equilibrium and should purchase fewer jeans and more T-shirts.
C) not in equilibrium and should purchase fewer T-shirts and more jeans.
D) not in equilibrium, but should maintain the current level of purchases.
E) not in equilibrium and should purchase more T-shirts and more jeans.
Skill: Level 4: Applying models
Section: Checkpoint 12.2
Author: SB
AACSB: Analytical reasoning
44) Mary is currently buying apples and oranges such that the last unit of apples has 30 units of
utility and the last unit of oranges has 40 units of utility. She has allocated her entire budget. If
the price of an apple is 10 cents and the price of an orange is 20 cents, to maximize her utility,
what should Mary do?
A) buy more apples and fewer oranges
B) buy more oranges and fewer apples
C) continue to buy the same amounts of both goods
D) buy fewer apples and fewer oranges
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: TS
AACSB: Analytical reasoning
45) Suppose that Jen receives 400 units of utility from her last soda and 200 units of utility from
her last slice of pizza. What can we conclude about Jen's choices if the price of a soda is $1 and
the price of a slice of pizza is $2?
A) Jen is maximizing utility because she buys more of the good providing the most utility.
B) Jen should buy more soda to maximize her utility.
C) Jen should buy more pizza to maximize her utility.
D) Jen needs to buy less soda and less pizza to maximize her utility.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: CD
AACSB: Analytical reasoning
41
Copyright © 2011 Pearson Education, Inc.
46) The price of coffee increases because of low crop yields. If the consumer's utility schedule
for coffee remains constant, we can predict that coffee consumption
A) will increase.
B) will decrease.
C) will stay the same.
D) will increase if the marginal utility of coffee diminishes and will decrease if the marginal
utility of coffee increases.
E) might change but we need more information to determine if it increased, decreased, or did not
change.
Skill: Level 4: Applying models
Section: Checkpoint 12.3
Author: SB
AACSB: Analytical reasoning
47) The consumption of bottled water increased dramatically during the 1990s. If consumers'
utility schedules for water remained constant over this time period, in order for consumers to stay
in equilibrium, the price of bottled water must have ________.
A) risen because marginal utility increased since people consumed more bottled water
B) fallen
C) remained constant because the marginal utility schedule did not change
D) risen because the supply of water must have increased
E) We don't have enough information to say what happened to the price.
Skill: Level 4: Applying models
Section: Checkpoint 12.3
Author: SB
AACSB: Analytical reasoning
Bottles of Soda Slices of Pizza
42
Copyright © 2011 Pearson Education, Inc.
48) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.
The price of pizza is $2 per slice and the price of soda is $1 per bottle. His marginal utility from
the 4th slice of pizza is
A) 7.
B) 3.50.
C) 34.
D) 17.50.
E) 27.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: CD
AACSB: Analytical reasoning
49) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.
The price of pizza is $2 per slice and the price of soda is $1 per bottle. His marginal utility from
the 4th bottle of soda is
A) 21.
B) 3.
C) 3 units for soda ÷ 7 units for pizza.
D) 34.
E) 5.25.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: CD
AACSB: Analytical reasoning
43
Copyright © 2011 Pearson Education, Inc.
50) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.
The price of pizza is $2 per slice and the price of soda is $1 per bottle. Ali has $14 in his budget.
When Ali maximizes his utility, how many bottles of soda does he buy?
A) fewer than 3
B) 3
C) 4
D) 5
E) more than 5
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
51) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.
The price of pizza is $2 per slice and the price of soda is $1 per bottle. Ali has $14 in his budget.
When Ali maximizes his utility, how many slices of pizza does he buy?
A) fewer than 2
B) 2
C) 3
D) 4
E) more than 4
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
52) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.
The price of pizza is $2 per slice and the price of soda is $1 per bottle. Ali has $14 in his budget.
When Ali maximizes his utility he buys ________ bottles of soda and ________ slices of pizza.
A) 4; 5
B) 6; 4
C) 2; 6
D) 6; 6
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
44
Copyright © 2011 Pearson Education, Inc.
53) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.
The price of pizza is $2 per slice and the price of soda is $1 per bottle. Ali has $14 in his budget.
When Ali maximizes his utility, his total utility equals
A) 6.
B) 9.
C) 69.
D) 61.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: CD
AACSB: Analytical reasoning
54) The table above gives Ali's total utility from consuming bottles of soda and slices of pizza.
Suppose the price of a slice of pizza increases. As a result, Ali's
A) marginal utility per dollar from pizza decreases.
B) total utility increases.
C) purchases of pizza might increase.
D) marginal utility from all the slices of pizza he consumes decreases.
E) marginal utility per dollar from soda increases.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: CD
AACSB: Analytical reasoning
45
Copyright © 2011 Pearson Education, Inc.
55) Chase has a budget of $14 which he must allocate between steak and cranberry juice. The
table gives his marginal utility and the marginal utility per dollar for both of those goods. The
price of steak is $10 per serving and the price of cranberry juice is $2 per serving. To maximize
his utility, Chase should buy
A) 2 servings of steak and 2 servings of cranberry juice.
B) 2 servings of steak and 4 servings of cranberry juice.
C) 1 serving of steak because this has the highest marginal utility.
D) 1 serving of steak and 2 servings of cranberry juice.
E) 4 servings of steak and 4 servings of cranberry juice.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: SA
AACSB: Analytical reasoning
56) Liz consumes two goods, candy bars and potato chips. Her budget is $4 per day. The price of
a candy bar is $1.00 and the price of a bag of chips is 50 cents. Her utility is in the table above.
How much marginal utility per dollar does the 3rd bag of potato chips give Liz?
A) 18
B) 4
C) 8
D) 36
E) We need more information to be able to answer the question.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: WM
AACSB: Analytical reasoning
46
Copyright © 2011 Pearson Education, Inc.
57) Liz consumes two goods, candy bars and potato chips. Her budget is $4 per day. The price of
a candy bar is $1.00 and the price of a bag of chips is 50 cents. Her utility is in the table above.
For Liz to maximize her utility, what combination of candy bars and potato chips should she eat?
A) 4 candy bars and 0 bags of potato chips
B) 3 candy bars and 2 bags of potato chips
C) 2 candy bars and 4 bags of potato chips
D) 1 candy bar and 5 bags of potato chips
E) None of the above answers are correct.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: WM
AACSB: Analytical reasoning
Quantity of
pizza
Total utility
from pizza
Quantity of
Diet Pepsi
Total utility
from Diet
Pepsi
0 0 0 0
1 24 1 14
2 44 2 26
3 60 3 36
4 72 4 44
5 76 5 50
6 79 6 54
7 80 7 56
58) Suppose that you consume only pizza and Diet Pepsi. The table above gives your utility from
consuming these two goods. What is the marginal utility you get from the fourth slice of pizza?
A) 36
B) 18
C) 12
D) 4
E) 72
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
47
Copyright © 2011 Pearson Education, Inc.
59) Suppose that you consume only pizza, which costs $4 per slice, and Diet Pepsi, which costs
$2 each. The table above gives your utility from consuming these two goods. If your income is
$14, which of the following consumption combinations will you choose?
A) 3 slices of pizza and 1 Diet Pepsi
B) 2 slices of pizza and 3 Diet Pepsis
C) 1 slice of pizza and 5 Diet Pepsis
D) 0 slices of pizza and 7 Diet Pepsis
E) None of the above answers are correct.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
60) Suppose that you consume only pizza, which costs $4 per slice, and Diet Pepsi, which costs
$2 each. The table above gives your utility from consuming these two goods. If your income is
$20, which of the following consumption combinations will you choose?
A) 5 slices of pizza and no Diet Pepsi
B) 4 slices of pizza and 2 Diet Pepsis
C) 3 slices of pizza and 4 Diet Pepsis
D) 2 slice of pizza and 6 Diet Pepsis
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: MR
AACSB: Analytical reasoning
61) If the price of steak rises, a consumer who had been maximizing his or her utility before will
buy less steak because its
A) total utility falls.
B) ratio of marginal utility to price is now less than that for other goods.
C) marginal utility has fallen.
D) ratio of marginal utility to total utility falls.
E) ratio of marginal utility to price is now larger than that for other goods.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: TS
AACSB: Analytical reasoning
48
Copyright © 2011 Pearson Education, Inc.
