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Page 1
1.
An indifference curve is a line showing all of the consumption bundles that:
A)
an individual can purchase with a given income.
B)
yield the same total utility for an individual.
C)
yield the same marginal utility.
D)
have the same marginal rate of substitution.
2.
When Laurie asks Matt if he wants a large popcorn and small soda or a large soda and
small popcorn, Matt says, “Oh, I'm indifferent.” This means Matt:
A)
doesn't want popcorn and soda.
B)
thinks both bundles give him the same utility.
C)
thinks neither bundle gives him utility.
D)
thinks the utility he gained from popcorn and soda exactly equals their cost.
Use the following to answer question 3:
Figure and Table: An Indifference Curve Map
3.
(Figure and Table: Indifference Curve Map) Look at the figure and table An
Indifference Curve Map. Combination _____ is preferred to combination _____.
A)
A; B
B)
B; D
C)
C; A
D)
B; C
Page 2
4.
Combinations of two goods that yield equal levels of utility are shown on a(n) _____
curve.
A)
indifference
B)
budget
C)
marginal utility
D)
utility-maximizing
5.
The slope of a(n) _____ curve shows the rate at which two goods can be exchanged
_____ the consumer's _____.
A)
marginal utility; by increasing; marginal utility
B)
indifference; without affecting; total utility
C)
utility; without affecting; budget
D)
indifference; without affecting; budget
6.
An indifference curve shows combinations of two goods that yield:
A)
equal prices.
B)
equal money income.
C)
equal satisfaction.
D)
increasing prices.
7.
If a consumer moves upward along an indifference curve, his or her total utility:
A)
remains constant.
B)
first decreases, then increases.
C)
increases.
D)
first increases, then decreases.
8.
If two combinations of two goods yield the same level of satisfaction, then they are on:
A)
the same price line.
B)
the same budget constraint.
C)
the same indifference curve.
D)
different indifference curves.
9.
Higher indifference curves represent:
A)
less utility than lower indifference curves.
B)
more utility than lower indifference curves.
C)
the same level of utility as lower indifference curves.
D)
unknown levels of utility compared to lower indifference curves.
Page 3
10.
In terms of indifference curves, an increase in total utility is represented by a _____
indifference curve.
A)
shift to the right to a higher
B)
shift to the left to a lower
C)
movement upward along an
D)
movement downward along an
11.
If combination A lies on a higher indifference curve than combination B and
combination B lies on a higher indifference curve than combination C, it must be that
the total utility associated with combination A is _____ the total utility associated with
combination C.
A)
less than
B)
more than
C)
equal to
D)
more than or equal to
12.
A(n) _____ is a curve that shows all of the consumption bundles that yield the same
level of total utility for an individual.
A)
budget line
B)
indifference curve
C)
utility function
D)
marginal rate of substitution
Use the following to answer questions 13-14:
13.
(Table: Bundles of X and Y) Look at the table Bundles of X and Y. Bundle(s):
A)
A and B are on the same indifference curve.
B)
A and C are on the same indifference curve.
C)
D is on the highest indifference curve.
D)
C is on the highest indifference curve, and bundles A and B are on the lowest
indifference curve.
Page 4
14.
(Table: Bundles of X and Y) Look at the table Bundles of X and Y. According to the
table:
A)
bundle D is preferred to bundles A and B.
B)
the consumer is indifferent among bundles A, B, and C.
C)
bundles C and D are both preferred to bundles A and B.
D)
bundle C is preferred to all other bundles.
15.
Consumption bundles that yield equal levels of total utility are shown on the same:
A)
budget line.
B)
marginal utility curve.
C)
indifference curve.
D)
utility maximizing curve.
16.
If a consumer moves downward along an indifference curve, his or her total utility:
A)
remains constant.
B)
first decreases, then increases.
C)
decreases.
D)
first increases, then decreases.
17.
Assume that two combinations of two goods yield the same level of satisfaction. We can
conclude that these combinations are always on:
A)
the same price line.
B)
the same budget constraint.
C)
the same indifference curve.
D)
different indifference curves.
18.
A curve that represents combinations of two goods that yield equal levels of satisfaction
is a(n):
A)
indifference curve.
B)
budget curve.
C)
marginal utility curve.
D)
price–consumption curve.
19.
Higher indifference curves represent _____ lower curves.
A)
less utility than
B)
more utility than
C)
the same utility as
D)
either more or less utility than
Page 5
20.
Higher total utility is represented by _____ indifference curve.
A)
a higher
B)
a lower
C)
movement leftward along an
D)
movement rightward along an
21.
Greater levels of utility are represented by:
A)
indifference curves that are farther from the origin.
B)
indifference curves that are closer to the origin.
C)
moving up to the left on the same indifference curve.
D)
moving down to the right on the same indifference curve.
22.
One point on a standard indifference curve is 8 cookies and 2 brownies; another is 6
cookies and 4 brownies. Which of the following combinations of cookies and brownies
could lie on this indifference curve?
A)
6 cookies and 10 brownies
B)
7 cookies and 6 brownies
C)
4 cookies and 4 brownies
D)
4 cookies and 8 brownies
Use the following to answer questions 23-24:
Figure: Indifference Curve Map I
Page 6
23.
(Figure: Indifference Curve Map I) Look at the figure Indifference Curve Map I. It
shows that:
A)
bundles B and D provide the same level of utility.
B)
bundle A is preferred to bundle B.
C)
bundle D is preferred to bundle C, which is preferred to bundles A and B.
D)
bundle C provides the highest level of utility.
24.
(Figure: Indifference Curve Map I) Look at the figure Indifference Curve Map I. It
shows that:
A)
at point A utility is higher than it is at point B.
B)
utility is diminishing on I1, constant on I2, and increasing on I3.
C)
utility is higher at point D than at point A.
D)
the marginal utility of e-books is positive, while the marginal utility of cell phone
apps is negative.
25.
For most goods, indifference curves:
A)
may intersect.
B)
slope upward.
C)
are concave from the origin.
D)
slope downward.
26.
For most goods, as we move down an indifference curve:
A)
the slope gets flatter.
B)
the slope gets steeper.
C)
the slope stays the same.
D)
total utility decreases.
27.
Which of the following is NOT TRUE of indifference curves for ordinary goods?
A)
They never cross.
B)
They slope downward.
C)
They are convex from the origin.
D)
Indifference curves farther from the origin have lower levels of utility.
28.
The slope of a(n) _____ curve shows the rate at which two goods can be exchanged
_____.
A)
indifference; without changing the total budget
B)
utility; without changing the total budget
C)
indifference; without changing total utility
D)
marginal utility; to increase the consumer's marginal utility
Page 7
29.
An indifference curve typically:
A)
slopes downward.
B)
shows combinations of two goods that yield equal money income.
C)
slopes upward.
D)
is concave.
30.
One point on an indifference curve that displays a diminishing marginal rate of
substitution between apples and oranges is 10 apples and 2 oranges; another is 8 apples
and 4 oranges. Which of the following combinations of apples and oranges could also
lie on this indifference curve?
A)
10 apples and 6 oranges
B)
6 apples and 7 oranges
C)
9 apples and 4 oranges
D)
8 apples and 3 oranges
31.
Manny consumes only bananas and DVDs, and he is on his highest possible indifference
curve. Two bundles on this indifference curve are bundle A (5 bananas and 2 DVDs),
and bundle B (3 bananas and 3 DVDs). Between points A and B, what is Manny's
marginal rate of substitution of bananas for DVDs?
A)
1
B)
2
C)
0.5
D)
1.33
32.
Max consumes only yogurt and almonds, and he is on his highest possible indifference
curve. Bundle A (4 yogurts and 2 almonds) and bundle B (3 yogurts and 3 almonds) are
on this indifference curve. Between points A and B, what is Max's marginal rate of
substitution of yogurt for almonds?
A)
1
B)
2
C)
3
D)
1.33
33.
LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1
teaspoon of honey for 2 teaspoons of sugar. The marginal rate of substitution of sugar
for honey is:
A)
1.
B)
0.5.
C)
2.
D)
undefined.
Page 8
34.
The principle of _____ marginal rate of substitution states that the more chocolate Susan
consumes in proportion to coffee, the _____ coffee she is willing to substitute for
another piece of chocolate.
A)
diminishing; less
B)
diminishing; more
C)
increasing; less
D)
increasing; more
35.
Indifference curves that are convex to the origin imply:
A)
increasing marginal utility.
B)
diminishing marginal rate of substitution.
C)
that as we move down an indifference curve, the slope gets steeper.
D)
constant prices of goods.
36.
The marginal rate of substitution shows how a consumer can substitute between two
goods to:
A)
maintain the same income.
B)
maintain the same level of total utility.
C)
maintain the same marginal utility.
D)
increase total utility.
Use the following to answer question 37:
Figure: Indifference Curves and Consumption Bundles
Page 9
37.
(Figure: Indifference Curves and Consumption Bundles) Let MUP = marginal utility of
pizza, MUH = marginal utility of hot dogs, PP = price of a slice of pizza, and PH = price
of a hot dog. In the figure, the absolute value of the slope of an indifference curve is
equal to:
A)
MUP / MUH.
