Chapter 21/The Theory of Consumer Choice ❖ 41
48. Bob enjoys fishing and hunting. He divides his leisure hours between the two outdoor activities.
Suppose we were to draw Bob’s indifference curves for the two activities, placing fishing on the
horizontal axis and hunting on the vertical axis. If Bob’s indifference curves are bowed inward, then
a.
the rate at which he is willing to give up an hour of hunting for an hour of fishing changes
depending on how many hours of each activity he has done. For example, if Bob has
already fished a lot in one week, he will be more willing to give up an hour of fishing for
an hour of hunting than if he has only fished a little that week.
b.
the rate at which he is willing to give up an hour of hunting for an hour of fishing is
constant because he must derive the same enjoyment out of each activity.
c.
the rate at which he is willing to give up an hour of hunting for an hour of fishing changes
depending on how many hours of each activity he has done. For example, if Bob has
already fished a lot in one week, he will be less willing to give up an hour of fishing for an
hour of hunting than if he has only fished a little that week.
d.
Bob’s indifference curves will not cross. When indifference curves are bowed outward,
the indifference curves must cross.
49. The marginal rate of substitution
a.
varies along an indifference curve if the curve is bowed inward.
b.
is constant along an indifference curve if the curve is a straight line.
c.
is greater when a consumer has more of two goods rather than less of two goods.
d.
Both a and b are correct.
50. Bundle L contains 10 units of good X and 20 units of good Y. Bundle M contains 8 units of good X
and 21 units of good Y. The consumer is indifferent between bundle L and bundle M. Assume that
the consumer’s preferences satisfy the four properties of indifference curves. Which of the follow-
ing correctly expresses the marginal rate of substitution of good X for good Y between these two
points?
a.
The consumer will give up 1 unit of good X to gain 2 units of good Y.
b.
The consumer will give up 2 units of good X to gain 1 unit of good Y.
c.
The price of good X is twice as large as the price of good Y.
d.
The price of good X is half as large as the price of good Y.
51. If an indifference curve is bowed in toward the origin, the marginal rate of substitution is
a.
not likely to reflect the relative value of goods.
b.
likely to be constant for all bundles along the indifference curve.
c.
likely to be identical to the price ratio for each bundle along the indifference curve.
d.
different for each bundle along the indifference curve.
42 ❖ Chapter 21/The Theory of Consumer Choice
52. If an indifference curve is bowed out away from the origin, the marginal rate of substitution is
a.
not likely to reflect the relative value of goods.
b.
likely to be constant for all bundles along the indifference curve.
c.
likely to be identical to the price ratio for each bundle along the indifference curve.
d.
different for each bundle along the indifference curve.
53. As long as a consumer remains on the same indifference curve,
a.
she is indifferent to all points that lie on any other indifference curve.
b.
her preferences will not affect the marginal rate of substitution.
c.
she is unable to decide which bundle of goods to choose.
d.
she is indifferent among the points on that curve.
54. Assume that a consumer’s indifference curve is bowed inward and satisfies the other three properties
of indifference curves. As the consumer moves from left to right along the horizontal axis, the con-
sumer’s marginal rate of substitution
a.
increases.
b.
decreases.
c.
remains constant.
d.
increases, then decreases.
55. Assume that a consumer’s indifference curve is bowed outward but satisfies the other three proper-
ties of indifference curves. As the consumer moves from left to right along the horizontal axis, the
consumer’s marginal rate of substitution
a.
increases.
b.
decreases.
c.
remains constant.
d.
increases, then decreases.
56. When indifference curves are bowed inward, the marginal rate of substitution is
a.
the same at all points along an indifference curve.
b.
increasing as the consumer moves to the right along an indifference curve.
c.
decreasing as the consumer moves to the right along an indifference curve.
d.
constant.
Chapter 21/The Theory of Consumer Choice ❖ 43
57. Each of the following are characteristics of a typical indifference curve map except
a.
moving northeast to a new indifference curve will increase utility.
b.
points on the same indifference curve yield equal utility.
c.
the axes represent levels of utility for each of the goods.
d.
indifference curves cannot cross.
58. Which of the following is a property of typical indifference curves?
a.
Indifference curves usually intersect.
b.
Indifference curves have positive slopes.
c.
Indifference curves are downward sloping and always linear.
d.
Indifference curves are usually bowed in toward the origin.
59. All of the following are properties of typical indifference curves except
a.
higher indifference curves are preferred to lower ones.
b.
indifference curves are downward sloping.
c.
indifference curves do not cross.
d.
indifference curves are bowed outward.