62) Moving downward along a demand curve, so that the price falls and the quantity demanded
increases, the marginal utility of each additional unit of the good consumed
A) always increases.
B) always decreases.
C) stays the same.
D) could increase, decrease, or stay the same.
E) at first increases and then decreases
Skill: Level 5: Critical thinking
Section: Checkpoint 12.2
Author: SB
AACSB: Reflective thinking
63) The demand curve for macadamia nuts is downward sloping. This slope is because
consumers maximize their utility and an increase in the price of macadamia nuts leads to
A) no change in quantity demanded.
B) an increase in the marginal utility per dollar from macadamia nuts.
C) a decrease in the marginal utility per dollar from macadamia nuts.
D) consumers' budget lines rotating outward with their slopes changing.
E) consumers' budget lines shifting outward with no change in their slope.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: JC
AACSB: Reflective thinking
64) Juan's marginal utility from strawberries is 200 and his marginal utility from cream is 100.
Juan spends all his budget. The price of strawberries is $5 per pound and the price of cream is $5
per pint. To maximize his utility, Juan should
A) buy more cream and fewer strawberries.
B) buy less cream and more strawberries.
C) buy more cream and more strawberries.
D) buy less cream and fewer strawberries.
E) change nothing because Juan is maximizing his utility now.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: SA
AACSB: Analytical reasoning
49
Copyright © 2011 Pearson Education, Inc.
65) Paula is currently spending all of her budget and she finds that the marginal utility per dollar
from dresses exceeds the marginal utility per dollar from hats. To maximize her utility, Paula
should therefore buy
A) more dresses and fewer hats.
B) more hats and fewer dresses.
C) more dresses and hats.
D) fewer dresses and hats.
E) probably change her purchases but more information is needed to determine if she should buy
more or fewer dresses and hats.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: JC
AACSB: Analytical reasoning
66) In economics, utility
A) always decreases as income increases.
B) equals opportunity cost.
C) is an index of satisfaction.
D) is measured by the same units as relative price.
E) and relative price are the same thing.
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: STUDY GUIDE
AACSB: Reflective thinking
67) Marginal utility is the
A) change in total utility that results from a one-unit increase in the quantity of a good
consumed.
B) total benefit from the consumption of a good or service.
C) quantity of a good a consumer prefers.
D) average utility per unit consumed.
E) change in total utility that results from a one dollar increase in the price of a good consumed.
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: STUDY GUIDE
AACSB: Reflective thinking
50
Copyright © 2011 Pearson Education, Inc.
68) Sushi costs $3 per piece. Cynthia's total utility after eating one piece is 30 and her total utility
after eating 2 pieces is 51, so her marginal utility from the second piece is
A) 17.
B) 10.
C) 51.
D) 7.
E) 21.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
69) As Shaniq drinks additional cups of tea at breakfast, Shaniq's
A) marginal utility from tea decreases.
B) total utility from tea increases.
C) total utility from tea decreases.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: STUDY GUIDE
AACSB: Reflective thinking
70) Marginal utility per dollar is calculated by ________ the price of the good.
A) multiplying the marginal utility from a good by
B) dividing the marginal utility from a good by
C) multiplying the total utility from a good by
D) dividing the total utility from a good by
E) averaging the marginal utility from the good with
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
51
Copyright © 2011 Pearson Education, Inc.
71) Sushi costs $3 per piece. Cynthia's total utility after eating one piece is 30 and her total utility
after eating 2 pieces is 51, so her marginal utility per dollar from the second piece is
A) 17.
B) 10.
C) 51.
D) 7.
E) 21.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
72) When Chris maximizes his total utility, then his entire available budget is allocated in such a
way that the
A) marginal utility of all goods is equal.
B) marginal utility per dollar is equal for all goods.
C) marginal utility is as large as possible for goods.
D) marginal utility will start decreasing if it consumes fewer goods.
E) quantities consumed of each good are equal.
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: STUDY GUIDE
AACSB: Reflective thinking
73) Suppose that Misty likes pizza and hotdogs. If her marginal utility per dollar from pizza is 6
and from hotdogs it is 5, Misty
A) is maximizing her total utility.
B) could increase her total utility by buying more hotdogs and less pizza.
C) could increase her total utility by buying more pizza and fewer hotdogs.
D) is maximizing her marginal utility.
E) must obtain more income in order to reach her consumer equilibrium.
Skill: Level 4: Applying models
Section: Checkpoint 12.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
52
Copyright © 2011 Pearson Education, Inc.
74) You can use marginal utility theory to find the demand curve by changing
A) only the price of one good.
B) only income.
C) the utility schedule.
D) only the prices of both goods.
E) income and the prices of both goods.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: STUDY GUIDE
AACSB: Reflective thinking
75) Suppose that Hank consumes only Mountain Dew and pizza. If Hank's total utility from all
amounts of both Mountain Dew and pizza double from what they were before, then Hank's
demand for
A) both goods must double.
B) one of the goods must double.
C) both goods must decrease by one-half.
D) one of the goods must decrease by one-half.
E) neither good changes.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
12.3 Efficiency, Price, and Value
1) The maximum price a consumer is willing to pay for an extra unit of a good or service when
total utility is maximized is known as
A) demand.
B) marginal benefit.
C) quantity demanded.
D) total utility.
E) marginal utility.
Skill: Level 1: Definition
Section: Checkpoint 12.3
Author: JC
AACSB: Reflective thinking
53
Copyright © 2011 Pearson Education, Inc.
2) Jen consumes 5 CDs and 2 tacos. She receives 500 units of utility from her 5th CD and 200
units of utility from her 2nd taco. The price of a CD is $10, the price of a taco is $4, and she is
spending her entire budget. Which of the following is true regarding Jen's choices?
A) Jen is operating on her demand curve for tacos.
B) Jen is maximizing utility.
C) Jen is operating on her demand curve for CDs.
D) Only answers A and B are correct
E) Answers A, B, and C are correct.
Skill: Level 4: Applying models
Section: Checkpoint 12.3
Author: CD
AACSB: Analytical reasoning
3) The fact that diamonds have a much higher price than water
A) violates the rules of utility maximization because water is necessary for life.
B) does not violate the rules of utility maximization because globally, fresh water is actually very
rare.
C) does not violate the rules of utility maximization because water's marginal utility is low.
D) violates the rules of utility maximization because diamonds are not necessities.
E) violates the rules of utility maximization because the consumer actually consumes a large
amount of water.
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: WM
AACSB: Reflective thinking
4) Which of the following is the best statement of the paradox of value?
A) Why does the amount people are willing to pay for a good vary with the amount consumed?
B) Why do some goods like water, which is necessary for life, have a low price while other
goods like diamonds have a high price?
C) What is the logical relationship between value and price?
D) Why is efficiency so valuable for a society?
E) None of the above states the paradox of value.
Skill: Level 1: Definition
Section: Checkpoint 12.3
Author: TS
AACSB: Reflective thinking
54
Copyright © 2011 Pearson Education, Inc.
5) To resolve the paradox of value, you must
A) compare price elasticities of demand across goods.
B) distinguish between marginal and total utility.
C) sacrifice efficiency.
D) minimize consumer surplus.
E) distinguish between marginal utility and price.
Skill: Level 4: Applying models
Section: Checkpoint 12.3
Author: SB
AACSB: Reflective thinking
6) The solution to the paradox of value is found by looking at which of the following?
A) total usefulness of different goods
B) the difference between marginal utility and total utility
C) relative prices and total utility
D) the difference between marginal utility and price
E) None of the above helps solve the paradox of value.
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: TS
AACSB: Reflective thinking
7) One reason why the price of diamonds is so high is because the
A) marginal utility of diamonds is zero.
B) marginal utility of diamonds is high.
C) marginal utility of diamonds is low.
D) total utility of diamonds is low.
E) total utility of diamonds is high.
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: JC
AACSB: Reflective thinking
55
Copyright © 2011 Pearson Education, Inc.
8) Why does the paradox of value between diamonds and water arise?
A) because water has a low price and a low total utility, while diamonds have a high price and a
high total utility
B) because water has a low price and a low marginal utility, while diamonds have a high price
and a high marginal utility
C) because necessities like water are higher priced than luxuries like diamonds
D) because diamonds have a higher value to people even though water is essential to life
E) because water has a low price and a low total utility, while diamonds have a high price but
also a low total utility
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: PH
AACSB: Reflective thinking
9) Related to the paradox of value, which of the following statements is correct?