B)
MUH / MUP.
C)
PH / PP.
D)
PP / PH.
38.
Indifference curves that exhibit a diminishing marginal rate of substitution are:
A)
concave to the origin.
B)
upward-sloping over part of their length.
C)
downward-sloping straight lines.
D)
convex to the origin.
39.
If you are willing to give up 10 shirts (on the vertical axis) for 5 pairs of pants (on the
horizontal axis), and your level of satisfaction is unchanged, the marginal rate of
substitution of pants for shirts is:
A)
0.5.
B)
2.
C)
5.
D)
10.
40.
As a consumer moves upward along an indifference curve, giving up some of X (on the
horizontal axis) to get more of Y (on the vertical axis), his or her marginal rate of
substitution of X for Y:
A)
becomes infinite.
B)
goes from negative to positive.
C)
increases.
D)
decreases.
41.
If you are willing to give up 5 units of good Y (on the vertical axis) for 5 units of good X
(on the horizontal axis) and your level of satisfaction is unchanged, the marginal rate of
substitution is:
A)
0.5.
B)
1.
C)
2.
D)
5.
Page 10
42.
The marginal rate of substitution assumes that:
A)
prices remain unchanged.
B)
money income remains unchanged.
C)
total utility remains unchanged.
D)
the quantities of both goods remain unchanged.
43.
The maximum amount of one good a consumer would be willing to give up to obtain an
additional unit of another is called the:
A)
marginal rate of substitution.
B)
marginal rate of utility exchange.
C)
average rate of substitution.
D)
marginal rate of exchange.
44.
Ersida purchases both baby food (F) and cloth diapers (C). The price of a jar of baby
food is PF and the price of a box of cloth diapers is PC. Assume that the quantity of baby
food is on the horizontal axis and the quantity of cloth diapers is on the vertical axis. At
any point on an indifference curve, the marginal rate of substitution of food for cloth
diapers can be represented by:
A)
MUF / MUC.
B)
MUF × PF.
C)
MUF / PF.
D)
(MUF / MUC) × (PF / PC).
Use the following to answer questions 45-46:
Page 11
45.
(Table: Food and Clothing Bundles) Look at the table Food and Clothing Bundles.
Teddy enjoys consuming food and clothing. The table shows five bundles of food and
clothing that all provide Teddy with the same amount of utility. The marginal rate of
substitution of food for clothing as Teddy moves from bundle D to bundle E is equal to:
A)
1.
B)
–2.8.
C)
–14.
D)
–5.
46.
(Table: Food and Clothing Bundles) Look at the table Food and Clothing Bundles.
Teddy enjoys consuming food and clothing. The table shows five bundles of food and
clothing that all provide Teddy with the same amount of utility. If units of food were put
on a horizontal axis, what would we know about the shape of Teddy's indifference
curve?
A)
It is horizontal.
B)
It is upward-sloping, with a declining marginal rate of substitution.
C)
It is downward-sloping, with a constant marginal rate of substitution.
D)
It is downward-sloping, with a declining marginal rate of substitution.
47.
A decreasing marginal rate of substitution indicates that an indifference curve is:
A)
a straight line.
B)
a vertical line.
C)
a horizontal line.
D)
bowed in toward the origin.
48.
As a consumer gives up some of good A, which is on the horizontal axis, to get more of
good B, which is on the vertical axis, his or her marginal rate of substitution of good A
for good B:
A)
becomes infinite.
B)
goes from negative to positive.
C)
increases.
D)
decreases.
49.
If you are willing to give up 15 units of good A (on the vertical axis) for 5 units of good
B (on the horizontal axis) and your level of satisfaction is unchanged, the marginal rate
of substitution of B for A is:
A)
2.
B)
3.
C)
5.
D)
10.
Page 12
50.
If you are willing to give up 8 units of good A (on the vertical axis) for 4 units of good
B (on the horizontal axis) and your level of satisfaction is unchanged, the marginal rate
of substitution of B for A is:
A)
0.5.
B)
2.
C)
1.
D)
5.
51.
Calculating the marginal rate of substitution assumes that _____ remain(s) unchanged.
A)
prices
B)
money income
C)
satisfaction
D)
the quantities of both goods
52.
The _____ is the maximum amount of good X a consumer would be willing to give up
to obtain an additional unit of good Y.
A)
marginal rate of substitution
B)
marginal rate of utility exchange
C)
average rate of substitution
D)
marginal rate of exchange
53.
Rhonda spends all of her income on clothes and CDs. Suppose this situation were
graphed with clothes on the vertical axis and CDs on the horizontal axis. Rhonda
consumes a bundle of the two goods whose indifference curve is flatter than the budget
line. To increase total utility, given her income, Rhonda should:
A)
increase her consumption of clothes and decrease her consumption of CDs.
B)
increase her consumption of CDs and decrease her consumption of clothes.
C)
do nothing—she is consuming a bundle on her budget line.
D)
Not enough information is given to answer this question.
54.
A consumer maximizes utility, given her income, when she chooses a consumption
bundle whose:
A)
marginal utility of each good is equal.
B)
highest indifference curve is tangent to the budget line.
C)
marginal rate of substitution is highest.
D)
marginal utility of each good is highest.
Page 13
55.
An individual consuming two goods, X and Y, has the usual downward-sloping, convex
indifference curves. All EXCEPT one of the following will characterize the optimal
consumption point. Which is the EXCEPTION?
A)
the intersection of an indifference curve and the budget line at the optimal point
B)
tangency between an indifference curve and the budget line at the optimal point
C)
the optimal consumption point lying on the budget line
D)
maximal utility at the optimal consumption point
56.
If the combination of two goods occurs at a point of tangency between the budget line
and an indifference curve:
A)
consumer equilibrium has not been achieved.
B)
all available income has been spent and total utility is maximized.
C)
total utility can be increased by consuming less of both goods.
D)
total utility can be decreased by consuming more of both goods.
57.
When consumers maximize utility, they obtain:
A)
a point of intersection between indifference curves.
B)
any intersection of the budget line and the indifference curve.
C)
the highest indifference curve that touches their budget constraint.
D)
the lowest indifference curve that touches their budget constraint.
58.
Assume that a combination of two goods reflects a point of tangency between the
budget line and an indifference curve. In this situation, which of the following is
INCORRECT?
A)
Consumer equilibrium has been achieved.
B)
All available income has been spent.
C)
Utility can be increased by consuming less of both goods.
D)
The optimal consumption bundle has been reached.
59.
In terms of indifference curves, the optimal consumption bundle is determined by the:
A)
intersection of a budget line and an indifference curve.
B)
tangency of a budget line and an indifference curve.
C)
tangency of a price consumption curve and an income consumption curve.
D)
intersection of an income consumption curve and a price consumption curve.
Page 14
60.
If the combination of two goods occurs at a point of tangency between the budget line
and an indifference curve:
A)
utility has been maximized.
B)
some available income has not been spent.
C)
utility can be decreased by consuming more of both goods.
D)
utility can be increased by consuming more of one good and less of the other.
61.
If the price of a ticket to a Minnesota Wild hockey game is $60 and the price of a snow
shovel is $40, the price of the hockey ticket relative to that of shovels is _____.
A)
40
B)
23.
C)
1.5
D)
6
62.
If the price of a cookie is $1 and the price of a brownie is $2, the price of cookies in
terms of brownies is:
A)
0.5.
B)
1.0.
C)
2.0.
D)
undefined.
63.
If the price of a cookie is $2 and the price of a brownie is $4, the price of cookies in
terms of brownies is:
A)
0.5.
B)
1.0.
C)
2.0.
D)
undefined.
64.
Sandy has a monthly income of $4,000. She spends her income on business suits and
prepared organic meals. The price of a business suit is $1,000 and the price of a
prepared meal is $50. If we plot business suits on the vertical axis and organic meals on
the horizontal axis, the slope of Sandy's budget line is:
A)
20.
B)
–0.05.
C)
–20.
D)
1,000.
Page 15
Use the following to answer question 65:
Figure: A Budget Constraint for CDs and Movies
65.
(Figure: A Budget Constraint for CDs and Movies) Look at the figure A Budget
Constraint for CDs and Movies. Chantal likes to spend her weekly income on new CDs
and tickets to see movies. The price of a CD is $12 and the movie ticket price is $10.
The graph shows Chantal's budget line. What is her weekly income?
A)
$240
B)
$100
C)
$120
D)
$22
Use the following to answer question 66:
Figure: The Optimal Choice of CDs and Movies
Page 16
66.
(Figure: The Optimal Choice of CDs and Movies) Look at the figure The Optimal
Choice of CDs and Movies. Nina likes to spend her income on new CDs (CD) and
tickets to see movies (M). The graph shows Nina's budget line and the optimal
consumption bundle E. What is the price of movies in terms of CDs at point E?
A)
0.33
B)
1.33
C)
MUCD / MUM
D)
PCD / PM
67.
According to the relative price rule, the optimal consumption bundle between hot dogs
and beer takes place when the _____ rate of substitution is _____ their relative price.
A)
total; equal to
B)
marginal; equal to
C)
marginal; higher than
D)
total; lower than
68.
