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The Theory of Consumer Choice 5243
51. A consumer has preferences over two goods, X and Y. Suppose we graph this consumer's
preferences (which satisfy the usual properties of indifference curves) and budget constraint on a
diagram with X on the horizontal axis and Y on the vertical axis. At the consumer's current
consumption bundle, the consumer is spending all available income, and the marginal rate of
substitution is less than the slope of the budget constraint. We can conclude that the consumer
a. is currently maximizing satisfaction subject to the budget constraint.
b. could increase satisfaction by consuming more X and less Y.
c. could increase satisfaction by consuming less X and more Y.
d. could purchase more X and more Y and increase total satisfaction.
52. Suppose a consumer has preferences over two goods, X and Y, which are perfect substitutes. In
particular, two units of X is equivalent to one unit of Y. If the price of X is $1, the price of Y is
$3, and the consumer has $30 of income to allocate to these two goods, how much of each good
should the consumer purchase to maximize satisfaction?
a. 30 units of X and 0 units of Y
b. 0 units of X and 10 units of Y
c. 15 units of X and 5 units of Y
d. 15 units of X and 0 units of Y
5244 The Theory of Consumer Choice
53. Traci consumes two goods, lemonade and pretzels. Lemonade costs $2 per glass, and she
consumes it to the point where the marginal utility she receives from her last glass of lemonade is
4. Pretzels cost $3 per bag. The relationship between the marginal utility Traci gets from eating a
bag of pretzels and the number of bags she eats per month is as follows:
Bags of pretzels
1
2
3
4
5
6
Marginal utility
30
20
12
6
2
0
If Traci is maximizing her utility, how many bags of pretzels does she buy each month?
a. 3
b. 4
c. 5
d. 6
54. Traci consumes two goods, lemonade and pretzels. Lemonade costs $1 per glass, and she
consumes it to the point where the marginal utility she receives from her last glass of lemonade is
3. Pretzels cost $2 per bag. The relationship between the marginal utility Traci gets from eating a
bag of pretzels and the number of bags she eats per month is as follows:
Bags of potato chips
1
2
3
4
5
6
Marginal utility
30
20
12
6
2
0
If Traci is maximizing his utility, how many bags of pretzels does he buy each month?
a. 3
b. 4
c. 5
d. 6
The Theory of Consumer Choice 5245
55. Traci consumes two goods, lemonade and pretzels. Lemonade costs $1 per glass, and she
consumes it to the point where the marginal utility she receives from her last glass of lemonade is
3. Pretzels cost $2 per bag. The relationship between the marginal utility Traci gets from eating a
bag of pretzels and the number of bags she eats per month is as follows:
Bags of potato chips
1
2
3
4
5
6
Marginal utility
30
20
12
6
2
0
If Traci is maximizing his utility, how much does she spend on pretzels each month?
a. $2
b. $6
c. $8
d. $12
56. Taylor spends all of her income on tank tops and running shoes, and the price of a pair of running
shoes is four times the price of a tank top. In order to maximize total utility, Taylor should buy
a. four times as many tank tops as pairs of running shoes.
b. four times as many pairs of running shoes as tank tops.
c. both items until the marginal utility of a pair of running shoes is four times the marginal utility of
a tank top.
d. both items until the marginal utility of a tank top is four times the marginal utility of a pair of
running shoes.
5246 The Theory of Consumer Choice
57. Billie spends all of her income on soccer balls and jeans, and the price of a pair of jeans is three
times the price of soccer balls. In order to maximize total utility, Billie should
a. buy three times as many soccer balls as pairs of jeans.
b. buy three times as many pairs of jeans as soccer balls.
c. buy both items until the marginal utility of soccer balls is three times the marginal utility of a
pair of jeans.
d. buy both items until the marginal utility of a pair of jeans is three times the marginal utility of
soccer balls.
58. Samantha is maximizing total utility while consuming food and clothing. Her marginal utility from
food is 50, and her marginal utility from clothing is 25. If clothing is priced at $10 per unit, the
price of food per unit must be
a. $2.
b. $2.50.
c. $5.
d. $20.
The Theory of Consumer Choice 5247
59. Suppose at the consumer’s current consumption bundle the marginal rate of substitution of cheese
for wine is ½ bottle of wine per pound of cheese. The price of one pound of cheese is $6, and the
price of a bottle of wine is $10.
The consumer should increase his consumption of
a. cheese, decrease his consumption of wine, and move to a lower indifference curve.
b. cheese, decrease his consumption of wine, and move to a higher indifference curve.
c. wine, decrease consumption of cheese, and move to a higher indifference curve.
d. cheese, decrease consumption of wine, and remain on the same indifference curve.
60. The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X
is
a. equal to the marginal utility per dollar saved on good X.
b. greater than the marginal utility per dollar spent on good Y.
c. equal to the marginal utility per dollar spent on good Y.
d. less than the marginal utility per dollar spent on good Y.