A) The marginal utility of water is enormous but the total utility is small.
B) We consume so much water so its marginal utility is enormous.
C) The marginal utility of water is small but the total utility is enormous.
D) The consumer surplus from water is small.
E) The total utility of water is equal to the marginal utility of water.
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: SA
AACSB: Reflective thinking
10) The paradox of value with respect to water and diamonds can be explained using consumer
surplus because
A) water is cheap but provides a large consumer surplus, while diamonds are expensive with a
small consumer surplus.
B) diamonds are in large supply relative to their demand, while water is scarce in supply relative
to its demand.
C) water is cheap but provides a small consumer surplus, while diamonds are expensive but
provide a large consumer surplus.
D) the total consumer surplus from diamonds is greater than the total consumer surplus from
water.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: PH
AACSB: Reflective thinking
56
Copyright © 2011 Pearson Education, Inc.
11) At all points on a demand curve, the
i. consumer's budget has been allocated to maximize total utility.
ii. quantity is the quantity demanded at each price when total utility is maximized.
iii. price represents the marginal benefit the consumer gets from an extra unit of a good.
A) i only
B) ii only
C) i and ii
D) i and iii
E) i, ii, and iii
Skill: Level 3: Using models
Section: Checkpoint 12.3
Author: STUDY GUIDE
AACSB: Reflective thinking
12) As more of a good is consumed, the marginal utility of an additional unit ________, so
consumers are willing to pay ________ for an additional unit.
A) decreases; less
B) increases; less
C) decreases; more
D) increases; more
E) does not change; less
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: STUDY GUIDE
AACSB: Reflective thinking
13) The paradox of value refers to the
A) utility maximizing rule.
B) fact that water is vital but cheap while diamonds are relatively useless but expensive.
C) fact that consumers have different preferences and utility schedules.
D) law of demand.
E) issue of why the consumer surplus from water equals the consumer surplus from diamonds.
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: STUDY GUIDE
AACSB: Reflective thinking
57
Copyright © 2011 Pearson Education, Inc.
14) One reason why water is cheap compared to diamonds is because the
A) marginal utility of water is enormous.
B) marginal utility of water is small.
C) total utility of water is enormous.
D) total utility of water is small.
E) total utility of water and diamonds must be equal but the marginal utility of water is much
lower than the marginal utility of diamonds.
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: STUDY GUIDE
AACSB: Reflective thinking
15) In the paradox of value between expensive diamonds and inexpensive water, we see that
A) the consumer surpluses are very high for both goods.
B) diamonds have a low consumer surplus while water has a high consumer surplus.
C) diamonds have a high consumer surplus while water has a low consumer surplus.
D) the consumer surpluses are very low for both goods.
E) the consumer surpluses for the two goods cannot be compared.
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: STUDY GUIDE
AACSB: Reflective thinking
58
Copyright © 2011 Pearson Education, Inc.
12.4 Chapter Figures
The figure above shows three budget lines.
1) Based on the figure above, which of the following would lead the consumer's budget line to
shift from BL0 to BL1?
A) A rise in the price of water.
B) A fall in the price of water.
C) A rise in the price of water and the price of gum.
D) A decrease in the consumer's budget.
E) An increase in the consumer's budget.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: MR
AACSB: Analytical reasoning
59
Copyright © 2011 Pearson Education, Inc.
2) Based on the figure above, which of the following would lead the consumer's budget line to
shift from BL0 to BL2?
A) A rise in the price of water.
B) A fall in the price of water.
C) A rise in the price of water and the price of gum.
D) A decrease in the consumer's budget.
E) An increase in the consumer's budget.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: MR
AACSB: Analytical reasoning
3) Based on the figure above, on which budget line is the relative price of gum the highest?
A) Budget line BL2.
B) Budget line BL0.
C) Budget line BL1.
D) The relative price is the same along all three budget lines.
E) An increase in income.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: MR
AACSB: Analytical reasoning
60
Copyright © 2011 Pearson Education, Inc.
The figure above shows two budget lines.
4) Based on the figure above, which of the following would lead the budget line to change from
BL0 to BL1?
A) A rise in the price of water.
B) A fall in the price of water.
C) A rise in the price of water and the price of gum.
D) A decrease in the consumer's budget.
E) An increase in the consumer's budget.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: MR
AACSB: Analytical reasoning
61
Copyright © 2011 Pearson Education, Inc.
The figure above shows the markets for water and diamonds.
5) Based on the figures above, it is the case that the consumer surplus from water ________ the
consumer surplus from diamonds and the marginal utility from water ________ the marginal
utility from diamonds.
A) is equal to; is equal to
B) is larger than; is equal to
C) is larger than; is larger than
D) is larger than; is smaller than
E) is smaller than; is smaller than
Skill: Level 3: Using models
Section: Checkpoint 12.3
Author: MR
AACSB: Analytical reasoning
62
Copyright © 2011 Pearson Education, Inc.
12.5 Appendix
1) Consumers' preferences are described by
A) budget lines.
B) indifference curves.
C) relative prices.
D) household income.
E) demand curves.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Reflective thinking
2) An indifference curve shows
A) different combinations of two goods among which the consumer is indifferent.
B) consumption possibilities that a consumer faces at different prices and income.
C) affordable combinations of goods.
D) the opportunity cost of one good relative to another.
E) the relative price of one good relative to another.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Reflective thinking
3) An indifference curve shows all combinations of two goods
A) that can be purchased with a given income.
B) that can be purchased if relative prices are constant.
C) among which the consumer is indifferent.
D) that have the same marginal rate of substitution.
E) that have the same opportunity cost.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Reflective thinking
63
Copyright © 2011 Pearson Education, Inc.
4) An indifference curve is a line that shows
A) what the consumer can afford to buy.
B) how the quantity demanded of a good changes as its price changes.
C) combinations of goods among which the consumer is indifferent.
D) combinations of goods that have the same marginal rate of substitution.
E) combinations of goods that are affordable.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: PH
AACSB: Reflective thinking
5) An indifference curve is a line that shows
A) combinations of goods among which a consumer is indifferent.
B) different combinations of goods a consumer is able to buy.
C) the indifference of consumers for the budget constraint.
D) Both answers B and C are correct.
E) Both answers A and C are correct.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: SA
AACSB: Reflective thinking
6) An indifference curve shows
A) utility maximizing levels of consumption.
B) preferred combinations of goods.
C) a diminishing marginal rate of substitution as more of both goods are consumed.
D) combinations of goods among which a person is indifferent.
E) an increasing marginal rate of substitution for a good as more of it is consumed.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: CD
AACSB: Reflective thinking
64
Copyright © 2011 Pearson Education, Inc.
7) A curve that shows combinations of goods among which a consumer does not prefer one
combination to another is
A) a budget line.
B) an indifference curve.
C) a production possibilities curve.
D) a demand curve.
E) a marginal rate of substitution curve.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Reflective thinking
8) Sam's budget is $60.00. The combinations of gasoline and coffee along one of Sam's
indifference curves are combinations
A) that require the same total expenditure.
B) that he can afford with his $60.00 budget.
C) among which he is indifferent.
D) that give him the same marginal rate of substitution.
E) None of the above answers are correct.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Reflective thinking
9) Moving along an indifference curve the
A) marginal rate of substitution is constant.
B) consumer does not prefer one consumption point to another.
C) marginal rate of substitution is equal to 0.
D) consumer prefers some of the consumption points to others.
E) marginal rate of substitution for a good increases as more of the good is consumed.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Reflective thinking
65
Copyright © 2011 Pearson Education, Inc.
10) As a consumer moves away from the origin onto higher indifference curves, what happens?
A) Nothing
B) The consumer reaches more preferred combinations of goods.
C) The consumer reaches less preferred combinations of goods.
D) The consumer reaches more affordable combinations of goods.
E) None of the above because it is impossible to move from one indifference curve to another.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 1
Author: TS
AACSB: Reflective thinking
11) Any point above a given indifference curve ________ affordable and is ________ to any
point on the indifference curve.