The relative price rule says that at the optimal consumption bundle the marginal rate of
substitution between two goods must be equal to their relative price. This is equivalent
to saying that:
A)
the marginal utility per dollar is the same for both goods.
B)
the marginal utility of each good consumed must be the same.
C)
goods should be consumed in the same ratio as their relative price.
D)
the marginal rate of substitution is not equal to the ratio of marginal utilities.
69.
After learning about indifference curves, Sandy realizes that her marginal rate of
substitution of grapes for cheese is 2. Since the price of cheese is $3 and the price of
grapes is $1, Sandy:
A)
should buy more grapes and less cheese.
B)
should buy more cheese and fewer grapes.
C)
is maximizing her utility.
D)
is on her highest possible indifference curve.
70.
While at the grocery store, Sidney sees that the price of Grape-Nuts is twice that of
Cheerios. If Sidney buys both goods, then Sidney must:
A)
get twice as much marginal utility from Grape-Nuts as from Cheerios.
B)
get twice as much marginal utility from Cheerios as from Grape-Nuts.
C)
not be maximizing utility.
D)
buy twice as much Cheerios.
Page 17
71.
At the optimal consumption bundle, which of the following conditions does NOT hold?
A)
The ratio of marginal utility of any two goods is equal to the ratio of their prices.
B)
The indifference curve is tangent to the budget line.
C)
The marginal utility per dollar spent is equal for all goods consumed.
D)
The prices of the goods in the optimal bundle are equal.
72.
If the marginal rate of substitution of cookies for brownies equals the price of cookies in
terms of brownies when the consumer is on the budget line, the consumer:
A)
is maximizing total utility.
B)
should consume more cookies and fewer brownies to maximize total utility.
C)
should consume fewer cookies and more brownies to maximize total utility.
D)
may or may not be maximizing total utility.
73.
Joseph chooses a combination of apples and oranges along his budget line. The marginal
rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the
price of an orange is $1.50. Joseph:
A)
is maximizing total utility.
B)
should consume more apples and fewer oranges to maximize total utility.
C)
should consume fewer apples and more oranges to maximize total utility.
D)
may or may not be maximizing total utility.
74.
Joseph chooses a combination of apples and oranges along his budget line. The marginal
rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the
price of an orange is $0.50. Joseph:
A)
is maximizing total utility.
B)
should consume more apples and fewer oranges to maximize total utility.
C)
should consume fewer apples and more oranges to maximize total utility.
D)
may or may not be maximizing total utility.
75.
Joseph chooses a combination of apples and oranges along his budget line. The marginal
rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the
price of an orange is $0.25. Joseph:
A)
is maximizing total utility.
B)
should consume more apples and fewer oranges to maximize total utility.
C)
should consume fewer apples and more oranges to maximize total utility.
D)
may or may not be maximizing total utility.
Page 18
76.
Joseph chooses a combination of apples and oranges along his budget line. The marginal
rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the
price of an orange is $0.10. Joseph:
A)
is maximizing total utility.
B)
should consume more apples and fewer oranges to maximize total utility.
C)
should consume fewer apples and more oranges to maximize total utility.
D)
may or may not be maximizing total utility.
77.
Gillian is consuming her optimal consumption bundle of peanuts and raisins. The
marginal utility associated with the last peanut she consumes is 4 utils, and the marginal
utility associated with the last raisin is 2 utils. What must be the price of peanuts relative
to that of raisins?
A)
0.5
B)
1
C)
2
D)
The relative price is undefined.
78.
Luis is consuming his optimal consumption bundle of pizza and tacos. The marginal
utility associated with the last pizza he consumes is 1 util, and the marginal utility
associated with the last taco is 3 utils. What must be the relative price of pizza in terms
of tacos?
A)
0.33
B)
1
C)
3
D)
The relative price is undefined.
79.
Margo has a monthly income of $60 to spend on coffee or bagels. Each cup of coffee
costs $3 and each bagel costs $4. Margo spends all of her income, and at her
consumption bundle, she is willing to forgo 1 bagel to get the next cup of coffee to
achieve the same level of utility. To maximize her utility, Margo should:
A)
increase coffee consumption and decrease bagel consumption.
B)
increase bagel consumption and decrease coffee consumption.
C)
do nothing.
D)
decrease both coffee and bagel consumption.
Page 19
Use the following to answer questions 80-83:
Figure: The Indifference Curve Map II
80.
(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map
II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib
dinners. The figure shows two of her indifference curves for Cubs tickets and baby back
rib dinners. Which of the following combinations gives Sara the highest level of utility?
A)
40 baby back rib dinners and 2 Cubs tickets
B)
20 baby back rib dinners and 4 Cubs tickets
C)
12 baby back rib dinners and 10 Cubs tickets
D)
All combinations give the same level of utility.
81.
(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map
II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib
dinners. The figure shows two of her indifference curves for Cubs tickets and baby back
rib dinners. If she consumes 20 baby back rib dinners and 4 tickets to Cubs games, she
would be equally happy to give up 8 dinners for _____ more ticket(s) to Cubs games.
A)
1
B)
0.5
C)
2
D)
4
Page 20
82.
(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map
II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib
dinners. The figure shows two of her indifference curves for Cubs tickets and baby back
rib dinners. If she consumes 20 baby back rib dinners and 6 tickets to Cubs games, she
would be equally happy to give up 8 dinners for _____ more ticket(s) to Cubs games.
A)
1
B)
0.5
C)
3
D)
4
83.
(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map
II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib
dinners. The figure shows two of her indifference curves for Cubs tickets and baby back
rib dinners. If a new health report is released stating that there is a connection between
baby back rib dinners and heart attacks and this concerns Sara, each combination of
Cubs tickets and baby back ribs will now yield _____ for Sara.
A)
less utility
B)
more utility
C)
the same level of utility
D)
It is impossible to determine how Sara's utility will be affected.
Use the following to answer questions 84-88:
Figure: Consumer Equilibrium I
The figure shows three of Owen's indifference curves for pizza and soda per week. Owen has
$180 per month to spend on the two goods. The price of a pizza is $20, and the price of a soda is
$1.50.
Page 21
84.
(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. What is
Owen's optimal consumption bundle?
A)
4 pizzas and 150 sodas
B)
8 pizzas and 40 sodas
C)
6 pizzas and 40 sodas
D)
14 pizzas and 20 sodas
85.
(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. If Owen
consumes 1.5 pizzas and 100 sodas, he:
A)
is maximizing his total utility.
B)
should consume more pizza and less soda to maximize his total utility.
C)
should consume less pizza and more soda to maximize his total utility.
D)
should consume more pizza and more soda to maximize his total utility.
86.
(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. If Owen
consumes 1.5 pizzas and 100 sodas, which of the following describes the relationship
between his marginal rate of substitution of pizza for soda and the price of pizza in
terms of soda?
A)
The marginal rate of substitution equals the relative price.
B)
The marginal rate of substitution is greater than the relative price.
C)
The marginal rate of substitution is less than the relative price.
D)
It is impossible to determine, given the information available.
87.
(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. What is
Owen's marginal rate of substitution of pizza for soda when he is consuming his optimal
consumption bundle?
A)
0.75
B)
1.5
C)
13.3
D)
20
88.
(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. If in
equilibrium Owen receives marginal utility of 10 utils from the last pizza he consumes,
his marginal utility from the last soda must be _____ utils.
A)
0.50
B)
0.75
C)
1.5
D)
13.3
Page 22
89.
LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1
teaspoon of honey for 2 teaspoons of sugar. If honey is three times as expensive as
sugar, LaToya will use:
A)
only honey.
B)
only sugar.
C)
some honey and some sugar.
D)
a lot of sugar and a little honey.
90.
LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1
teaspoon of honey for 2 teaspoons of sugar. If the price of honey is half that of sugar,
LaToya will use:
A)
only honey.
B)
only sugar.
C)
a lot of honey and a little sugar.
D)
a lot of sugar and a little honey.
91.
LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1
teaspoon of honey for 2 teaspoons of sugar. If honey is twice as expensive as sugar,
LaToya will:
A)
use only honey.
B)
use only sugar.
C)
use a lot of honey and a little sugar.
D)
be willing to purchase either sugar or honey.
92.
If Coke and Pepsi are perfect substitutes for Lynn, her indifference curves are:
A)
right angles.
B)
concave from the origin.
C)
downward-sloping straight lines.
D)
vertical lines.
93.
Jake considers fries and onion rings perfect substitutes. The indifference curve between
fries and onion rings must be:
A)
a right angle.
B)
concave.
C)
perfectly vertical.
D)
a straight line.
Page 23
94.
Mario sees popcorn and pretzels as perfect substitutes. He is always willing to substitute
3 cups of popcorn for 1 cup of pretzels. His indifference curves for popcorn and pretzels
are _____, and at the optimal consumption bundle his marginal rate of substitution of
popcorn for pretzels is _____.
A)
right angles; 3
B)
right angles; 0.33
C)
straight lines; 3
D)
straight lines; 0.33
95.
Mario sees popcorn and pretzels as perfect substitutes. He is always willing to substitute
3 cups of popcorn for 1 cup of pretzels. If Mario consumes only pretzels, then we know
that the relative price of popcorn in terms of pretzels is:
A)
less than 0.33.
