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The Theory of Consumer Choice
Multiple Choice – Section 00: Introduction
1. Which of the following does not represent a tradeoff facing a consumer?
a. choosing to purchase more of all goods
b. choosing to spend more time on leisure and less time on work
c. choosing to spend more now and consume less in the future
d. choosing to purchase less of one good in order to purchase more of another good
2. How are the following three questions related: 1) Do all demand curves slope downward? 2) How
do wages affect labor supply? 3) How do interest rates affect household saving?
a. They all relate to macroeconomics.
b. They all relate to monetary economics.
c. They all relate to the theory of consumer choice.
d. They are not related to each other in any way.
5164 The Theory of Consumer Choice
3. Just as the theory of the competitive firm provides a more complete understanding of supply, the
theory of consumer choice provides a more complete understanding of
a. demand.
b. profits.
c. production possibility frontiers.
d. wages.
4. The theory of consumer choice most closely examines which of the following Ten Principles of
Economics?
a. People face trade-offs.
b. Governments can sometimes improve market outcomes.
c. Trade can make everyone better off.
d. Markets are usually a good way to organize economic activity.
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5. Which of the following statements is correct?
a. The theory of consumer choice provides a more complete understanding of supply, just as the
theory of the competitive firm provides a more complete understanding of demand.
b. The theory of consumer choice provides a more complete understanding of demand, just as the
theory of the competitive firm provides a more complete understanding of supply.
c. Monetary theory provides a more complete understanding of demand, just as the theory of the
competitive firm provides a more complete understanding of supply.
d. The theory of public choice provides a more complete understanding of supply, just as the theory
of the competitive firm provides a more complete understanding of demand.
6. When a consumer spends less time enjoying leisure and more time working, she has
a. lower income and therefore cannot afford more consumption.
b. lower income and therefore can afford more consumption.
c. higher income and therefore cannot afford more consumption.
d. higher income and therefore can afford more consumption.
5166 The Theory of Consumer Choice
7. The theory of consumer choice provides the foundation for understanding the
a. structure of a firm.
b. profitability of a firm.
c. demand for a firm's product.
d. supply of a firm's product.
8. The theory of consumer choice examines
a. the determination of output in competitive markets.
b. the tradeoffs inherent in decisions made by consumers.
c. how consumers select inputs into manufacturing production processes.
d. the determination of prices in competitive markets.
9. The theory of consumer choice examines how
a. firms make profit-maximizing decisions.
b. consumers make utility-maximizing decisions.
c. wages are determined in competitive labor markets.
d. prices are determined in competitive goods markets.
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10. The theory of consumer choice illustrates the
a. importance of property rights in creating efficient markets.
b. ability of a single economic actor to have a substantial influence on market prices.
c. the trade-offs that people face in their role as purchasers.
d. All of the above are correct.
11. The theory of consumer choice is to demand as the theory of
a. public goods is to supply.
b. oligopoly is to supply.
c. the competitive firm is to supply.
d. comparative advantage is to supply.
5168 The Theory of Consumer Choice
12. The theory of consumer choice
a. underlies the concept of the demand for a particular good.
b. underlies the concept of the supply of a particular good.
c. ignores, for the sake of simplicity, the trade-offs that consumers face.
d. can be applied to many questions about household decisions, but it cannot be applied to
questions concerning wages and labor supply.
Multiple Choice – Section 01: The Budget Constraint: What the Consumer Can Afford
Figure 21-1
The downward-sloping line on the figure represents a consumer’s budget constraint.
1. Refer to Figure 21-1. If the consumer’s income is $140, then what is the price of a CD?
a. $3
b. $5
c. $7
d. $9
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2. Refer to Figure 21-1. If the price of a CD is $12, then the consumer’s income amounts to
a. $140.
b. $180.
c. $210.
d. $240.
3. Refer to Figure 21-1. A consumer who chooses to spend all of her income could be at which
point(s) on the figure?
a. A only
b. E only
c. B, C, or D only
d. A, B, C, or D only
5170 The Theory of Consumer Choice
4. Refer to Figure 21-1. All of the points identified on the figure represent affordable consumption
options with the exception of
a. A.
b. E.
c. A and E.
d. None of the above are correct. All of the points identified on the figure are affordable.
Figure 21-2
The downward-sloping line on the figure represents a consumer’s budget constraint.
5. Refer to Figure 21-2. A consumer who chooses to spend all of her income could be at which
point(s) on the figure?
a. V only
b. Z only
c. V, W, X, or Y only
d. W, X, or Y only
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6. Refer to Figure 21-2. Which points are affordable?
a. W, X, and Y only
b. Z only
c. V, W, X, and Y only
d. V, W, X, Y, and Z
7. Refer to Figure 21-2. If the consumer’s income is $100, then what is the price of an apple?
a. $0.50
b. $0.75
c. $1.00
d. $1.25
8. Refer to Figure 21-2. Which of the following statements is not correct?
a. Points W, X, and Y all cost the consumer the same amount of money.
b. Point Z is unaffordable for the consumer given his budget constraint.
c. Point V costs less than point Z.
d. Points W, X, and Y give the consumer the same level of satisfaction.