A) is not; inferior
B) might or might not be; preferred
C) is not; preferred
D) might or might not be; inferior
E) is; preferred
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Reflective thinking
12) Any point below a given indifference curve is
A) inferior to any point on the indifference curve.
B) preferred to any point on the indifference curve.
C) definitely affordable.
D) definitely unaffordable.
E) More information is needed to determine if the point is or is not affordable and if the point is
or is not preferred.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Reflective thinking
66
Copyright © 2011 Pearson Education, Inc.
13) We have asked Mac to rank his preferences between three market baskets, A, B, and C. If
Mac prefers B to C but does not care if he gets A or B, then
A) A is on a higher indifference curve than B.
B) B and C are on the same indifference curve.
C) Both A and B are on a higher indifference curve than C.
D) C is on a higher indifference curve than A.
E) B is on a higher indifference curve than C but it is not possible to determine whether C is on a
higher, lower, or the same indifference curve as A.
Skill: Level 4: Applying models
Section: Chapter 12 Appendix - Checkpoint 1
Author: SB
AACSB: Analytical reasoning
14) A preference map is a set of
A) indifference curves.
B) budget lines.
C) demand curves.
D) substitution curves.
E) marginal rate of substitution curves.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Reflective thinking
15) Which of the following statements is FALSE?
A) A consumer has only one indifference curve.
B) A consumer possesses a preference map.
C) An indifference curve is a curve that shows the combination of goods among which a
consumer is indifferent.
D) The marginal rate of substitution is equal to the magnitude of the slope of the indifference
curve.
E) Diminishing marginal rate of substitution means that the marginal rate of substitution
decreases as more of the good is consumed.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Reflective thinking
67
Copyright © 2011 Pearson Education, Inc.
16) A preference map is a
A) series of indifference curves.
B) positively sloped series of curves, which reflect a consumer's preferences.
C) contour map of a consumer's budget.
D) map showing how much a consumer prefers one good for another.
E) None of the above answers is correct.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: PH
AACSB: Reflective thinking
17) An indifference curve is a line that shows combinations of goods among which a consumer
A) prefers one over the other.
B) places no value on any of the items.
C) can afford to buy all the combinations.
D) is indifferent.
E) believes that all combinations have the same marginal rate of substitution.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 1
Author: STUDY GUIDE
AACSB: Reflective thinking
18) What is the difference between a budget line and an indifference curve?
A) One is measured in dollars while the other in units of goods.
B) One shows what is possible while the other shows what is preferred.
C) One shows a positive relationship and the other shows a negative relationship.
D) The budget line is bowed in toward the origin and the indifference curves are linear.
E) There is no difference.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 1
Author: STUDY GUIDE
AACSB: Reflective thinking
68
Copyright © 2011 Pearson Education, Inc.
19) In a preference map, consumption combinations on higher indifference curves
A) always cost more than any combination on a lower indifference curve.
B) always are preferred to combinations on lower indifference curves.
C) always cost less than any combination on a lower indifference curve.
D) always are less preferred than combinations on lower indifference curves.
E) are sometimes more preferred, sometimes less preferred, and sometimes equally preferred
than any combination on a lower indifference curve.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 1
Author: STUDY GUIDE
AACSB: Reflective thinking
20) The marginal rate of substitution is equal to the magnitude of the
A) slope of the demand curve.
B) price of the good measured along the x-axis.
C) slope of the indifference curve.
D) relative prices of the two goods.
E) price of the good measured along the y-axis.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 2
Author: MR
AACSB: Reflective thinking
21) The marginal rate of substitution of one good for another is measured by moving
A) along an indifference curve.
B) among different indifference curves.
C) along a budget line.
D) among different budget lines.
E) along a demand curve.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 2
Author: TS
AACSB: Reflective thinking
69
Copyright © 2011 Pearson Education, Inc.
22) The magnitude of the slope of an indifference curve is the
A) marginal rate of substitution.
B) rate of relative prices.
C) marginal utility of substitution.
D) marginal rate of utility of income.
E) rate of increasing opportunity cost.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 2
Author: MR
AACSB: Reflective thinking
23) The magnitude of the slope of an indifference curve at a particular point measures the
A) total utility.
B) marginal utility.
C) marginal rate of substitution.
D) total rate of substitution.
E) demand.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 2
Author: TS
AACSB: Reflective thinking
24) Normally shaped indifference curves are bowed towards the origin of the graph. The reason
for this shape is
A) that indifference curves farther away from the origin represent higher levels of utility.
B) diminishing marginal rate of substitution.
C) the law of demand.
D) that the marginal rate of substitution is constant along an indifference curve.
E) the principle of diminishing marginal rate of relative price.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 2
Author: TS
AACSB: Reflective thinking
70
Copyright © 2011 Pearson Education, Inc.
25) As Sam moves rightward along his indifference curve, his marginal rate of substitution for
the good on the horizontal axis
A) is diminishing.
B) is increasing.
C) remains constant.
D) shows the change in his income.
E) first increases and then diminishes.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 2
Author: MR
AACSB: Reflective thinking
26) When the indifference curve is steep, the consumer has a
A) high marginal rate of substitution for the good on the horizontal axis.
B) low marginal rate of substitution for the good on the horizontal axis.
C) large budget.
D) small budget.
E) steep budget line.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 2
Author: SB
AACSB: Analytical reasoning
27) Moving along an indifference curve, if a consumer requires a large amount of the good
measured along the y-axis to make up for one unit less of the good measured on the x-axis, then
A) total utility is increasing.
B) the marginal rate of substitution is low and the indifference curve is flat.
C) the marginal rate of substitution is low and the indifference curve is steep.
D) the marginal rate of substitution is high and the indifference curve is steep.
E) the marginal rate of substitution is high and the indifference curve is flat.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 2
Author: TS
AACSB: Analytical reasoning
71
Copyright © 2011 Pearson Education, Inc.
28) Moving along an indifference curve, if a consumer requires a small amount of the good
measured along the y-axis to make up for one unit less of the good measured on the x-axis, then
A) total utility is increasing.
B) the marginal rate of substitution is low and the indifference curve is flat.
C) the marginal rate of substitution is low and the indifference curve is steep.
D) the marginal rate of substitution is high and the indifference curve is steep.
E) the marginal rate of substitution is high and the indifference curve is flat.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 2
Author: TS
AACSB: Analytical reasoning
29) Suppose the quantity of burgers is measured on the horizontal axis and the quantity of bags
of French fries is measured on the vertical axis. The marginal rate of substitution for burgers is
A) the ratio of burgers consumed to bags of fries consumed.
B) the ratio of bags of fries consumed to burgers consumed.
C) the rate at which a person is willing to give up burgers to get more bags of fries while staying
on the same indifference curve.
D) the rate at which a person is willing to give up bags of fries to get more burgers while staying
on the same indifference curve.
E) the number of burgers consumed minus the number of bags of fries consumed.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 2
Author: CD
AACSB: Analytical reasoning
72
Copyright © 2011 Pearson Education, Inc.
30) Suppose the quantity of burgers is on the horizontal axis and the quantity of bags of French
fries is measured on the vertical axis and Carol's indifference curves are drawn in the graph. As
Carol consumes more
A) burgers, moving along an indifference curve her marginal rate of substitution for burgers
decreases.
B) bags of fries, moving along an indifference curve her marginal rate of substitution for burgers
decreases.
C) burgers and bags of fries moving along an indifference curve, Carol reaches her best
affordable point.
D) of either good, moving along an indifference curve her marginal rate of substitution for
burgers increases.
E) of both goods, moving from one indifference curve to a higher indifference curve, her
marginal rate of substitution definitely does not change.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 2
Author: CD
AACSB: Analytical reasoning
31) Along an indifference curve, if the marginal rate of substitution is 3, then the consumer is
willing to
A) give up 1 unit of the good measured along the y-axis for 3 units of the good measured along
the x-axis.
B) give up 3 units of the good measured along the y-axis for 1 unit of the good measured along
the x-axis.
C) pay $3 for one unit of the good measured along the y-axis.
D) pay $3 for one unit of the good measured along the x-axis.
E) give up 3 units of the good measured along the y-axis for 1 unit of income, that is, $1 of
income.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 2
Author: SB
AACSB: Analytical reasoning
73
Copyright © 2011 Pearson Education, Inc.