B)
between 0.33 and 3.
C)
3.
D)
greater than 3.
96.
Mario sees popcorn and pretzels as perfect substitutes. He is always willing to substitute
3 cups of popcorn for 1 cup of pretzels. If Mario consumes only popcorn, then we know
that the relative price of popcorn in terms of pretzels is:
A)
less than 0.33.
B)
greater than 0.33.
C)
between 0.33 and 3.
D)
greater than 3.
97.
Mario sees popcorn and pretzels as perfect substitutes. He is always willing to substitute
3 cups of popcorn for 1 cup of pretzels. If the price of a cup of popcorn equals the price
of a cup of pretzels, Mario will eat:
A)
only pretzels.
B)
only popcorn.
C)
mostly pretzels.
D)
The answer is impossible to determine.
98.
Mario sees popcorn and pretzels as perfect substitutes. He is always willing to substitute
3 cups of popcorn for 1 cup of pretzels. If the price of a cup of popcorn is $4 and the
price of a cup of pretzels is $1, Mario will eat:
A)
only pretzels.
B)
only popcorn.
C)
mostly pretzels.
D)
The answer is impossible to determine.
Page 24
99.
Mario sees popcorn and pretzels as perfect substitutes. He is always willing to substitute
3 cups of popcorn for 1 cup of pretzels. If the price of a cup of popcorn is $3 and the
price of a cup of pretzels is $1, Mario will eat:
A)
only pretzels.
B)
only popcorn.
C)
mostly pretzels.
D)
The answer is impossible to determine.
100.
Alison is a traveling salesperson who drives many miles each day to visit her clients.
She gets utility from the purchase of gasoline, but she doesn't care which brand of
gasoline she consumes. Suppose she has a daily budget of $100 for gasoline and can
purchase from two companies, PB and Noxxe. Today she notices that the price of a
gallon of gas at PB is $2.50 and the price of a gallon of gas at Noxxe is $3.33. What is
her optimal purchase of gas?
A)
40 gallons at PB and 30 gallons at Noxxe
B)
none at PB and 30 gallons at Noxxe
C)
20 gallons at PB and 15 gallons at Noxxe
D)
40 gallons at PB and none at Noxxe
101.
Mr. Black always consumes coffee and cream in fixed proportions—8 ounces of coffee
to 1 ounce of cream. This implies that for Mr. Black the marginal rate of substitution of
coffee for cream is:
A)
0.125.
B)
8.
C)
diminishing but between 8 and 1.
D)
undefined.
102.
Mr. Black always consumes coffee and cream in fixed proportions—8 ounces of coffee
to 1 ounce of cream. This implies that for Mr. Black:
A)
coffee and cream are perfect substitutes.
B)
the indifference curves for coffee and cream are tangent.
C)
8 ounces of coffee and 2 ounces of cream yields more utility than 8 ounces of
coffee and 1 ounce of cream.
D)
coffee and cream are perfect complements.
Page 25
103.
Ms. Sweettooth always consumes iced tea and sugar in fixed proportions: 8 ounces of
iced tea to 3 teaspoons of sugar. Which of the following combinations of iced tea and
sugar will give Ms. Sweettooth the highest total utility?
A)
8 ounces of iced tea and 3 teaspoons of sugar
B)
24 ounces of iced tea and 3 teaspoons of sugar
C)
8 ounces of iced tea and 9 teaspoons of sugar
D)
All of the combinations noted give the same total utility.
104.
Ms. Sweettooth always consumes iced tea and sugar in fixed proportions: 8 ounces of
iced tea to 3 teaspoons of sugar. This implies that for Ms. Sweettooth the marginal rate
of substitution of iced tea for sugar is:
A)
0.375.
B)
2.67.
C)
diminishing but between 8 and 3.
D)
undefined.
105.
Ms. Sweettooth always consumes iced tea and sugar in fixed proportions: 8 ounces of
iced tea to 3 teaspoons of sugar. This implies that for Ms. Sweettooth:
A)
iced tea and sugar are perfect substitutes.
B)
the indifference curves for iced tea and sugar are parallel.
C)
8 ounces of iced tea and 3 teaspoons of sugar yield exactly the same utility as 16
ounces of iced tea and 6 teaspoons of sugar.
D)
iced tea and sugar are perfect complements.
106.
Cookie Monster always consumes cookies and milk in fixed proportions: 4 cookies to 8
ounces of milk. Which of the following combinations of cookies and milk will give
Cookie Monster the highest total utility?
A)
8 cookies and 16 ounces of milk
B)
4 cookies and 8 ounces of milk
C)
4 cookies and 16 ounces of milk
D)
4 cookies and 4 ounces of milk
107.
Cookie Monster always consumes cookies and milk in fixed proportions: 4 cookies to 8
ounces of milk. This implies that for Cookie Monster the marginal rate of substitution of
cookies for milk is:
A)
0.5.
B)
2.
C)
diminishing but between 8 and 4.
D)
undefined.
Page 26
108.
Josh is a house painter who always purchases two paintbrushes for every gallon of paint,
regardless of the relative prices. In a graph, these indifference curves would appear as:
A)
straight downward-sloping lines.
B)
downward-sloping lines with a diminishing marginal rate of substitution.
C)
right angles.
D)
upward-sloping straight lines.
Use the following to answer question 109:
Figure: A Changing Budget Constraint for Strawberries and Shortcake
109.
(Figure: A Changing Budget Constraint for Strawberries and Shortcake) Look at the
figure A Changing Budget Constraint for Strawberries and Shortcake. Seb's original
budget line is given by BL1 and his original indifference curve is given by I1. Which of
the following would have caused his budget line to move to BL2?
A)
The price of strawberries increased.
B)
The price of shortcake increased.
C)
Seb's income decreased.
D)
The price of strawberries decreased.
110.
Suppose the government decides to help poor families with kids by subsidizing the
purchase of milk. The subsidy takes the form of a 50% discount on the price of milk.
Suppose also that poor families buy only milk and soda, which are substitutes, although
not perfect substitutes. What happens to the amount of milk poor families buy?
A)
It increases.
B)
It decreases.
C)
It stays the same.
D)
It depends on the shape of the family's indifference curve.
Page 27
111.
Increases in the price of the good measured on the horizontal axis will make the
horizontal intercept _____ and make the budget line _____.
A)
larger; steeper
B)
larger; flatter
C)
smaller; steeper
D)
smaller; flatter
112.
Increases in the price of the good measured on the vertical axis will make the vertical
intercept _____ and make the budget line _____.
A)
larger; steeper
B)
larger; flatter
C)
smaller; steeper
D)
smaller; flatter
113.
Decreases in the price of the good measured on the horizontal axis will make the
horizontal intercept _____ and make the budget line _____.
A)
larger; steeper
B)
larger; flatter
C)
smaller; steeper
D)
smaller; flatter
114.
Decreases in the price of the good measured on the vertical axis will make the vertical
intercept _____ and make the budget line _____.
A)
larger; steeper
B)
larger; flatter
C)
smaller; steeper
D)
smaller; flatter
115.
Suppose the government decides to help poor families with kids by subsidizing the
purchase of milk. The subsidy takes the form of a 50% discount in the price of milk.
Suppose also that poor families buy only milk and Spam (an inferior good). What
happens to the amount of Spam poor families buy?
A)
It increases.
B)
It decreases.
C)
It stays the same.
D)
It depends on the shape of the family's indifference curve.
Page 28
116.
Gwen is consuming the optimal consumption bundle of potatoes and steak. Call this
bundle A. Her income is $100, the price of steak is $10, and the price of potatoes is $1.
Put potatoes on the vertical axis and put steak on the horizontal axis. Her income
increases to $500, and the prices of steak and potatoes remain constant. With the
increase in income, Gwen changes her consumption of the two goods and now
maximizes utility at bundle B. If potatoes are inferior goods for Gwen,
A)
at bundle B, Gwen consumes more potatoes.
B)
at bundle B, Gwen consumes fewer steaks.
C)
at both bundles, the relative price is 10.
D)
at both bundles, Gwen consumes the same amount of potatoes and steaks.
117.
Javon is consuming his optimal utility-maximizing consumption bundle of lobster and
macaroni-and-cheese dinners when he loses his job and has less money to spend. Both
are normal goods. When he adjusts his consumption to reflect the new level of income,
the number of macaroni-and-cheese dinners he consumes:
A)
rises.
B)
falls.
C)
stays the same.
D)
changes, but it is impossible to determine in what way.
118.
Karen consumes gasoline and other goods. A new excise tax on gasoline raises the
price. However, the government pays Karen an income subsidy that is just enough for
her to stay on her original (pretax) indifference curve. Her new optimal consumption
bundle will have:
A)
the same amount of both goods as before.
B)
less gas and more of other goods.
C)
less of other goods and more gas.
D)
This question can't be answered, since some essential information (such as Karen's
income and the pretax and taxed prices of gas) is missing.
119.
Frank buys only milk and cereal, both of which are normal goods, and he always
maximizes his utility. Frank's boss cuts Frank's pay by $200 per month. What happens
to Frank's marginal rate of substitution between milk and cereal?