5248 The Theory of Consumer Choice
61. When the price of a good increases, all else equal, the higher price
a. reduces the consumer's set of buying opportunities.
b. leads to a parallel shift of the budget constraint.
c. will necessarily lead to an increase in the consumption of goods whose price did not change.
d. generally discourages the consumption of inferior goods.
62. A consumer’s optimal choice occurs when the
a. consumer’s valuation of the two goods equals the market’s valuation of the two goods.
b. consumer minimizes her expenditures.
c. consumer attains the highest indifference curve.
d. consumer’s valuation of the two goods exceeds the market’s valuation of the two goods.
The Theory of Consumer Choice 5249
63. Irrespective of whether she is at her optimum, Jenna’s valuation of coffee relative to orange juice
can be measured by
a. her marginal rate of substitution between coffee and orange juice.
b. the price of coffee relative to the price of orange juice.
c. the ratio of the quantity of coffee that she buys relative to the quantity of orange juice that she
buys.
d. the ratio of the quantity of coffee supplied in the market to the quantity of orange juice supplied
in the market.
64. A consumer spends all of her income on goods x and y. At her optimum,
a. her valuation of the two goods exceeds the market’s valuation of the two goods.
b. her marginal rate of substitution between good x and good y exceeds the ratio of the price of
good x to the price of good y.
c. the slope of her budget constraint is equal to the slope of the highest indifference curve that
she can reach while remaining within her budget.
d. her expenditure on good x is equal to her expenditure on good y.
5250 The Theory of Consumer Choice
65. If a consumer consumes two goods, X and Y, and has indifference curves that are bowed inward,
the consumer’s optional choice occurs when
a. he consumes the maximum affordable quantity of good X.
b. he consumes the maximum affordable quantity of good Y.
c. his indifference curve is tangent to his budget constraint.
d. his indifference curve lies entirely above his budget constraint.
66. When economists describe preferences, they often use the concept of
a. markets.
b. income.
c. utility.
d. prices.
The Theory of Consumer Choice 5251
67. Utility measures the
a. income a consumer receives from consuming a bundle of goods.
b. satisfaction a consumer receives from consuming a bundle of goods.
c. satisfaction a consumer places on her budget constraint.
d. All of the above are correct.
68. A rational consumer maximizes her
a. preferences.
b. marginal rate of substitution.
c. utility.
d. budget constraint.
5252 The Theory of Consumer Choice
69. As more units of an item are purchased, everything else equal, marginal satisfaction from
consuming additional units will tend to
a. decrease at the same rate for all consumers.
b. decrease but at different rates for different people.
c. increase at the same rate for all consumers.
d. increase but at a decreasing rate for all consumers.
70. If John's marginal utility derived from the consumption of another candy bar is 1 and the price of
the candy bar is $1.50, then
a. this is the last candy bar John will purchase since the marginal utility is less than the price.
b. the opportunity cost of the candy bar is less than $1.50.
c. if John purchases and consumes the candy bar his total satisfaction will go down because the
marginal utility is less than the price.
d. there is not enough information to determine if John will or will not purchase the candy bar.
The Theory of Consumer Choice 5253
71. The marginal rate of substitution between two goods always equals the
a. marginal utility of one divided by the marginal utility of the other.
b. marginal utility of one times the marginal utility of the other.
c. price of one good divided by the price of the other.
d. Both a and c are correct.
72. If income increases and prices are unchanged, the consumer’s budget constraint
a. remains the same.
b. shifts outward.
c. shifts inward.
d. rotates outward along the horizontal axis.
73. If income decreases and prices are unchanged, the consumer’s budget constraint
a. remains the same.
b. shifts outward.
c. shifts inward.
d. rotates outward along the horizontal axis.
5254 The Theory of Consumer Choice
74. Which of the following is not correct?
a. An increase in income shifts a consumer’s budget constraint outward.
b. An increase in the price of good X causes a consumer’s budget constraint to rotate inward
along the X axis.
c. A decrease in the price of good Y causes a consumer’s budget constraint to rotate outward
along the Y axis.
d. Changes in income affect the slope of the budget constraint as well as its location on a graph.
75. If we observe that Jamie’s budget constraint has moved outward, then we know for certain that
a. her income must have increased.
b. she will be indifferent between goods X and Y.
c. the price of one or both of the goods must have decreased.
d. she can reach a higher indifference curve.
The Theory of Consumer Choice 5255
76. If we observe that William’s budget constraint has moved inward, then we know for certain that
a. his income must have decreased.
b. he will be indifferent between goods X and Y.
c. the price of one or both of the goods must have increased.
d. his utility will decrease.
