The Theory of Consumer Choice 5203
73. The slope of the budget constraint is determined by the
a. relative price of the goods measured on the axes.
b. relative price of the goods measured on the axes and the consumer’s income.
c. endowment of productive resources.
d. preferences of the consumer.
74. The slope of the budget constraint is all of the following except
a. the relative price of two goods.
b. the rate at which a consumer can afford to trade one good for another.
c. the marginal rate of substitution.
d. constant.
5204 The Theory of Consumer Choice
75. Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has
$200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20.
What is the maximum number of CDs the consumer can purchase?
a. 10
b. 20
c. 40
d. 50
76. Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has
$200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20.
What is the maximum number of DVDs the consumer can purchase?
a. 10
b. 20
c. 40
d. 50
The Theory of Consumer Choice 5205
77. Suppose a consumer spends her income on two goods: iTunes music downloads and books. The
consumer has $100 to allocate to these two goods, the price of a downloaded song is $1, and the
price of a book is $20. What is the maximum number of books the consumer can purchase?
a. 100
b. 20
c. 10
d. 5
78. Suppose a consumer spends her income on two goods: music CDs and DVDs. The price of a CD
is $8, and the price of a DVD is $20. If we graph the budget constraint by measuring the quantity
of CDs purchased on the vertical axis and the quantity of DVDs on the horizontal axis, what is
the slope of the budget constraint?
a. –5.0
b. –2.5
c. –0.4
d. The slope of the budget constraint cannot be determined without knowing the income the
consumer has available to spend on the two goods.
5206 The Theory of Consumer Choice
79. Suppose a consumer is currently spending all of her available income on two goods: music CDs
and DVDs. If the price of a CD is $9, the price of a DVD is $18, and she is currently consuming
10 CDs and 5 DVDs, what is the consumer’s income?
a. $90
b. $180
c. $270
d. $360
80. A consumer is currently spending all of her available income on two goods: music CDs and
DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on
DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the
price of a CD?
a. $4
b. $8
c. $12
d. $20
The Theory of Consumer Choice 5207
81. A consumer is currently spending all of her available income on two goods: music CDs and
DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on
DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the
price of a DVD?
a. $4
b. $8
c. $12
d. $20
82. A family on a trip budgets $800 for meals and gasoline. If the price of a meal for the family is
$50, how many meals can the family buy if they do not buy any gasoline?
a. 8
b. 16
c. 24
d. 32
5208 The Theory of Consumer Choice
83. A family on a trip budgets $1,000 for meals and gasoline. If the price of a meal for the family is
$50 and if gasoline costs $3.50 per gallon, then how many meals can the family buy if they buy
100 gallons of gasoline?
a. 13
b. 16
c. 19
d. 21
84. A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal
is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don’t buy
any meals. How many meals could the family afford if they gave up two nights in the hotel?
a. 1
b. 2
c. 5
d. 8
The Theory of Consumer Choice 5209
85. If the price of bread is zero and the price of cheese is positive, then the budget constraint
between bread (on the horizontal axis) and cheese (on the vertical axis) would
a. be vertical.
b. coincide with the vertical axis.
c. coincide with the horizontal axis.
d. be horizontal.
86. An increase in a consumer‘s income
a. increases the slope of the consumer’s budget constraint.
b. has no effect on the slope of the consumer‘s budget constraint.
c. decreases the slope of the consumer’s budget constraint.
d. has no effect on the consumer’s budget constraint.
5210 The Theory of Consumer Choice
87. A decrease in a consumer’s income
a. increases the slope of the consumer’s budget constraint.
b. has no effect on the consumer’s budget constraint.
c. decreases the slope of the consumer’s budget constraint.
d. has no effect on the slope of the consumer‘s budget constraint.
88. Gerald spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to
$9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Gerald’s income has
stayed fixed at $46 per week. Since the price changes, Gerald has been buying 4 bottles of gin and
2 jars of cocktail olives per week. At the original prices, 4 bottles of gin and 2 jars of cocktail
olives would have
a. exactly exhausted his income.
b. cost more than his income.
c. cost less than his income.
d. could have maximized his satisfaction given his budget constraint.
The Theory of Consumer Choice 5211
89. Mark spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to
$9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Mark’s income has
stayed fixed at $46 per week. If you measure gin on the vertical axis and cocktail olives on the
horizontal axis, then the budget constraint
a. is steeper after the price changes.
b. is flatter after the price changes.
c. is the same after the price changes.
d. shifts in a parallel fashion to the old budget constraint after the price changes.
90. Suppose the only two goods that Charlie consumes are wine and cheese. When wine sells for $10
a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese —
spending his entire income of $100. One day the price of wine falls to $5 a bottle and the price of
cheese increases to $20 a pound, while his income does not change. The bundle of wine and
cheese that he purchased at the old prices now costs
a. the same amount at the new prices.
b. less than Charlie’s income at the new prices.
c. more than Charlie‘s income at the new prices.
d. We do not have enough information to answer the question.