A)
It fluctuates randomly.
B)
It decreases.
C)
It increases.
D)
It stays constant.
Page 29
120.
If ramen is a Giffen good and the price of ramen decreases:
A)
the substitution effect will cause a decrease in the consumption of ramen.
B)
the income effect will cause a decrease in the consumption of ramen.
C)
the income effect will reinforce the substitution effect, and the consumption of
ramen will decrease.
D)
the demand curve for ramen will still be downward-sloping.
121.
If potatoes are an inferior good and the price of potatoes decreases, the _____ effect will
cause a(n) _____ in the consumption of potatoes.
A)
substitution; decrease
B)
income; increase
C)
income; decrease
D)
substitution effect and the income; decrease
122.
If good A is a normal good and its price decreases, the _____ effect will cause a(n)
_____ in consumption of it.
A)
substitution; decrease
B)
income; decrease
C)
income; increase
D)
substitution effect and the income; decrease
123.
A demand curve is generated from indifference curves by changing:
A)
the price of both goods simultaneously.
B)
the price of one good.
C)
income.
D)
utility.
Page 30
Use the following to answer questions 124-127:
Figure: Income and Substitution Effects
124.
(Figure: Income and Substitution Effects) Look at the figure Income and Substitution
Effects. Carlos is consuming his optimal consumption bundle at point A when the price
of gasoline falls. As Carlos moves to his new optimal consumption bundle, we observe
that gasoline:
A)
is not an ordinary good.
B)
is a normal good.
C)
is an inferior good.
D)
and good L are complements.
125.
(Figure: Income and Substitution Effects) Look at the figure Income and Substitution
Effects. Carlos is consuming his optimal consumption bundle at point A when the price
of gasoline falls. The dashed line tangent to I1 shows a hypothetical budget line
reflecting:
A)
the original income, the original price of cell phone minutes, and the new price of
gasoline.
B)
the new price of gasoline in terms of cell phone minutes and a change in income to
keep Carlos on the original indifference curve.
C)
the new price of gasoline in terms of cell phone minutes and a change in income to
allow Carlos to reach an indifference curve higher than I1.
D)
the income and substitution effects.
Page 31
126.
(Figure: Income and Substitution Effects) Look at the figure Income and Substitution
Effects. Carlos is originally consuming his optimal consumption bundle at point A when
the price of gasoline falls. The movement from K1 to K2 reflects the _____ the decrease
in the price of gasoline.
A)
total change in quantity demanded due to
B)
income effect of
C)
substitution effect of
D)
income and substitution effects of
127.
(Figure: Income and Substitution Effects) Look at the figure Income and Substitution
Effects. Carlos is consuming his optimal consumption bundle at point A when the price
of gasoline falls. The movement from K2 to K3 reflects the _____ the decrease in the
price of gasoline.
A)
total change in quantity demanded due to
B)
income effect of
C)
substitution effect of
D)
income and substitution effects of
128.
Consumers buy both alcoholic and nonalcoholic beverages. If the government tries to
discourage people from drinking alcoholic beverages by imposing an excise tax on them
but gives consumers an income subsidy to keep the consumers on their original
indifference curves:
A)
the same amount of both goods will be consumed.
B)
fewer alcoholic and more nonalcoholic beverages will be consumed.
C)
more alcoholic and fewer nonalcoholic beverages will be consumed.
D)
it is impossible to determine what will happen to the consumption of alcoholic and
more nonalcoholic beverages.
129.
Javon is consuming his optimal utility-maximizing consumption bundle of lobster and
macaroni-and-cheese dinners. Call this bundle A. His income is $100, the price of a
macaroni-and-cheese dinner is $5, and the price of a lobster is $20. Put lobsters on the
vertical axis and put macaroni-and-cheese dinners on the horizontal axis. His income
increases to $500 and the prices of macaroni-and-cheese dinners and lobster remain
constant. With the increase in income, Javon changes his consumption of the two goods
and now maximizes utility at bundle B. If macaroni-and-cheese dinners are an inferior
good for Javon:
A)
at bundle B, Javon consumes more macaroni-and-cheese dinners.
B)
at bundle B, Javon consumes less lobster.
C)
at bundle A and bundle B, the marginal utility of lobster is 5.
D)
at bundle B, Javon consumes more lobster.
Page 32
130.
Suppose peanut butter is an inferior good for Ilya and the price of peanut butter rises.
What will happen to Ilya's consumption of peanut butter?
A)
The substitution effect will cause an increase in the consumption of peanut butter.
B)
The substitution effect will cause a decrease in the consumption of peanut butter
and the income effect will cause an increase in the consumption of peanut butter.
C)
The substitution effect will cause a decrease in the consumption of peanut butter.
D)
The income effect will cause an increase in the consumption of peanut butter.
131.
In terms of indifference curves, a demand curve is generated by changes in:
A)
the income effect.
B)
the substitution effect.
C)
the price of one good.
D)
the price of both goods simultaneously.
132.
A _____ can be generated from indifference curves by changing _____.
A)
supply curve; the price of both goods simultaneously
B)
demand curve; the price of one good
C)
demand curve; income
D)
budget line; utility
Use the following to answer questions 133-136:
Figure: Indifference Curves and Consumption Bundles
Page 33
133.
(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference
Curves and Consumption Bundles. For this consumer pizza is a(n) _____ good and hot
dogs are a(n) _____ good.
A)
normal; inferior
B)
inferior; normal
C)
normal; normal
D)
inferior; inferior
134.
(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference
Curves and Consumption Bundles. The lines AA and BC are parallel. The optimal
consumption point could shift from b to c as a result of any of the following EXCEPT:
A)
an equal percentage increase in the prices of hot dogs and pizza while income is
unchanged.
B)
a decrease in income with prices constant.
C)
a change in tastes.
D)
an equal percentage increase in the prices of hot dogs and pizza while income is
unchanged or a decrease in income with prices constant.
135.
(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference
Curves and Consumption Bundles. In the figure, the initial optimum is at a. The price of
hot dogs increases, and the new equilibrium point is c. The change in hot dog
consumption due to the income effect of the price change is:
A)
H3 to H2.
B)
H3 to H1.
C)
H2 to H1.
D)
H1 to H2.
136.
(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference
Curves and Consumption Bundles. In the figure, the initial optimum is at a. The price of
hot dogs now increases. The change in hot dog consumption due to the substitution
effect is:
A)
H3 to H2.
B)
H3 to H1.
C)
H2 to H1.
D)
H1 to H2.
Page 34
Use the following to answer questions 137-140:
Figure: The Consumption of Video Games and E-Books
137.
(Figure: The Consumption of Video Games and E-Books) Look at the figure The
Consumption of Video Games and E-Books. Which chart shows the effect of a decrease
in income when both video games and e-books are normal goods?
A)
A
B)
B
C)
C
D)
D
Page 35
138.
(Figure: The Consumption of Video Games and E-Books) Look at the figure The
Consumption of Video Games and E-Books. Which chart shows the effects of a
decrease in income when video games are an inferior good and e-books are a normal
good?
A)
A
B)
B
C)
C
D)
D
139.
(Figure: The Consumption of Video Games and E-Books) Look at the figure The
Consumption of Video Games and E-Books. Which chart shows the effects of an
increase in the price of video games when video games and e-books are substitutes but
not perfect substitutes?
A)
A
B)
B
C)
C
D)
D
140.
(Figure: The Consumption of Video Games and E-Books) Look at the figure The
Consumption of Video Games and E-Books. Which chart in the figure shows the effects
of an increase in the price of video games when video games and e-books are
complements but not perfect complements?
A)
A
B)
B
C)
C
D)
D
Page 36
Use the following to answer questions 141-148:
Figure: Harold's Indifference Curves
The figure shows three of Harold's indifference curves for bread and cheese.
141.
(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves.
If the price of bread is $1 per loaf, the price of cheese is $2 per pound, and Harold has
$10 to spend on bread and cheese, Harold's optimal consumption bundle is _____ loaves
of bread and _____ pounds of cheese.
A)
6; 4
B)
4; 3
C)
3; 2
D)
2; 8
142.
(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves.
If the price of bread is $1 per loaf, the price of cheese is $2 per pound, and Harold has
$14 to spend on bread and cheese, Harold's optimal consumption bundle is _____ loaves
of bread and _____ pounds of cheese.
A)
6; 4
B)
4; 3
C)
3; 2
D)
2; 8
Page 37
143.
(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves.
Given that the price of bread is $1 per loaf and the price of cheese is $2 per pound, as
Harold's income increases from $10 to $14, we can determine that bread is a(n) _____
good and cheese is a(n) _____ good.
A)
inferior; inferior
B)
normal; inferior
C)
inferior; normal
D)
normal; normal
144.
(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves.
If the price of bread is $2 per loaf, the price of cheese is $4 per pound, and Harold has
$28 to spend on bread and cheese, Harold's optimal consumption bundle is _____ loaves
of bread and _____ pounds of cheese.
A)
6; 4
B)
4; 3
C)
3; 2
D)
2; 8
145.
(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves.