32) The marginal rate of substitution for the good on the horizontal axis is
A) the consumer surplus.
B) the same as the consumer's budget line.
C) equal to the magnitude of the slope of the indifference curve.
D) equal to the magnitude of the slope of the consumer surplus curve.
E) equal to 1.0 if the indifference curves are linear.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 2
Author: STUDY GUIDE
AACSB: Reflective thinking
33) In an indifference curve/budget line diagram, a consumer's equilibrium consumption
combination will occur
A) always inside the budget line.
B) always outside the budget line.
C) always on the budget line.
D) sometimes on and sometimes inside the budget line depending on the indifference curves.
E) at the origin.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 3
Author: MR
AACSB: Reflective thinking
34) Which of the following is true if Clarice is at her consumer equilibrium?
i. Clarice is on her budget line.
ii. Clarice is on her highest attainable indifference curve.
iii. Clarice is dividing her budget equally across all goods.
A) i only
B) i and ii
C) i and ii
D) ii and iii
E) iii only
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 3
Author: CD
AACSB: Reflective thinking
74
Copyright © 2011 Pearson Education, Inc.
35) The indifference curve/budget line diagram concludes that Jim is definitely in equilibrium
when he is
A) spending all his budget.
B) saving some of his budget.
C) consuming the combination of goods and services that is affordable and on the highest
attainable indifference curve.
D) consuming a combination of goods and services that is on an indifference curve.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 3
Author: SB
AACSB: Reflective thinking
36) A point where the budget line is just touching an indifference curve at one point is
A) the least affordable point.
B) the best affordable point.
C) on the lowest attainable indifference curve.
D) Both answers B and C are correct.
E) Both answers A and C are correct.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 3
Author: SA
AACSB: Reflective thinking
37) In the indifference curve/budget line framework, at the consumer equilibrium, the consumer
A) is on the budget line.
B) is on the highest attainable indifference curve.
C) has a marginal rate of substitution equal to the relative price of the goods.
D) Only answers A and B are correct.
E) Answers A, B, and C are correct.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 3
Author: MR
AACSB: Reflective thinking
75
Copyright © 2011 Pearson Education, Inc.
38) In an indifference curve/budget line diagram, at the consumer equilibrium the slope of the
budget line
A) equals the slope of the indifference curve.
B) is greater than the slope of the indifference curve.
C) is less than the slope of the indifference curve.
D) may be greater than, equal to, or less than the slope of the indifference curve.
E) has nothing to do with the equilibrium.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 3
Author: SB
AACSB: Reflective thinking
39) At the best affordable point,
A) the marginal rate of substitution reaches its minimum value.
B) relative prices reach their minimum value.
C) the marginal rate of substitution equals the relative price.
D) the marginal rate of substitution equals real income.
E) the marginal rate of substitution reaches its maximum value.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 3
Author: MR
AACSB: Reflective thinking
40) At the point where the budget line is just touching an indifference curve at one point,
A) the slope of the budget line is equal to the slope of the indifference curve.
B) the marginal rate of substitution equals the relative price.
C) the consumer can change his or her consumption and can move to a higher indifference curve.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 3
Author: SA
AACSB: Analytical reasoning
76
Copyright © 2011 Pearson Education, Inc.
41) A consumer is in equilibrium when the
A) consumer is buying any combination of goods and services on his or her budget line.
B) consumer is buying the combination of goods and services on the budget line and on the
highest attainable indifference curve.
C) marginal rate of substitution is as small as possible.
D) marginal rate of substitution is as large as possible.
E) marginal rate of substitution exceeds the relative price of the two goods by as much as
possible.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 3
Author: PH
AACSB: Reflective thinking
42) Luke enjoys eating tuna sashimi and drinking Pepsi. His consumer equilibrium occurs where
his budget line
A) just touches the lowest indifference curve at one point.
B) just touches the highest indifference curve at one point.
C) touches every indifference curve.
D) is below every indifference curve.
E) More information about Luke's budget is needed to determine his consumer equilibrium.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 3
Author: JC
AACSB: Reflective thinking
43) The point where an indifference curve just touches the budget line at one point
A) is the best affordable point.
B) is where the marginal rate of substitution exceeds the relative price by as much as possible.
C) is a point on the consumer's supply of spending curve.
D) cannot be possible because indifference curves always cross the budget line at two points.
E) None of the above answers is correct.
Skill: Level 1: Definition
Section: Chapter 12 Appendix - Checkpoint 3
Author: MR
AACSB: Reflective thinking
77
Copyright © 2011 Pearson Education, Inc.
44) In a budget line/indifference curve diagram, at the consumer's equilibrium at the best
affordable point,
A) any movement upward or downward on the budget line will move the consumer to a less
preferred point.
B) any movement to the northeast to higher indifference curves moves the consumer to a less
preferred point.
C) the slope of the budget line exceeds the marginal rate of substitution by as much as possible.
D) the budget line has a positive slope and the indifference curve has a negative slope.
E) the budget line has a negative slope and the indifference curve has a positive slope.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 3
Author: MR
AACSB: Analytical reasoning
45) If a person consumes only two goods, which of the following is NOT necessary for a
consumer to be at his or her best affordable point of consumption?
A) The consumer chooses a bundle of goods that lies on his or her budget line.
B) The consumer is on his or her highest attainable indifference curve.
C) The consumer chooses equal amounts of both goods.
D) The marginal rate of substitution between the two goods is equal to the relative price of those
two goods.
E) The indifference curve is tangent to the budget line.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 3
Author: MR
AACSB: Reflective thinking
46) If a consumer's marginal rate of substitution is greater than the relative price of the goods,
the consumer is
A) at his or her best affordable point.
B) perhaps at his or her best affordable point.
C) not at his or her best affordable point and should move along his or her indifference curve to a
higher budget line.
D) not at his or her best affordable point and should move along his or her budget line to a higher
indifference curve.
E) More information is needed to determine if the consumer is or is not at his or her best
affordable point.
Skill: Level 4: Applying models
Section: Chapter 12 Appendix - Checkpoint 3
Author: SB
AACSB: Analytical reasoning
78
Copyright © 2011 Pearson Education, Inc.
47) At her best affordable point, Kris
i. is on her budget line.
ii. is on the highest attainable indifference curve.
iii. has a marginal rate of substitution equal to the relative price of the goods.
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 3
Author: STUDY GUIDE
AACSB: Reflective thinking
48) When Bo is at his best affordable consumption point, his marginal rate of substitution is
A) greater than the relative price.
B) equal to the relative price.
C) less than the relative price.
D) equal to one.
E) maximized.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 3
Author: STUDY GUIDE
AACSB: Reflective thinking
49) A consumer's demand for tuna can be found from an indifference curve diagram by doing
which of the following?
A) observing what happens to the consumption of tuna for different income levels
B) finding where the budget line is tangent to an indifference curve for one price of tuna
C) allowing the price of tuna to change and observing the different best, affordable levels of tuna
D) changing the indifference curves and seeing the changes in the quantity of tuna the consumer
demands
E) it is impossible to derive a demand curve from an indifference curve graph
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 4
Author: TS
AACSB: Reflective thinking
79
Copyright © 2011 Pearson Education, Inc.
50) Using Gabriel's budget line and his indifference curves between horseback riding lessons and
baseball lessons, and then changing the prices of each activity holding his income constant,
which of the following can be derived?
A) Gabriel's demand curve for each activity
B) Gabriel's supply curve for each activity
C) Gabriel's marginal benefit for each activity
D) Gabriel's net gain for each activity
E) Both answers A and B are correct.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix - Checkpoint 4
Author: JC
AACSB: Reflective thinking
51) In the indifference curve/budget line diagram, consumers reach higher indifference curves
when
A) their budget decreases.
B) the price of only the good measured along the y-axis increases.
C) the price of only the good measured along the x-axis increases.
D) the price of either good falls.
E) the price of either good rises.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 4
Author: SB
AACSB: Analytical reasoning
52) In an indifference curve/budget line diagram, generally when the price of a good increases,
the consumer purchases
A) less of the good and moves to a lower indifference curve.
B) less of the good and moves to a higher indifference curve.
C) more of the good and moves to a higher indifference curve.
D) more of the good and moves to a lower indifference curve.