60. Which of the following is a property of a typical indifference curve?
a.
upward sloping
b.
bowed away from the origin
c.
does not intersect another indifference curve
d.
a lower one is preferred to a higher one
61. Which of the following is a property of a typical indifference curve?
a.
upward sloping
b.
bowed away from the origin
c.
does not intersect another indifference curve
d.
a higher one is preferred to a lower one
44 ❖ Chapter 21/The Theory of Consumer Choice
62. Which of the following is not a property of a typical indifference curve?
a.
downward sloping
b.
bowed away from the origin
c.
does not intersect another indifference curve
d.
a higher one is preferred to a lower one
63. Higher indifference curves are preferred to lower ones as long as the
a.
marginal rate of substitution is diminishing.
b.
products in the bundle are “bads” and not “goods.”
c.
products in the bundle are “goods” and not “bads.”
d.
budget constraint does not shift.
64. Which of the following is not correct?
a.
Indifference curves are downward sloping.
b.
Indifference curves that are closer to the origin are preferred to indifference curves that are
further from the origin.
c.
Indifference curves are bowed in toward the origin.
d.
Indifference curves do not cross.
65. When indifference curves are bowed in toward the origin,
a.
consumers are less inclined to trade away goods they are lacking.
b.
consumers’ willingness to trade away goods they have in abundance diminishes.
c.
an increase in income will shift the indifference curve away from the origin.
d.
a decrease in income will shift the indifference curve toward the origin.
66. When indifference curves are bowed in toward the origin,
a.
consumers are more inclined to trade away goods they have in abundance.
b.
an increase in income will shift the indifference curve away from the origin.
c.
a decrease in income will shift the indifference curve toward the origin.
d.
Both b) and c) are correct.
Chapter 21/The Theory of Consumer Choice ❖ 45
67. The bowed shape of the indifference curve reflects the consumer’s
a.
unwillingness to give up a good that he already has in large quantity.
b.
unwillingness to purchase a good that he already has in large quantity.
c.
greater willingness to give up a good that he already has in large quantity.
d.
greater willingness to purchase a good that he already has in large quantity.
68. A set of indifference curves that are only slightly bowed inward represent goods that could best be
described as
a.
perfect substitutes.
b.
perfect complements.
c.
very close substitutes.
d.
very close complements.
69. Janet prefers cashews to almonds. She prefers macadamia nuts to peanuts, but she is indifferent be-
tween almonds and peanuts. Which of the following statements can we say for sure?
a.
Janet prefers cashews to macadamia nuts.
b.
Janet prefers peanuts to cashews.
c.
Janet prefers macadamia nuts to almonds.
d.
Janet prefers almonds to macadamia nuts.
70. Indifference curves that cross would suggest that
a.
the consumer does not prefer more to less.
b.
the consumer is likely to prefer a redistribution of income from rich to poor.
c.
different individuals have different preferences for the same goods.
d.
the marginal rate of substitution is the same for both indifference curves.
71. Indifference curves that cross violate the property of
a.
the marginal rate of substitution.
b.
transitivity.
c.
indifference curves bowing inward.
d.
They do not violate any properties of indifference curves.
46 ❖ Chapter 21/The Theory of Consumer Choice
Figure 21-14
72. Refer to Figure 21-14. Which of the graphs shown may represent indifference curves?
a.
graph a
b.
graph b
c.
graph c
d.
All of the above are correct.
73. Refer to Figure 21-14. Which of the graphs shown represent indifference curves for perfect com-
plements?
a.
graph a
b.
graph b
c.
graph c
d.
All of the above are correct.
74. Refer to Figure 21-14. Which of the graphs shown represent indifference curves for perfect substi-
tutes?
a.
graph a
b.
graph b
c.
graph c
d.
All of the above are correct.
75. Refer to Figure 21-14. Which of the graphs illustrates indifference curves for which the marginal
rate of substitution is constant?
a.
graph a
b.
graph b
c.
graph c
d.
All of the above are correct.
(a)
x
y
(b)
x
y
(c)
x
y
Chapter 21/The Theory of Consumer Choice ❖ 47
76. Refer to Figure 21-14. Which of the graphs illustrates indifference curves for which the marginal
rate of substitution is undefined?
a.
graph a
b.
graph b
c.
graph c
d.
All of the above are correct.
77. Refer to Figure 21-14. Which of the graphs illustrates indifference curves for which the marginal
rate of substitution varies?
a.
graph a
b.
graph b
c.
graph c
d.
All of the above are correct.
78. Refer to Figure 21-14. Which of the following statements is correct?
a.
The indifference curves represented in graph a are perfect complements.
b.
The indifference curves represented in graph b are perfect substitutes.
c.
The indifference curves represented in graph c are neither perfect substitutes not perfect
complements.
d.