If the price of bread is $0.50 per loaf, the price of cheese is $1 per pound, and Harold
has $7 to spend on bread and cheese, Harold's optimal consumption bundle is _____
loaves of bread and _____ pounds of cheese.
A)
6; 4
B)
4; 3
C)
3; 2
D)
2; 8
146.
(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves.
If the price of bread is $2 per loaf, the price of cheese is $2 per pound, and Harold has
$10 to spend on bread and cheese, Harold's optimal consumption bundle is _____ loaves
of bread and _____ pounds of cheese.
A)
6; 4
B)
4; 3
C)
3; 2
D)
2; 8
Page 38
147.
(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves.
The price of cheese is $2 per pound and Harold has $10 to spend on bread and cheese.
As the price of bread rises from $1 to $2 per loaf, his consumption of bread:
A)
increases from 2 to 3 loaves.
B)
decreases from 3 to 2 loaves.
C)
increases from 3 to 4 loaves.
D)
decreases from 4 to 3 loaves.
148.
(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves.
If the price of cheese is $2 per pound and Harold has $10 to spend on bread and cheese,
Harold _____ his consumption of cheese as the price of bread rises from $1 per loaf to
$2 per loaf, indicating that bread and cheese are _____.
A)
increases; substitutes
B)
increases; complements
C)
decreases; substitutes
D)
decreases; complements
Use the following to answer questions 149-154:
Figure: The Optimal Consumption Bundle
149.
(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal
Consumption Bundle. If the price of restaurant meals _____, then the optimal
consumption bundle will be on _____ indifference curve.
A)
increases; a higher
B)
decreases; a higher
C)
decreases; a lower
D)
increases; the same
Page 39
150.
(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal
Consumption Bundle. Which of the following could lead to an optimal consumption
bundle on indifference curve I3?
A)
an increase in income
B)
an increase in the price of restaurant meals
C)
an increase in the price of rooms
D)
a decrease in income
151.
(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal
Consumption Bundle. Which of the following could lead to an optimal consumption
bundle on indifference curve I3?
A)
a decrease in income
B)
a decrease in the price of restaurant meals
C)
an increase in the price of rooms
D)
an increase in the price of restaurant meals
152.
(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal
Consumption Bundle. Which of the following could lead to an optimal consumption
bundle on indifference curve I3?
A)
a decrease in income
B)
an increase in the price of restaurant meals
C)
a decrease in the price of rooms
D)
an increase in the price of rooms
153.
(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal
Consumption Bundle. Which of the following could lead to an optimal consumption
bundle on indifference curve I1?
A)
an increase in income
B)
a decrease in the price of restaurant meals
C)
a decrease in the price of rooms
D)
a decrease in income
154.
(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal
Consumption Bundle. Which of the following could lead to an optimal consumption
bundle on indifference curve I1?
A)
an increase in income
B)
an increase in the price of restaurant meals
C)
a decrease in the price of rooms
D)
a decrease in the price of restaurant meals
Page 40
Use the following to answer questions 155-157:
Figure and Table: The Changing Slope of an Indifference Curve
155.
(Figure and Table: The Changing Slope of an Indifference Curve) Look at the figure and
table The Changing Slope of an Indifference Curve. The slope between points W and X
is:
A)
5.
B)
–5.
C)
0.2.
D)
–0.2.
156.
(Figure and Table: The Changing Slope of an Indifference Curve) Look at the figure and
table The Changing Slope of an Indifference Curve. The slope between points X and Y
is:
A)
3.
B)
–5.
C)
–0.33.
D)
–3.
Page 41
157.
(Figure and Table: The Changing Slope of an Indifference Curve) Look at the figure and
table The Changing Slope of an Indifference Curve. Which of the following statements
is TRUE?
A)
Combination V is preferred to combination X.
B)
Combination W is preferred to combination Z.
C)
Combination X is preferred to combination W.
D)
The consumer is indifferent between V and W.
Use the following to answer questions 158-165:
Figure: Consumer Equilibrium II
158.
(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. The
HIGHEST level of total utility is associated with point _____ on indifference curve
_____.
A)
H; C
B)
I; B
C)
G; B
D)
J; A
Page 42
159.
(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. The
LOWEST level of total utility shown in the figure is associated with point _____ on
curve _____.
A)
H; A
B)
I; B
C)
G; C
D)
J; A
160.
(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. A level
of total utility NOT attainable is at point:
A)
G.
B)
K.
C)
I.
D)
J.
161.
(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Ashyra
consumes at point G. Ashyra would be able to realize more total utility by choosing
point _____, all other things held equal.
A)
J
B)
K
C)
I
D)
H
162.
(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Ashyra
consumes at point I. Ashyra could gain more utility by choosing point _____, all other
things held equal.
A)
J
B)
G
C)
K
D)
The consumer doesn't have enough income to gain more utility.
163.
(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Ashyra
would maximize her utility at point _____ with the consumption of _____ olive oil and
_____ dish soap.
A)
J; S; P
B)
I; S; P
C)
J; N; F
D)
I; N; M
Page 43
164.
(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Which
of the following statements is TRUE?
A)
Point I is the point of utility maximization.
B)
At the point of utility maximization, the rate at which Ashyra is willing to
exchange one good for another is less than the rate at which the goods can be
exchanged in the market.
C)
At point I, Py = Px.
D)
At point I, Ashyra has some income left for saving.
165.
(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Which
of the following is TRUE?
A)
To increase utility beyond that received at point I requires an increase in the price
of olive oil.
B)
Point J could be attained with an increase in Ashyra's income.
C)
An increase in the prices of olive oil and dish soap would allow Ashyra to attain
point J.
D)
To increase utility beyond that received at point I requires an increase in the price
of dish soap.
Use the following to answer questions 166-174:
Figure: Consumer Equilibrium III
Page 44
166.
(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. The
highest level of total utility attainable is associated with point _____ on _____.
A)
C; I3
B)
E; I2
C)
A; I2
D)
B; I1
167.
(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. The
lowest level of total utility at which Ivan still spends all of his income is associated with
point _____ on _____.
A)
A; I3
B)
C; I3
C)
E; I2
D)
B; I1
168.
(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. A
level of total utility NOT attainable is at point:
A)
A.
B)
F.
C)
E.
D)
B.
169.
(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III.
Which of the following statements is TRUE?
A)
Q4 indicates the price of placemats.
B)
Q8 indicates the price of tamales.
C)
Points A and E represent the same level of total utility.
D)
Kurt is better off at point E than at point A.
170.
(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. Kurt
consumes at point A. Other things held equal, Kurt would be able to realize more total
utility by choosing point:
A)
E.
B)
B.
C)
C.
D)
F.
Page 45
171.
(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. Kurt
consumes at point C. If income remains unchanged, Kurt could gain more utility by
choosing point:
A)
B.
B)
A.
C)
F.
D)
E.
172.
(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. Kurt
would maximize his utility at point _____ with the consumption of _____.
A)
B; Q6 and Q3
B)
E; Q1 and Q7
C)
F; Q5 and Q4
D)
E; Q5 and Q2
173.
(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. Given
the figure, which of the following statements is TRUE?
A)
At the point of utility maximization, the rate at which Kurt is willing to exchange
one good for another is less than the rate at which the goods can be exchanged in
the market.
B)
An increase in the prices of tamales and placemats would allow Kurt to attain point
B.
C)
At point E, Px = Py.
D)
Point E is the point of utility maximization under current budget constraints.
174.
(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. Given
the figure, which of the following is TRUE?
A)
Point C is preferable to point E.
B)
At point E, Px = Py.
C)
Point B could be attained with an increase in the consumer's income.
D)
To increase utility beyond that received at point E requires a change in the
preferences of the consumer.
Page 46
Use the following to answer questions 175-184:
Figure: Consumer Equilibrium IV
175.
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV. The
highest level of utility shown in the figure is associated with indifference curve:
A)
X.
B)
Y.
C)
Z.
D)
Y or Z.
176.
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV. The
lowest level of utility shown in the figure is associated with indifference curve:
A)
X.
B)
Y.
C)
Z.
D)
X or Y.
177.
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV. The
highest level of utility is at point:
A)
G.
B)
H.
C)
I.
D)
J.
Page 47
178.
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV. The
highest attainable level of utility, given budget constraint FL, is at point:
A)
G.
B)
H.
C)
I.
D)
J.
179.
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV. An
unattainable level of utility, given budget constraint FL, is at point:
A)
G.
B)
H.
C)
I.
D)
J.
180.
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.
Assume that you are consuming the combination of goods at point G. Given the budget
constraint FL, utility:
A)
can be increased by consuming more train tickets and fewer nights in a hotel room.
B)
can be increased by consuming fewer train tickets and more nights in a hotel room.
C)
can be increased by consuming more of both goods.
D)
cannot be increased.
181.
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.
Assume that you are consuming the combination of goods at point K. Given the budget
constraint FL, utility:
A)
can be increased by consuming more nights in a hotel room and fewer train tickets.
B)
can be increased by consuming fewer nights in a hotel room and more train tickets.
C)
can be increased by consuming more of both goods.
D)
cannot be increased.
182.
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.
Assume that you are consuming the combination of goods at point I. Given the budget
constraint FL, utility:
A)
cannot be increased.