E) the same amount of the good and moves to a higher indifference curve.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 4
Author: MR
AACSB: Analytical reasoning
80
Copyright © 2011 Pearson Education, Inc.
53) Gertrude has a $15 budget to spend on soda and crackers. Soda costs $1 per bottle and
crackers cost 50¢ each. If the price of soda increases to $2 per bottle, the ________ rotates
inward and there is a movement along the ________.
A) budget line; demand curve for crackers
B) demand curve; indifference curve for crackers
C) budget line; demand curve for soda
D) demand curve; indifference curve for soda
E) indifference curves; demand curve for soda
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
54) Gertrude has a $15 budget to spend on soda and crackers. Soda costs $1 per bottle and
crackers cost 50¢ each. The quantity of soda is measured on the vertical axis. If the price of soda
increases to $2 per bottle and the price of crackers increase to $1 each, the
A) indifference curves shift inward.
B) indifference curves shift outward.
C) budget line shifts inward.
D) budget line shifts outward.
E) demand curve for soda shifts leftward.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
55) Moving down along an indifference curve,
A) the price of the good measured on the vertical axis decreases.
B) total utility decreases.
C) the marginal rate of substitution for the good on the horizontal axis decreases.
D) the slope of the budget line decreases.
E) the consumer increasingly prefers the new consumption points to the old consumption points.
Skill: Level 2: Using definitions
Section: Integrative
Author: CD
AACSB: Reflective thinking
81
Copyright © 2011 Pearson Education, Inc.
56) Suppose you have one point on a demand curve. To plot another point for this demand curve
using a group of indifference curves,
A) transfer all points from the indifference curve to the corresponding demand curve.
B) horizontally sum the indifference curves.
C) change the price of a good, rotate the budget line, and find the new best affordable point. This
new price and quantity is another point on the demand curve.
D) calculate the marginal rates of substitution from the indifference curve and transfer these
values to the demand curve.
E) transfer the budget line so that it becomes the demand curve.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 4
Author: CD
AACSB: Analytical reasoning
57) To derive a demand curve using the indifference curve model, you must change the
A) consumer's preferences.
B) consumer's income.
C) price of one good, holding the price of the other good and income constant.
D) price of both goods simultaneously but by different amounts.
E) price of both goods simultaneously but by the same percentage.
Skill: Level 4: Applying models
Section: Chapter 12 Appendix - Checkpoint 4
Author: STUDY GUIDE
AACSB: Analytical reasoning
58) Points on a demand curve
A) reflect best affordable points along indifference curves.
B) show diminishing marginal rate of substitution.
C) show increasing marginal rate of substitution.
D) show combinations of goods among which a consumer is indifferent.
E) show all the combinations of affordable goods the consumer can buy.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 4
Author: CD
AACSB: Reflective thinking
82
Copyright © 2011 Pearson Education, Inc.
59) In the above figure, I is an indifference curve. Moving from point a to point b,
A) the marginal rate of substitution for books decreases.
B) the budget line rotates inward.
C) the budget line rotates outward.
D) there is diminishing total utility.
E) the marginal rate of substitution for books increases.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
60) The above figure shows one of Cheri's indifference curves. Suppose point a represents the
best affordable point for Cheri. Cheri's best affordable point could move to point b if
A) marginal utility increases.
B) total utility increases.
C) the price of a CD falls and the price of a book rises.
D) the price of a CD rises and the price of a book falls.
E) Cheri's budget increases.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
83
Copyright © 2011 Pearson Education, Inc.
61) Consider an indifference curve for sodas and pizza, drawn in a figure with sodas measured
along the horizontal axis. Moving downward along the indifference curve, the
A) marginal utility per dollar for sodas must increase.
B) marginal utility per dollar for pizza must increase.
C) consumer remains indifferent among the different combinations of soda and pizza.
D) the level of total utility must change.
E) marginal rate of substitution is constant.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Reflective thinking
62) ________ leads to a decrease in marginal utility per dollar for soda.
A) Increasing marginal utility
B) The diminishing marginal rate of substitution as fewer sodas are consumed
C) An outward shift in the indifference curves for soda
D) An increase in the price of soda
E) A fall in the price of soda
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
63) Suppose Lizzie consumes soda and pizza. If the last bottle of soda she drinks provides 100
units of utility per dollar while the last slice of pizza she eats provides 300 units of utility per
dollar,
A) the demand curve for soda must have shifted outward.
B) the demand curve for pizza must have shifted inward.
C) Lizzie should buy more pizza and less soda to maximize her utility.
D) the indifference curve for soda and pizza must have rotated inward.
E) the marginal rate of substitution between soda and pizza equals 3.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
84
Copyright © 2011 Pearson Education, Inc.
12.6 Appendix figures
The figure above shows three of a consumer's indifference curves.
1) Which point is most preferred?
A) Point C only.
B) Point J only.
C) Point G only.
D) Point C and G are tied for the most preferred.
E) More information is needed to determine which point is most preferred.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Analytical reasoning
85
Copyright © 2011 Pearson Education, Inc.
2) Which of the following are true?
i. Points C and G are equally preferred because they lie on the same indifference curve.
ii. Points C and J are equally preferred because on them the consumption of chewing gum is
equal.
iii. Points G and J are equally preferred because on them the consumption of water is equal.
A) i only
B) ii only
C) iii only
D) ii and iii
E) i, ii, and iii
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Analytical reasoning
86
Copyright © 2011 Pearson Education, Inc.
The figure above shows one of a consumer's indifference curves.
3) The marginal rate of substitution (MRS) at point C equals
A) 4.
B) 8.
C) 2.
D) 1/2.
E) More information is needed to calculate the MRS.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Analytical reasoning
4) The marginal rate of substitution (MRS) at point G equals
A) 4.
B) 8.
C) 2.
D) 1/2.
E) More information is needed to calculate the MRS.
Skill: Level 3: Using models
Section: Chapter 12 Appendix - Checkpoint 1
Author: MR
AACSB: Analytical reasoning
87
Copyright © 2011 Pearson Education, Inc.
12.7 Integrative Questions
1) Billy has a $20 budget to spend on yogurt and cereal. Yogurt cost $2 each and cereal costs $4
each. Suppose that the quantity of yogurt is on the vertical axis and the quantity of cereal is on
the horizontal axis. If the price of yogurt increases, which of the following is true?
i) The budget line rotates outward.
ii) Yogurt's marginal utility per dollar decreases.
iii) The relative price of yogurt increases.
A) i and ii
B) i and iii
C) ii and iii
D) i, ii, and iii
E) Only i
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
2) Billy has a $20 budget to spend on yogurt and cereal. Yogurt cost $2 each and cereal costs $4
each. Suppose that the quantity of yogurt is on the vertical axis and the quantity of cereal is on
the horizontal axis. The budget line's vertical intercept equals ________.
A) $10
B) 5 yogurts
C) 10 yogurts
D) 5 cereals
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
12.8 Essay: Consumption Possibilities
1) You are studying with a friend and your friend says "A budget line shows the various
combinations of two goods that can be purchased with the buyer's income at current prices." Is
your friend's assessment correct or not?
Skill: Level 1: Definition
Section: Checkpoint 12.1
Author: TS
AACSB: Reflective thinking
88
Copyright © 2011 Pearson Education, Inc.
2) How is a budget line similar to a production possibilities frontier? How do they differ?
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SB
AACSB: Reflective thinking
3) Why is the budget line negatively sloped?
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SA
AACSB: Reflective thinking
4) If the price of a good rises and the consumer's budget remains the same, what happens to the
consumer's consumption possibilities?
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: SB
AACSB: Reflective thinking
5) What does the slope of the budget line equal?
Skill: Level 2: Using definitions
Section: Checkpoint 12.1
Author: PH
AACSB: Reflective thinking
89
Copyright © 2011 Pearson Education, Inc.
6) If your budget increases, what is the effect on your budget line?
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: WM
AACSB: Reflective thinking
7) If Bill's income increases from $30,000 per year to $41,000 per year. He consumes pickup
trucks and lamb chops, so with his increase in budget Bill's budget line shifts outward. This
increase in Bill's budget means he can consume more trucks and more lamb." Are these
statements true or false? Briefly explain your answer.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: JC
AACSB: Analytical reasoning
8) Explain how changes in the price of goods and the consumer's budget affect the budget line.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: SB
AACSB: Communication
90
Copyright © 2011 Pearson Education, Inc.