All of the above are correct.
79. Refer to Figure 21-14. Which of the following statements is correct?
a.
The indifference curves represented in graph a are perfect substitutes.
b.
The indifference curves represented in graph b are perfect complements.
c.
The indifference curves represented in graph c are neither perfect substitutes not perfect
complements.
d.
All of the above are correct.
80. When two goods are perfect substitutes, the marginal rate of substitution
a.
is constant along the indifference curve.
b.
decreases as the scarcity of one good increases.
c.
increases as the scarcity of one good increases.
d.
changes to reflect the consumer’s changing preferences for the goods.
48 ❖ Chapter 21/The Theory of Consumer Choice
81. Assume that a consumer’s indifference curve is a downward-sloping straight line. As the consumer
moves from left to right along the horizontal axis, the consumer’s marginal rate of substitution
a.
increases.
b.
decreases.
c.
remains constant.
d.
increases, then decreases.
82. Consider the indifference curve map for nickels and quarters. Assume nickels are on the vertical axis
and quarters are on the horizontal axis. The indifference curves for nickels and quarters are
a.
straight lines with slope of -1/5
b.
straight lines with a slope of -1.
c.
straight lines with a slope of -5.
d.
L shaped.
83. A consumer’s preferences for $1 bills and $20 bills can be represented by indifference curves that
are
a.
bowed out from the origin
b.
bowed in toward the origin
c.
straight lines
d.
right angles
84. When two goods are perfect substitutes, the indifference curve is
a.
a horizontal straight line.
b.
bowed outward.
c.
a downward-sloping straight line.
d.
a right angle.
85. When two goods are perfect substitutes, the
a.
indifference curve is a horizontal straight line.
b.
marginal rate of substitution is constant.
c.
indifference curve is a vertical straight line.
d.
Both a and b are correct.
Chapter 21/The Theory of Consumer Choice ❖ 49
86. When two goods are perfect substitutes, the
a.
indifference curve is a downward-sloping straight line.
b.
marginal rate of substitution is constant.
c.
indifference curve is a vertical straight line.
d.
Both a and b are correct.
87. Suppose Caroline is indifferent between tea and coffee as long as she consumes an equivalent
amount of caffeine. Suppose that coffee has twice as much caffeine as tea. Which graph would il-
lustrate a representative indifference curve?
a.
b.
c.
d.
1 2 3 4 5 6 7 8 9 Coffee
1
2
3
4
5
6
7
8
9
Tea
1 2 3 4 5 6 7 8 9 Coffee
1
2
3
4
5
6
7
8
9
Tea
1 2 3 4 5 6 7 8 9 Coffee
1
2
3
4
5
6
7
8
9
Tea
1 2 3 4 5 6 7 8 9 Coffee
1
2
3
4
5
6
7
8
9
Tea
50 ❖ Chapter 21/The Theory of Consumer Choice
88. Suppose Caroline will only drink a cup of coffee if she can add two packets of sugar to it. Which
graph would illustrate a representative indifference curve?
a.
b.
c.
d.
89. Suppose that Harry likes pears twice as much as apples, meaning that he is always indifferent be-
tween consuming one pear or two apples. Harry’s indifference curves for pears and apples are
a.
right angles.
b.
bowed inward.
c.
bowed outward.
d.
downward-sloping straight lines.
1 2 3 4 Coffee
1
2
3
4
Sugar
1 2 3 4 Coffee
1
2
3
4
Sugar
1 2 3 4 Coffee
1
2
3
4
Sugar
1 2 3 4 Coffee
1
2
3
4
Sugar
Chapter 21/The Theory of Consumer Choice ❖ 51
90. When two goods are perfect complements, the indifference curve is
a.
a horizontal straight line.
b.
bowed outward.
c.
a downward-sloping straight line.
d.
a right angle.
91. A consumer’s preferences for right shoes and left shoes can be represented by indifference curves
that are
a.
bowed out from the origin
b.
bowed in toward the origin
c.
straight lines
d.
right angles
92. When two goods are perfect complements, the indifference curves will
a.
have a positive slope.
b.
be right angles.
c.
have a constant marginal rate of substitution.
d.
Both b and c are correct.
93. “Left” gloves and “right” gloves provide a good example of
a.
perfect substitutes.
b.
perfect complements.
c.
negatively sloped indifference curves.
d.
positively sloped indifference curves.
94. When two goods are perfect complements, the indifference curves are
a.
positively sloped.
b.
negatively sloped.
c.
straight lines.
d.
right angles.