5172 The Theory of Consumer Choice
9. Refer to Figure 21-2. Which of the following statements is correct?
a. Points W, X, and Y all cost the consumer the same amount of money.
b. Point V is unaffordable for the consumer given his budget constraint.
c. Point Z costs less than point V.
d. Points W, X, and Y give the consumer the same level of satisfaction.
Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.
10. Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good
X only?
a. graph a
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b. graph b
c. graph c
d. graph d
11. Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price of good
X only?
a. graph a
b. graph b
c. graph c
d. graph d
12. Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good
Y only?
a. graph a
b. graph b
c. graph c
d. graph d
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13. Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price of good
Y only?
a. graph a
b. graph b
c. graph c
d. graph d
14. Refer to Figure 21-3. Which of the graphs in the figure could reflect a simultaneous decrease
in the prices of both goods?
(i) graph a
(ii) graph b
(iii) graph c
(iv) graph d
a. (i) only
b. (iv) only
c. (ii) or (iii) only
d. None of the above is correct.
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15. Refer to Figure 21-3. Which of the graphs in the figure could reflect a simultaneous decrease in
the price of good X and increase in the price of good Y?
(i) graph a
(ii) graph b
(iii) graph c
(iv) graph d
a. (ii) only
b. (iii) only
c. (ii) or (iv) only
d. None of the above is correct.
Figure 21-4
In each case, the budget constraint moves from BC-1 to BC-2.
5176 The Theory of Consumer Choice
16. Refer to Figure 21-4. Which of the graphs in the figure could reflect a simultaneous increase in
the price of good X and decrease in the price of good Y?
a. graph a
b. graph b
c. graph c
d. graph d
17. Refer to Figure 21-4. Which of the graphs in the figure could reflect an increase in income?
a. graph a
b. graph b
c. graph d
d. None of the above is correct.
18. Refer to Figure 21-4. Which of the graphs in the figure could reflect a decrease in income?
a. graph a
b. graph b
c. graph d
d. None of the above is correct.
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Figure 21-5
(a) (b)
19. Refer to Figure 21-5. In graph (a), if income is equal to $200, then the price of good X is
a. $12.
b. $16.
c. $20.
d. $24.
20. Refer to Figure 21-5. In graph (a), if income is equal to $200, then the price of good Y is
a. $3.
b. $5.
c. $7.
d. $10.
5178 The Theory of Consumer Choice
21. Refer to Figure 21-5. In graph (a), what is the price of good X relative to the price of good Y
(i.e., PX/PY)?
a. 1/4
b. 1/3
c. 3
d. 4
22. Refer to Figure 21-5. In graph (a), what is the price of good Y relative to the price of good X
(i.e., Py/Px)?
a. 1/4
b. 1/3
c. 3
d. 4
23. Refer to Figure 21-5. In graph (b), if income is equal to $420, then the price of good X is
a. $1.
b. $3.
c. $10.
d. $30.
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24. Refer to Figure 21-5. In graph (b), if income is equal to $420, then the price of good Y is
a. $1.
b. $3.
c. $10.
d. $30.
25. Refer to Figure 21-5. In graph (b), what is the price of good X relative to the price of good Y
(i.e., Px/Py)?
a. 1/3
b. 1
c. 3
d. 10
26. Refer to Figure 21-5. In graph (b), what is the price of good Y relative to the price of good X
(i.e., PY/PX)?
a. 1/3
b. 1
c. 3
d. 10
5180 The Theory of Consumer Choice
27. Refer to Figure 21-5. Assume that a consumer faces the budget constraint shown in graph (a)
in January and the budget constraint shown in graph (b) in February. If the consumer’s income
has remained constant, then what has happened to prices between January and February?
a. The price of X has fallen, but there could not have been a change in the price of Y.
b. The price of Y has fallen, but there could not have been a change in the price of X.
c. The price of X has fallen, and the price of Y has risen.
d. The price of Y has fallen, and the price of X has risen.
Figure 21-6
28. Refer to Figure 21-6. Suppose a consumer has $100 in income, the price of popcorn is $2, and
the value of B is 100. What is the price of Mt. Dew?
a. $1
b. $2
c. $5
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d. $100
29. Refer to Figure 21-6. Suppose a consumer has $100 in income, the price of Mt. Dew is $2, and
the value of A is 200. What is the price of popcorn?
a. $0.50
b. $1
c. $2
d. $4
30. Refer to Figure 21-6. Suppose a consumer has $200 in income, the price of popcorn is $1, and
the price of Mt. Dew is $2. What is the value of A?
a. 200
b. 100
c. 50
d. 25
5182 The Theory of Consumer Choice
31. Refer to Figure 21-6. Suppose a consumer has $200 in income, the price of popcorn is $1, and
the price of Mt. Dew is $2. What is the value of B?
a. 200
b. 100
c. 50
d. 25
32. Refer to Figure 21-6. Suppose the price of popcorn is $2, the price of Mt. Dew is $4, the value
of A is 30, and the value of B is 15. How much income does the consumer have?
a. $120
b. $80
c. $60
d. $30
Figure 21-7