5212 The Theory of Consumer Choice
91. Suppose the only two goods that Lorenzo consumes are wine and cheese. When wine sells for
$10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese —
spending his entire income of $100. One day the price of wine falls to $5 a bottle, and the price of
cheese increases to $20 a pound, while his income does not change. If you illustrate wine on the
vertical axis and cheese on the horizontal axis, then
a. the slope of Lorenzo’s budget has not changed.
b. the slope of Lorenzo’s budget constraint is flatter at the new prices.
c. the slope of Lorenzo’s budget constraint is steeper at the new prices.
d. Lorenzo’s budget constraint has shifted in a parallel fashion to the budget constraint with the
old prices.
92. If the relative price of a concert ticket is three times the price of a meal at a good restaurant, then
the opportunity cost of a concert ticket can be measured by the
a. slope of the budget constraint.
b. slope of an indifference curve.
c. marginal rate of substitution.
d. income effect.
The Theory of Consumer Choice 5213
93. Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her
income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of
iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?
a. $10
b. $5
c. $4
d. $2
94. Bill consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle, and the
price of spaghetti is $8 per serving. His income is $1,000 per month. He spends all of his income
each month. He purchases 200 bottles of iced tea. How many servings of spaghetti does he
purchase?
a. 125
b. 75
c. 50
d. 10
5214 The Theory of Consumer Choice
95. Suppose a consumer consumes two goods, X and Y. The slope of the budget constraint equals the
a. marginal rate of substitution.
b. rate at which the consumer will give up X to gain Y while maintaining the same level of utility.
c. relative price of the two goods.
d. All of the above are correct.
96. Suppose a consumer consumes two goods, X and Y. The relative price of the two goods equals
the
a. marginal rate of substitution.
b. rate at which the consumer will give up X to gain Y while maintaining the same level of utility.
c. slope of the budget constraint.
d. All of the above are correct.
The Theory of Consumer Choice 5215
97. Andi uses all of her income to purchase books and games. At any two points A and B on Andi’s
budget constraint,
a. Andi is spending all of her income on books and games.
b. Andi is spending one half of her income on books and the other half of her income on games.
c. the price of books relative to the price of games is different.
d. All of the above are correct.
98. Fiona uses all of her income to purchase popcorn and butter. At any two points A and B on
Fiona’s budget constraint,
a. Fiona is equally happy.
b. Fiona is spending more money on popcorn than she is spending on butter.
c. Fiona’s income is different.
d. the price of popcorn relative to the price of butter is the same.
5216 The Theory of Consumer Choice
99. On a graph we draw a consumer’s budget constraint, measuring the number of apples on the
horizontal axis and the
number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then
a. an apple costs twice as much as a light bulb.
b. the opportunity cost of a light bulb is 2 apples.
c. the opportunity cost of an apple is one–half of a light bulb.
d. All of the above are correct.
100. On a graph we draw a consumer’s budget constraint, measuring the number of pineapples on the
horizontal axis
and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then
a. a pineapple costs six times as much as a pencil.
b. the opportunity cost of a pineapple is 6 pencils.
c. the opportunity cost of a pencil is one–sixth of a pineapple.
d. All of the above are correct.
The Theory of Consumer Choice 5217
Multiple Choice – Section 02: Preferences: What the Consumer Wants
Figure 21–16
1. Refer to Figure 21–16. The price of X is $20, the price of Y is $5, and the consumer’s income is
$40. Which point represents the consumer’s optimal choice?
a. A
b. B
c. C
d. D
5218 The Theory of Consumer Choice
2. Refer to Figure 21-16. The price of X is $5, the price of Y is $20, and the consumer’s income is
$40. Which point represents the consumer’s optimal choice?
a. A
b. B
c. C
d. D
3. Refer to Figure 21-16. The price of X is $25, the price of Y is $25, and the consumer’s income is
$100. Which point represents the consumer’s optimal choice?
a. A
b. B
c. C
d. D
The Theory of Consumer Choice 5219
Figure 21–17
4. Refer to Figure 21–17. When the price of X is $6, the price of Y is $24, and income is $48,
Paul’s optimal choice is point C. Then the price of Y decreases to $8. Paul’s new optimal choice is
point
a. A.
b. B.
c. D.
d. E.
5220 The Theory of Consumer Choice
5. Refer to Figure 21-17. When the price of X is $6, the price of Y is $24, and income is $48,
Paul’s optimal choice is point C. Then the price of Y decreases to $6. Paul’s new optimal choice is
point
a. A.
b. B.
c. D.
d. E.
6. Refer to Figure 21–17. When the price of X is $40, the price of Y is $40, and income is $160,
Paul’s optimal choice is point B. Then Paul’s income increases to $320, and his optimal choice is
point E. For Paul,
a. good X is a normal good, and good Y is an inferior good.
b. good X is an inferior good, and good Y is a normal good.
c. both good X and good Y are normal goods.
d. good Y is a normal good; good X is neither a normal nor an inferior good.
The Theory of Consumer Choice 5221
Figure 21–18
7. Refer to Figure 21-18. Given the budget constraint depicted in the graph, the consumer’s optimal
choice will be point
a. B.
b. C.
c. D.
d. E.
5222 The Theory of Consumer Choice
8. Refer to Figure 21-18. It would be possible for the consumer to reach I2 if
a. the price of Y decreases.
b. the price of X decreases.
c. income increases.
d. All of the above would be correct.
9. Refer to Figure 21–18. Bundle B represents a point where
a. MRSxy > Py/Px.
b. MRSxy = Px/Py.
c. MRSxy < Px/Py.
d. MRSxy > Px/Py.