B)
can be increased by consuming more nights in a hotel room and fewer train tickets.
C)
can be increased by consuming fewer nights in a hotel room and more train tickets.
D)
can be increased by consuming more of both goods.
Page 48
183.
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.
Assume that you are consuming the combination of goods at point G. Given the budget
constraint FL, utility can be increased by moving to point:
A)
H.
B)
I.
C)
J.
D)
K.
184.
(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV.
Assume that you are consuming the combination of goods at point K. Given the budget
constraint FL, utility can be increased by moving to point:
A)
F.
B)
G.
C)
H.
D)
I.
185.
One point on an indifference curve drawn between mangoes and vegetable broth is the
consumption bundle consisting of five mangoes and three boxes of vegetable broth. This
means that Sharri is indifferent between five mangoes and three boxes of vegetable
broth.
A)
True
B)
False
186.
As an individual moves down his or her indifference curve, total utility remains
constant.
A)
True
B)
False
187.
Suppose Joe derives 327 utils from consuming 1 dozen crab cakes and 11 pairs of socks.
If he also derives 327 utils from 2 dozen crab cakes and 5 pairs of socks, Joe is
indifferent between those combinations of crab cakes and socks.
A)
True
B)
False
188.
The following bundles can all be on the same indifference curve. Bundle A: 4
enchiladas, 1 burrito; bundle B: 3 enchiladas, 3 burritos; bundle C: 2 enchiladas, 2
burritos.
A)
True
B)
False
Page 49
189.
Maria derives 288 utils from buying 2 pairs of hiking boots and 4 saws. She gets 313
utils from buying 1 pair of hiking boots and 7 saws. Maria is indifferent between these
two combinations of hiking boots and saws.
A)
True
B)
False
190.
Janella consumes only bananas and passion fruit. It is not possible for Janella's
indifference curves to cross one another at any point.
A)
True
B)
False
191.
The assumption that the farther from the origin an indifference curve is, the higher the
level of utility it indicates implies that more is better.
A)
True
B)
False
192.
Because of diminishing marginal utility, indifference curves are convex to the origin.
A)
True
B)
False
193.
Diminishing marginal utility occurs with increasing total utility.
A)
True
B)
False
194.
Shirley knows her marginal rate of substitution of mangoes for bananas is equal to 3.
The price of bananas is $0.50 and the price of mangoes is $1.00. Shirley should buy
more mangoes.
A)
True
B)
False
195.
At the video store, Lucian narrows his selection to either a $2 videocassette of The Evil
Dead or a $4 DVD of Finding Nemo. Lucian finally flips a coin to decide which movie
to rent. This must mean that Lucian's marginal rate of substitution of The Evil Dead for
Finding Nemo is 0.5.
A)
True
B)
False
Page 50
196.
Henry and Anne have identical incomes. Both buy only sardines and ice cream. Since
they face the same prices for the two goods, their optimal consumption bundles must be
identical.
A)
True
B)
False
197.
Mr. Coiner is always willing to exchange two nickels for a dime, no matter how many
nickels and dimes he has. This implies that nickels and dimes are ordinary goods for Mr.
Coiner.
A)
True
B)
False
198.
Pooh spends all of his income on honey and maple syrup. Because he views honey and
maple syrup as perfect substitutes, he is willing to substitute honey for maple syrup at
the constant rate of 1 teaspoon of honey to 2 teaspoons of maple syrup. If the price of
honey in terms of maple syrup is 2.2, Pooh's optimal consumption bundle will consist
entirely of maple syrup.
A)
True
B)
False
199.
Ms. Stardoe gets utility from coffee and cream, but only if they are consumed in the
precise ratio of 8 ounces of coffee to 2 ounces of cream. This implies that coffee and
cream are ordinary goods for Ms. Stardoe.
A)
True
B)
False
200.
If Ian's indifference curve between guitars and Cadillacs is shaped like a right angle,
then he considers the two goods perfect complements.
A)
True
B)
False
201.
Miguel eats only burgers with onion rings. Miguel's indifference curve between burgers
and onion rings must be a straight line.
A)
True
B)
False
Page 51
202.
When we graphically isolate the substitution effect of a change in the price of one good,
utility is held constant.
A)
True
B)
False
203.
A Giffen good is an inferior good for which the income effect dominates the substitution
effect.
A)
True
B)
False
204.
How is a utility function different from an indifference curve?
205.
Patrick enjoys consuming chocolate but really detests broccoli. Describe the shape of
Patrick's indifference curves for these two goods and explain your reasoning.
206.
Consider the following bundles of two ordinary goods, X and Y. Can you rank them
from the one that provides the most utility to the least? Explain your reasoning.
207.
Explain why an individual's indifference curves cannot intersect. Use an example to
explain.
208.
Jaime enjoys both iced tea and hot dogs. Explain why Jaime's indifference curves for
these two goods must slope downward.
209.
Explain the concept of the marginal rate of substitution. Provide an intuitive rather than
mathematical reason it is believed to be diminishing as a consumer moves down an
indifference curve.
Page 52
210.
Mallory consumes a bundle of candy and cookies, spending all of her income. The price
of candy is $1 and the price of a cookie is $0.50. At her current bundle, the marginal
utility of the next bar of candy she could purchase is 12 utils and the marginal utility of
the next cookie she could purchase is 6 utils. Should Mallory consume more cookies or
more candy, or should she leave her consumption unchanged?
211.
Michaela consumes a bundle of candy and cookies, spending all of her income. The
price of candy is $1 and the price of a cookie is $0.50. At her current bundle, the
marginal utility of the next bar of candy she could purchase is 16 utils and the marginal
utility of the next cookie she could purchase is 7 utils. Should Michaela consume more
cookies or more candy? Or should she leave her consumption unchanged?
212.
Jennifer has $10 to spend on tomatoes and cheese. The price of a pound of tomatoes is
$2 and the price of a pound of cheese is $4. She has found her utility-maximizing
bundle at 2 pounds of tomatoes and 1.5 pounds of cheese. Suppose Jennifer's income
falls to $8 and the price of tomatoes falls to $1. The price of cheese remains the same.
Jennifer is considering a bundle of no tomatoes and 2 units of cheese. What is your
advice?
213.
Kelli likes to bake cookies and doesn't care whether she uses corn oil or safflower oil in
her recipes. To her, they provide the same function and the same taste. What do Kelli's
indifference curves look like for corn oil and safflower oil? What is her tangency
condition when it comes to finding the utility-maximizing bundle?
Use the following to answer questions 214-216:
Figure: Oreos and Apples
Page 53
214.
(Figure: Oreos and Apples) Look at the figure Oreos and Apples, which provides an
indifference curve map for Diego. The consumption bundle that provides the highest
level of utility is bundle:
A)
A or C.
B)
B or D.
C)
E or F.
D)
A or B.
215.
(Figure: Oreos and Apples) Look at the figure Oreos and Apples, which provides an
indifference curve map for Diego. Diego prefers:
A)
E to F.
B)
F to E.
C)
A to E.
D)
D to C.
216.
(Figure: Oreos and Apples) Look at the figure Oreos and Apples, which provides an
indifference curve map for Diego. As Diego moves along an indifference curve from
point F to point E, he buys _____ Oreos to obtain _____ apples.
A)
fewer; more
B)
more; more
C)
the same number of; more
D)
no; more
217.
An indifference curve map illustrates _____ levels of utility, while each indifference
curve in the map indicates consumption bundles that yield _____ level of utility for an
individual.
A)
different; the same
B)
the same; a different
C)
the same; the same
D)
different; a different
218.
To find her optimal consumption bundle, Vanessa would have to:
A)
calculate the numerical value of the utility she receives from each specific
consumption bundle.
B)
rank-order consumption bundles based on the level of utility she receives from
each one.
C)
calculate her budget for each consumption bundle and identify the substitution and
income effects of each bundle.
D)
choose her bundles in an irrational manner.
Page 54
219.
When an individual's consumption of an additional unit of a good generates a smaller
increase in total utility than the previous unit consumed, then this person's indifference
curve will be:
A)
a straight line.
B)
convex, or bowed toward the origin.
C)
concave, or bowed away from the origin.
D)
a right angle.
220.
The assumption that more is preferred to less explains why indifference curves:
A)
that lie closer to the origin represent higher levels of utility.
B)
that lie farther from the origin represent higher levels of utility.
C)
cross frequently.
D)
slope upward and away from the origin.
221.
Diminishing marginal utility is the reason most indifference curves:
A)
slope upward.
B)
slope downward.
C)
are vertical.
D)
are horizontal.
Use the following to answer questions 222-224:
222.
(Table: Madeline's Preferences for T-Shirts and Coffee) Look at the table Madeline's
Preferences for T-Shirts and Coffee. Assume each consumption bundle provides the
same level of utility for Madeline. Suppose Madeline is consuming bundle C. If she
changes her purchases to bundle D, this means that she:
A)
gives up 2 T-shirts to obtain 1 more cup of coffee.
B)
gives up 1 cup of coffee to obtain 2 more T-shirts.
C)
will now have 11 cups of coffee and 40 T-shirts.