77. If we observe that a consumer’s budget constraint has shifted outward, we can assume that the
consumer will buy
a. fewer normal goods and more inferior goods.
b. more normal goods and fewer inferior goods.
c. more normal goods and more inferior goods.
d. fewer normal goods and fewer inferior goods.
5256 The Theory of Consumer Choice
78. If we observe that a consumer’s budget constraint has shifted inward, we can assume that the
consumer will buy
a. fewer normal goods and more inferior goods.
b. more normal goods and fewer inferior goods.
c. more normal goods and more inferior goods.
d. fewer normal goods and fewer inferior goods.
79. When Stanley has an income of $1,000, he consumes 30 units of good A and 50 units of good B.
After Stanley’s income increases to $1,500, he consumes 60 units of good A and 45 units of good
B. Which of the following statements is correct?
a. Both goods A and B are normal goods.
b. Both goods A and B are inferior goods.
c. Good A is a normal good, and good B is an inferior good.
d. Good A is an inferior good, and good B is a normal good.
The Theory of Consumer Choice 5257
80. When Matt has an income of $2,000, he consumes 30 units of good A and 50 units of good B.
After Matt’s income increases to $3,000, he consumes 25 units of good A and 95 units of good B.
Which of the following statements is correct?
a. Both goods A and B are normal goods.
b. Both goods A and B are inferior goods.
c. Good A is a normal good, and good B is an inferior good.
d. Good A is an inferior good, and good B is a normal good.
81. When Ryan has an income of $2,000, he consumes 30 units of good A and 50 units of good B.
After Ryan’s income decreases to $1,500, he consumes 23 units of good A and 55 units of good
B. Which of the following statements is correct?
a. Both goods A and B are normal goods.
b. Both goods A and B are inferior goods.
c. Good A is a normal good, and good B is an inferior good.
d. Good A is an inferior good, and good B is a normal good.
5258 The Theory of Consumer Choice
82. When Jamar has an income of $2,000, he consumes 30 units of good A and 50 units of good B.
After Jamar’s income decreases to $1,500, he consumes 33 units of good A and 45 units of good
B. Which of the following statements is correct?
a. Both goods A and B are normal goods.
b. Both goods A and B are inferior goods.
c. Good A is a normal good, and good B is an inferior good.
d. Good A is an inferior good, and good B is a normal good.
83. Prince is currently consuming some of good X and some of good Y. If good Y is a normal good
for Prince, then an increase in his income will definitely cause him to
a. increase his consumption of X.
b. increase his consumption of Y.
c. decrease his consumption of X.
d. decrease his consumption of Y.
The Theory of Consumer Choice 5259
84. A normal good is one
a. the average consumer chooses to consume at a normal level.
b. the average consumer chooses to consume over other similar goods.
c. for which an increase in income increases consumption of the good.
d. for which an increase in income decreases consumption of the good.
85. Which of the following is most likely an inferior good?
a. an antique car
b. gasoline
c. a bus ticket
d. an airline ticket
86. A good is an inferior good if the consumer buys less of it when
a. his income rises.
b. the price of the good rises.
c. the price of a substitute good falls.
d. his income falls.
5260 The Theory of Consumer Choice
87. A good is an inferior good if the consumer buys more of it when
a. his income rises.
b. the price of the good falls.
c. the price of a substitute good rises.
d. his income falls.
88. An inferior good is one in which
a. the average consumer chooses not to consume.
b. the good is not equally valued by all consumers.
c. an increase in income increases consumption of the good.
d. an increase in income decreases consumption of the good.
Figure 21-21
The Theory of Consumer Choice 5261
89. Refer to Figure 21-21. Suppose that a consumer is originally at point R. Then the price of good
X decreases. Which of the following represents the income effect of the price decrease?
a. the movement from point R to point S
b. the movement from point R to point T
c. the movement from point T to point S
d. None of the above is correct.
90. Refer to Figure 21-21. Suppose that a consumer is originally at point R. Then the price of good
X decreases. Which of the following represents the substitution effect of the price decrease?
a. the movement from point R to point S
b. the movement from point R to point T
c. the movement from point T to point S
d. None of the above is correct.
5262 The Theory of Consumer Choice
91. What are the two effects of a change in a price that a consumer experiences?
a. the income effect and the budget effect
b. the complement effect and the substitute effect
c. the price effect and the preference effect
d. the income effect and the substitution effect
92. Consider the indifference curve map and budget constraint for two goods, X and Y. Suppose the
good on the horizontal axis, X, is normal. When the price of X increases, the substitution effect
a. and income effect both cause an increase in the consumption of X.
b. causes a decrease in the consumption of X, and the income effect causes an increase in the
consumption of
X. However, the substitution effect is greater than the income effect.
c. causes an increase in the consumption of X, and the income effect causes a decrease in the
consumption of
X. However, the substitution effect is greater than the income effect.
d. and income effect both cause a decrease in the consumption of X.