9) The table above has different combinations of egg rolls and sushi rolls that Richard can buy.
Richard's budget for egg rolls and sushi rolls is $120 per week. What are the prices of an egg roll
and a sushi roll?
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: SA
AACSB: Analytical reasoning
91
Copyright © 2011 Pearson Education, Inc.
10) Joe has $100 a week to purchase either computer online service or film for his other hobby,
photography. The price of on-line service is $5 an hour while the price of film is $10 a roll. Draw
Joe's budget line in the figure below.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: TS
AACSB: Analytical reasoning
92
Copyright © 2011 Pearson Education, Inc.
11) Suppose you have a $20 budget per week, the price of soda is $1 per bottle, and the price of
pizza is $4 per slice. In the above below, draw a budget line for soda and pizza, placing soda on
the horizontal axis. Correctly label the axes.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: CD
AACSB: Analytical reasoning
93
Copyright © 2011 Pearson Education, Inc.
12) John likes to spend Thursday nights playing pool and drinking soda. John's budget for
Thursday nights is $10, a soda costs $2, and one game of pool costs $1.
a. Draw a graph of John's budget line in the figure below.
b. In your graph, label the affordable and unaffordable areas.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: SB
AACSB: Analytical reasoning
94
Copyright © 2011 Pearson Education, Inc.
13) The table above has different combinations of hamburgers and hot dogs that Alex can buy.
After labeling the axes, graph Alex's budget line in the figure, putting hot dogs on the x-axis.
a. Alex's income is $8 per day. What is the price of a hot dog? Of a hamburger?
b. What is the slope of the budget line?
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: WM
AACSB: Analytical reasoning
95
Copyright © 2011 Pearson Education, Inc.
14) Sherry is on vacation and wants to bring souvenirs home to family and friends. Her souvenir
budget is $100, and she can choose between T-shirts, which cost $20 each, and key chains,
which cost $5 each.
a. Draw a graph of Sherry's budget line in the figure below.
b. What is the slope of Sherry's budget line? How does that slope represent an opportunity cost?
Suppose that Sherry now finds a store where T-shirts are on sale for $10 each. (Key chains still
cost $5 each).
c. Draw the new budget line in the figure.
d. What is the slope of the new budget line? How has the opportunity cost changed?
96
Copyright © 2011 Pearson Education, Inc.
a. The budget line is in the figure above and is the budget line labeled BL1.
b. The slope of the budget line is 20 key chains divided by 5 T-shirts, which equals 4 key chains
per T-shirt. 4 key chains per T-shirt is an opportunity cost because it represents the quantity of
key chains that must be given up to acquire one more T-shirt.
c. The new budget line is in the figure above and is labeled BL2.
d. The slope of the new budget line is 2 key chains per T-shirt, which means that the
opportunity cost of one T-shirt is now 2 key chains, rather than 4. Thanks to the new store, the
opportunity cost of a T-shirt has fallen.
Topic: Budget line, change in price and change in budget
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: SB
AACSB: Analytical reasoning
97
Copyright © 2011 Pearson Education, Inc.
15) The figure above contains several budget lines for Sarah, who uses her income to purchase
two goods, cheese and crackers.
a. A movement between which two budget lines represents an increase in Sarah's budget for
cheese and crackers?
b. A movement between which two budget lines represents an increase in the price of a pound
of cheese?
c. A movement between which two budget lines represents an increase in the price of a box of
crackers?
Skill: Level 3: Using models
Section: Checkpoint 12.1
Author: SB
AACSB: Analytical reasoning
12.9 Essay: Marginal Utility Theory
1) Is "utility" another word for the cost we give up when we consume a good?
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: WM
AACSB: Reflective thinking
98
Copyright © 2011 Pearson Education, Inc.
2) What is "marginal utility?"
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: SA
AACSB: Reflective thinking
3) How are total and marginal utility related?
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: TS
AACSB: Reflective thinking
4) What is the "principle of diminishing marginal utility"?
Skill: Level 1: Definition
Section: Checkpoint 12.2
Author: SA
AACSB: Reflective thinking
5) "As Rob consumes more dates over the course of a day, it is likely that his marginal utility
from date consumption will rise." Is the previous statement likely correct or incorrect?
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: JC
AACSB: Reflective thinking
99
Copyright © 2011 Pearson Education, Inc.
6) How can restaurants offer all-you-can-eat specials without fear of going bankrupt?
Skill: Level 5: Critical thinking
Section: Checkpoint 12.2
Author: JC
AACSB: Analytical reasoning
7) If Tommy is consuming a combination of goods and services on his budget line, has he
allocated his entire budget?
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: SA
AACSB: Reflective thinking
8) You are studying with a friend, and your friend says "To maximize utility, a consumer must
consume the combination of goods so that the marginal utility of good X equals the marginal
utility of good Y." Explain whether your friend's statement is correct or incorrect.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: SA
AACSB: Reflective thinking
9) What is the utility-maximizing rule?
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: CD
AACSB: Communication
100
Copyright © 2011 Pearson Education, Inc.
10) Explain why total utility is maximized when the marginal utility per dollar from a good is
equal across goods.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: SB
AACSB: Communication
11) To maximize utility, why does a consumer consume the combination of goods that equates
marginal utility per dollar from the different goods rather than just equating the marginal utility
of the different goods?
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: SA
AACSB: Communication
101
Copyright © 2011 Pearson Education, Inc.
12) Amy has the total utility values given above for video rentals a week. Complete the table by
calculating her marginal utilities.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: TS
AACSB: Analytical reasoning
102
Copyright © 2011 Pearson Education, Inc.
13) The table above gives the utility Andy receives from different quantities of vanilla ice cream
cones. Complete the table.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: SB
AACSB: Analytical reasoning
103
Copyright © 2011 Pearson Education, Inc.
14) The table above gives Jessie's marginal utility and total utility from tacos. Complete the
table.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: CD
AACSB: Analytical reasoning
104
Copyright © 2011 Pearson Education, Inc.
15) The table gives the total utility Jamal derives from the consumption of eclairs and cream
puffs. Jamal has $12 to spend on these two confectionery goods. The price of an eclair is $3 and
the price of a cream puff is $1.50.
a. Jamal's budget is $12. In order for Jamal to maximize his utility, how many eclairs and cream
puffs should he buy?
b. Suppose the price of an eclair increase to $6. Jamal's income does not change and neither
does the price of a cream puff. What combination of eclairs and cream puffs will Jamal buy
now?
c. Using your answers to parts (a) and (b), derive two points on Jamal's demand curve for
eclairs.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: SA
AACSB: Analytical reasoning
105
Copyright © 2011 Pearson Education, Inc.
16) Tris is shopping for pants and belts. He has a budget of $100. The price of a pair of pants is
$20 and the price of a belt is $5. His marginal utility schedules are above. What combination of
pants and belts does Tris buy? Explain your answer.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: TS
AACSB: Analytical reasoning
17) Ricardo likes to rent videos and attend concerts. The videos cost $4 and the concerts cost
$40. Ricardo's marginal utility from the last video is 20 units. Ricardo is maximizing his utility.
What is his marginal utility from the last concert he attended?
Skill: Level 4: Applying models
Section: Checkpoint 12.2
Author: SB
AACSB: Analytical reasoning
106
Copyright © 2011 Pearson Education, Inc.
18) Suppose Abe is allocating his entire income and he receives 100 units of utility per dollar
from the tenth slice of pizza and 200 units of utility per dollar from his second soda. Is Abe
maximizing his utility? Should Abe change his consumption of pizza and soda?
Skill: Level 4: Applying models
Section: Checkpoint 12.2
Author: CD
AACSB: Analytical reasoning
107
Copyright © 2011 Pearson Education, Inc.
19) The table above gives Sam's marginal utility schedule for bananas and apples. Sam's fruit
budget is $10.
a. If bananas cost $1 per pound and apples cost $2 per bag, what is Sam's marginal utility per
dollar for all quantities of both goods?
b. What is the utility maximizing combination of bananas and apples for Sam?
c. If the price of bananas increases to $2 per pound, how does Sam's marginal utility per dollar
for bananas change?
d. At the banana price of $2 per pound, what is the new utility maximizing combination of
bananas and apples for Sam?
e. List two points on Sam's demand curve for bananas.