D)
doesn't give up any T-shirts to obtain more coffee.
Page 55
223.
(Table: Madeline's Preferences for T-Shirts and Coffee) Look at the table Madeline's
Preferences for T-Shirts and Coffee. Assume each consumption bundle provides the
same level of utility. Suppose Madeline is consuming bundle A but then changes her
consumption and slowly moves along her indifference curve to bundles B, C, D, and
finally E. As she moves toward bundle E, she gives up:
A)
the same number of T-shirts to obtain another cup of coffee.
B)
an increasing numbers of T-shirts to obtain another cup of coffee.
C)
a decreasing numbers of T-shirts to obtain another cup of coffee.
D)
no T-shirts to obtain another cup of coffee.
224.
(Table: Madeline's Preferences for T-Shirts and Coffee) Look at the table Madeline's
Preferences for T-Shirts and Coffee. Assume each consumption bundle provides the
same level of utility. As Madeline moves from bundle A to bundle E, her total utility:
A)
decreases.
B)
increases.
C)
stays the same.
D)
is zero regardless of which bundle she chooses.
225.
Ellen consumes goods X and Y. As she consumes less X, she must be compensated with
additional units of Y, and her marginal rate of substitution of X for Y decreases as she
consumes more Y. This means that goods X and Y are:
A)
ordinary.
B)
unique.
C)
complements.
D)
substitutes.
226.
A typical indifference curve is _____, and its slope is the _____ of the good on the
horizontal axis divided by the marginal utility of the good on the vertical axis.
A)
downward-sloping; negative of the marginal utility
B)
upward-sloping; negative of the marginal utility
C)
downward-sloping; negative of the total utility
D)
downward-sloping; total cost
227.
The ratio of the prices of two goods is equal to the ratio of the marginal utilities of the
two goods at:
A)
the vertical intercept of the budget line.
B)
the optimal consumption bundle.
C)
the horizontal intercept of the budget line.
D)
the intersection of the budget line with the highest indifference curve.
Page 56
228.
Since indifference curves depend on the _____ for individuals, this means that two
consumers with the same income _____.
A)
utility function; must consume different amounts of the two goods
B)
utility function; may consume different amounts of the two goods
C)
optimal utility rule; must consume different amounts of the two goods
D)
marginal utility function; have the same marginal utility for two goods
Use the following to answer questions 229-233:
Scenario: Music Downloads and Streamed Movies
Phillip has an income of $300 per month, which he uses to purchase music downloads (MD) and
streamed movies (SM). Each music download costs $1 and each streamed movie costs $5.
229.
(Scenario: Music Downloads and Streamed Movies) Read the scenario Music
Downloads and Streamed Movies. Which of the following equations expresses Phillip's
budget line?
A)
300 = 1MD + 5SM
B)
SM = 300 – 1X
C)
300 = 1 / MD + 5 / SM
D)
SM = 300 + 5SM
230.
(Scenario: Music Downloads and Streamed Movies) Read the scenario Music
Downloads and Streamed Movies. Suppose Phillip's income falls by half, and the prices
for both music downloads and streamed movies also fall by half. As a result of this,
Phillip:
A)
can buy fewer music downloads if he spends all of his income on music
downloads.
B)
can buy fewer streamed movies if he spends all of his income on streamed movies.
C)
will not notice any change in his budget line.
D)
will undergo a parallel shift out of his budget line.
231.
(Scenario: Music Downloads and Streamed Movies) Read the scenario Music
Downloads and Streamed Movies. Phillip's optimal consumption bundle will be one
whose:
A)
budget line is tangent to his highest indifference curve.
B)
budget line intersects his highest indifference curve.
C)
budget line intersects the music download axis.
D)
indifference curve intersects the streamed movies axis.
Page 57
232.
(Scenario: Music Downloads and Streamed Movies) Read the scenario Music
Downloads and Streamed Movies. For Phillip, the horizontal (music download)
intercept is:
A)
20.
B)
300.
C)
30.
D)
10.
233.
(Scenario: Music Downloads and Streamed Movies) Read the scenario Music
Downloads and Streamed Movies. The slope of Phillip's budget line is equal to:
A)
–0.2.
B)
–5.
C)
–0.4.
D)
–2.5.
234.
Two goods in an individual's consumption bundle are perfect substitutes. For a given
amount of income, the individual's optimal consumption bundle will contain:
A)
exactly 50% of each of the two goods.
B)
only the good with the lower price.
C)
only the good with the higher price.
D)
all of the good on the horizontal axis.
235.
For some people, coffee and milk are perfect complements. Their indifference curves
are:
A)
right angles.
B)
straight lines between the X and Y axis.
C)
straight lines out of the origin.
D)
regular downward-sloping indifference curves, but their budget lines are right
angles.
236.
Paola gets 50 units of utility when she consumes 4 cupcakes and 2 glasses of milk. She
also gets 50 units of utility when she consumes 3 cupcakes and 2 glasses of milk. This
means that:
A)
Paola likes milk better than cupcakes.
B)
Paola likes cupcakes better than milk.
C)
these combinations lie on the same indifference curve.
D)
one of these combinations lies on a higher indifference curve.
Page 58
Use the following to answer questions 237-239:
Scenario: E-Books and Sports Tickets
Phillip has an income of $300 per month, which he uses to purchase two goods, e-books and
sports tickets. Each e-book costs $10, and each ticket costs $15.
237.
(Scenario: E-Books and Sports Tickets) Read the scenario E-Books and Sports Tickets.
Measure e-books on the horizontal axis and sports tickets on the vertical axis. Suppose
the price of e-books decreases. Holding everything else constant, Phillip's budget line
has become _____, and his optimal consumption bundle will be on a _____ indifference
curve.
A)
flatter; higher
B)
steeper; lower
C)
flatter; lower
D)
steeper; higher
238.
(Scenario: E-Books and Sports Tickets) Read the scenario E-Books and Sports Tickets.
Suppose Phillip discovers that if he spends all of his money on sports tickets, he can buy
more sports tickets than he could previously because something changed. This is a result
of a(n) _____ in the price of _____.
A)
increase; tickets
B)
decrease; tickets
C)
increase; e-books
D)
decrease; e-books
239.
(Scenario: E-Books and Sports Tickets) Read the scenario E-Books and Sports Tickets.
Phillip gets an increase in the amount of his monthly income allotted for e-books and
sports tickets. Holding everything else constant, Phillip's budget line has:
A)
shifted parallel inward to the origin.
B)
rotated around the lower-priced good.
C)
rotated around the higher-priced good.
D)
shifted parallel outward away from the origin.
Page 59
Use the following to answer questions 240-244:
Figure: Kristin's Budget Line
240.
(Figure: Kristin's Budget Line) Look at the figure Kristin's Budget Line. The price of a
cup of cappuccino is $3, and the price of an apple is $1. Kristin's income is:
A)
$50.
B)
$120.
C)
$60.
D)
$20.
241.
(Figure: Kristin's Budget Line) Look at the figure Kristin's Budget Line. The price of a
cup of cappuccino is $3, and the price of an apple is $1. Given her income and the prices
of the two goods, Kristin can consume _____ cappuccinos and _____ apples.
A)
20; 10
B)
15; 15
C)
15; 20
D)
10; 40
242.
(Figure: Kristin's Budget Line) Look at the figure Kristin's Budget Line. The price of a
cup of cappuccino is $3, and the price of an apple is $1. Suppose Kristin initially
consumes 10 cups of cappuccino and 30 apples. Then the price of apples increases to $3
each and the price of a cappuccino remains unchanged. As a result of this price change,
Kristin's optimal consumption bundle changes, reflected by a decrease in the
consumption of both apples and cappuccinos. This suggests that:
A)
apples are a Giffen good.
B)
cappuccino is a Giffen good.
C)
both apples and cappuccino are normal goods.
D)
apples are an inferior good.
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243.
(Figure: Kristin's Budget Line) Look at the figure Kristin's Budget Line. The price of a
cup of cappuccino is $3, and the price of an apple is $1. Suppose Kristin initially
consumes 10 cups of cappuccino and 30 apples. Then, the price of apples increases to
$3 each and the price of cappuccino remains unchanged. As a result of the price change,
Kristin's optimal consumption bundle changes, reflected by a decrease in the
consumption of both apples and cappuccinos. If Kristin is to maintain the same level of
utility as before the price change, she must:
A)
increase her income.
B)
decrease her income.
C)
keep her income the same, since only one good's price changed.
D)
increase her income by $2.
244.
(Figure: Kristin's Budget Line) Look at the figure Kristin's Budget Line. The price of a
cup of cappuccino is $3, and the price of an apple is $1. Suppose Kristin initially
consumes 10 cups of cappuccino and 30 apples. Then the price of apples increases to $3
each and the price of cappuccino remains unchanged. As a result of this price change,
Kristin's optimal consumption bundle is now 9 cups of cappuccino and 11 apples. If
Kristin's income could be adjusted so that she could maintain her initial level of utility
after the price change, she would consume more cappuccino and more apples. This
reflects:
A)
a substitution effect from the price change and an income effect from the income
change.
B)
the substitution effect alone.
C)
the income effect alone.
D)
neither a substitution nor an income effect.
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