108
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d. Sam's new utility maximizing combination of bananas and apples is 2 pounds of bananas and
3 bags of apples.
e. When the price of a pound of bananas is $1, the quantity demanded is 4 pounds and when the
price rises to $2, the quantity demanded decreases to 2 pounds.
Topic: Marginal utility and the demand curve
Skill: Level 4: Applying models
Section: Checkpoint 12.2
Author: SB
AACSB: Analytical reasoning
20) For a consumer, the marginal utility of good A is 25 and its price is $5. The marginal utility
of good B is 60 and its price is $12. The consumer has allocated his entire budget. Is this
consumer maximizing his total utility? Explain your answer.
Skill: Level 2: Using definitions
Section: Checkpoint 12.2
Author: PH
AACSB: Analytical reasoning
21) If Mark's marginal utility per dollar from the last taco is 15 and his marginal utility per dollar
from the last burrito is 20 units, what should Mark do to increase his total utility?
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: SA
AACSB: Analytical reasoning
22) Suppose Jenny's marginal utility from another serving of fish is 40 and her marginal utility
from another serving of chips is 20. The price of a serving of fish is $10 and the price of a
serving of chips is $1. What should Jenny do to maximize her utility? Explain your answer.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Author: SA
AACSB: Analytical reasoning
109
Copyright © 2011 Pearson Education, Inc.
12.10 Essay: Efficiency, Price, and Value
1) Explain the paradox of value.
Skill: Level 1: Definition
Section: Checkpoint 12.3
Author: CD
AACSB: Communication
2) "Water is very inexpensive. Thus the marginal and total utility of water is small." Analyze the
previous statements.
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: JC
AACSB: Communication
3) Does the fact that diamonds, which we do not need to survive, are more expensive than water,
which is a necessity, constitute a violation of utility maximization?
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: WM
AACSB: Communication
110
Copyright © 2011 Pearson Education, Inc.
4) Why does gold, which is a relatively nonessential item, have a higher price than water, which
is essential to life?
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: PH
AACSB: Communication
5) Kevin allocates his budget according to rules of utility maximization. What are the rules of
utility maximization and how do they explain the paradox of value, which is that diamonds are
expensive but useless, while water is inexpensive but essential?
Skill: Level 3: Using models
Section: Checkpoint 12.3
Author: WM
AACSB: Communication
6) "Because the price of a diamond is much greater than the price of a gallon of water, the
consumer surplus from diamonds is greater than the consumer surplus from water." Is the
previous analysis correct? Explain your answer.
Skill: Level 2: Using definitions
Section: Checkpoint 12.3
Author: SB
AACSB: Communication
111
Copyright © 2011 Pearson Education, Inc.
7) Does the fact that diamonds are so expensive imply that the demand curve for diamonds has a
positive slope? Use marginal utility theory to answer the question.
Skill: Level 5: Critical thinking
Section: Checkpoint 12.3
Author: JC
AACSB: Communication
112
Copyright © 2011 Pearson Education, Inc.
12.11 Essay: Appendix
1) What does the term "indifferent" mean and what is its relationship to an indifference curve?
Skill: Level 1: Definition
Section: Chapter 12 Appendix
Author: JC
AACSB: Communication
2) "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.
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix
Author: JC
AACSB: Reflective thinking
3) Why do consumers prefer higher indifference curves?
Skill: Level 3: Using models
Section: Chapter 12 Appendix
Author: SB
AACSB: Communication
4) "Every point on a budget line has an indifference curve passing through it." Explain if the
previous statement is correct or not.
Skill: Level 3: Using models
Section: Chapter 12 Appendix
Author: SB
AACSB: Reflective thinking
113
Copyright © 2011 Pearson Education, Inc.
5) Tom is stranded on a deserted island where he can only consume coconuts and crabs. Two of
his indifference curves are in the figure above.
a. Would Tom prefer his consumption to be at point a or at point b? At point b or at point c?
Explain your answers.
b. Between points a and b, what is Tom's marginal rate of substitution for a crab?
Skill: Level 3: Using models
Section: Chapter 12 Appendix
Author: JC
AACSB: Analytical reasoning
114
Copyright © 2011 Pearson Education, Inc.
6) The figure above shows a preference map for Sarah, who likes hamburgers and milk shakes.
a. Which two combinations contain the same amount of hamburgers but different quantities of
shakes?
b. Which combination(s) does Sarah most prefer? Why?
c. Which combination(s) does Sarah least prefer? Why?
d. Between which combinations is Sarah indifferent? Why?
Skill: Level 3: Using models
Section: Chapter 12 Appendix
Author: SB
AACSB: Analytical reasoning
115
Copyright © 2011 Pearson Education, Inc.
7) What is the marginal rate of substitution and how does it relate to an indifference curve?
Skill: Level 3: Using models
Section: Chapter 12 Appendix
Author: SB
AACSB: Analytical reasoning
8) "The marginal rate of substitution of the good measured along the x-axis increases as a
consumer moves downward along an indifference curve." Is the previous statement correct or
not?
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix
Author: SB
AACSB: Reflective thinking
9) "As Mike consumes more dates over the course of a day, it is likely that his marginal rate of
substitution of dates for other goods will rise." Is the previous statement correct or incorrect?
Skill: Level 2: Using definitions
Section: Chapter 12 Appendix
Author: JC
AACSB: Reflective thinking
116
Copyright © 2011 Pearson Education, Inc.
10) The figure above shows one of Bob's indifference curves for CDs and books.
a. Is the indifference curve steeper at point a or point b?
b. What is Bob's marginal rate of substitution at point a?
c. What is Bob's marginal rate of substitution at point b?
Skill: Level 3: Using models
Section: Chapter 12 Appendix
Author: SB
AACSB: Analytical reasoning
11) In an indifference curve/budget line framework, how does a consumer decide which of all
possible combinations of goods to purchase?
Skill: Level 3: Using models
Section: Chapter 12 Appendix
Author: TS
AACSB: Communication
117
Copyright © 2011 Pearson Education, Inc.
12) Describe the consumer equilibrium in the indifference curve/budget line model.
Skill: Level 3: Using models
Section: Chapter 12 Appendix
Author: SB
AACSB: Communication
13) Mary likes to consume either pizza or spaghetti. She has $48 to spend on these meals.
a. One week the price of pizza is $8 and the price of spaghetti is $6. Mary uses the indifference
curve analysis she learned in microeconomics to decide how much of each type of meal to buy.
She puts pizza on the vertical axis and spaghetti on the horizontal axis. What is the marginal rate
of substitution at the combination of pizza and spaghetti that Mary chooses?
b. The next week, the price of pizza is $6 and the price of spaghetti is $8 so Mary adjusts her
consumption combination to maximize her total utility. What is her marginal rate of substitution
now?
Skill: Level 4: Applying models
Section: Chapter 12 Appendix
Author: TS
AACSB: Analytical reasoning
118
Copyright © 2011 Pearson Education, Inc.
14) The figure above gives a consumer's budget line and two indifference curves.
a. At which point is the marginal rate of substitution greater than the relative price?
b. At which point is the marginal rate of substitution less than the relative price?
c. Which point represents the consumer equilibrium?
Skill: Level 4: Applying models
Section: Chapter 12 Appendix
Author: SB
AACSB: Analytical reasoning
15) "Every point on a demand curve represents a consumer equilibrium in the indifference curve
model." Explain why the previous statement is correct or not.
Skill: Level 4: Applying models
Section: Chapter 12 Appendix
Author: SB
AACSB: Communication
119
Copyright © 2011 Pearson Education, Inc.
16) George has a $600 annual entertainment budget that he uses to buy trips to the movies and
dinners at local restaurants. The figure above shows indifference curves and budget lines for
these two goods. The price of a movie is $15.
a. Along budget line BL1, what is the price of a dinner?
b. What combination of dinners and movies will George select along budget line BL1?
c. Budget line BL2 represents a change in the price of dinners from that along BL1. What is the
new price of dinners along this budget line?
d. What combination of dinners and movies will George select along budget line BL2?
e. Use the information in this problem to give two points on George's demand curve for
dinners.
Skill: Level 4: Applying models
Section: Chapter 12 Appendix
Author: SB
AACSB: Analytical reasoning