52 ❖ Chapter 21/The Theory of Consumer Choice
95. Suppose Rich always uses two packets of sugar with his coffee. Rich’s indifference curves for sugar
and coffee are
a.
bowed inward.
b.
bowed outward.
c.
straight lines.
d.
L shaped.
96. A consumer likes two goods: pizza and beer. The four bundles shown in the table below lie on the
same indifference curve for the consumer.
Bundle
Pizza
Beer
A
2
8
B
2
2
C
9
2
D
6
2
Which of the following statements regarding these bundles is correct?
a.
The goods are perfect substitutes for this consumer.
b.
The goods are perfect complements for this consumer.
c.
These bundles illustrate the property that indifference curves are bowed inward.
d.
These bundles violate the property that indifference curves do not cross.
97. A consumer likes two goods: CDs and novels. The five bundles shown in the table below lie on the
same indifference curve for the consumer.
Bundle
CDs
Novels
A
10
3
B
5
3
C
3
3
D
3
5
E
3
10
Which of the following statements regarding these bundles is correct?
a.
The goods are perfect substitutes for this consumer.
b.
The goods are perfect complements for this consumer.
c.
The bundles violate the property that indifference curves do not cross.
d.
Both b) and c) are correct.
Chapter 21/The Theory of Consumer Choice ❖ 53
98. Suppose that Jake likes to consume one glass of milk with every three chocolate chip cookies. For
Jake, an additional cookie has no value unless he can consume it with the appropriate proportion of
milk. Jake’s indifference curves for milk and cookies are
a.
right angles.
b.
bowed inward.
c.
bowed outward.
d.
downward-sloping straight lines.
OPTIMIZATION: WHAT THE CONSUMER CHOOSES
Figure 21-15
1. Refer to Figure 21-15. 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
A
B
CD
E
IC
54 ❖ Chapter 21/The Theory of Consumer Choice
2. Refer to Figure 21-15. 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 21-15. 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
Figure 21-16
A
B
C
D
E
IC1
IC2
IC3
1 2 3 4 5 6 7 8 9 x
1
2
3
4
5
6
7
8
y
Chapter 21/The Theory of Consumer Choice ❖ 55
4. Refer to Figure 21-16. When the price of X is $6, the price of Y is $24, and income is $48, Steve’s
optimal choice is point C. Then the price of Y decreases to $8. Steve’s new optimal choice is point
a.
A.
b.
B.
c.
D.
d.
E.
5. Refer to Figure 21-16. When the price of X is $6, the price of Y is $24, and income is $48, Steve’s
optimal choice is point C. Then the price of Y decreases to $6. Steve’s new optimal choice is point
a.
A.
b.
B.
c.
D.
d.
E.
6. Refer to Figure 21-16. When the price of X is $40, the price of Y is $40, and income is $160,
Steve’s optimal choice is point B. Then Steve’s income increases to $320, and his optimal choice is
point E. For Steve,
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.
Figure 21-17
56 ❖ Chapter 21/The Theory of Consumer Choice
7. Refer to Figure 21-17. Given the budget constraint depicted in the graph, the consumer’s optimal
choice will be point
a.
B.
b.
C.
c.
D.
d.
E.
8. Refer to Figure 21-17. 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 21-17. Bundle B represents a point where
a.
MRSxy > Py/Px.
b.
MRSxy = Px/Py.
c.
MRSxy < Px/Py.
d.
MRSxy > Px/Py.
10. Refer to Figure 21-17. Bundle C represents a point where
a.
MRSxy > Py/Px.
b.
MRSxy = Px/Py.
c.
MRSxy < Px/Py.
d.
MRSxy > Px/Py.
11. Refer to Figure 21-17. Bundle D represents a point where
a.
MRSxy > Py/Px.
b.
MRSxy = Px/Py.
c.
MRSxy < Px/Py.
d.
MRSxy < Py/Px.
Chapter 21/The Theory of Consumer Choice ❖ 57
Figure 21-18
12. Refer to Figure 21-18. Assume that the consumer depicted in the figure has an income of $20. The
price of Skittles is $2 and the price of M&M’s is $4. The consumer’s optimal choice is point
a.
A.
b.
B.
c.
C.
d.
D.
13. Refer to Figure 21-18. Assume that the consumer depicted in the figure has an income of $20. The
price of Skittles is $2 and the price of M&M’s is $2. The consumer’s optimal choice is point
a.
A.
b.
B.
c.
C.
d.
D.
14. Refer to Figure 21-18. Assume that the consumer depicted in the figure faces prices and income
such that she optimizes at point B. According to the graph, which of the following would cause the
consumer to move to point A?
a.
a decrease in the price of Skittles
b.
a decrease in the price of M&M’s
c.
an increase in the price of Skittles
d.
an increase in the price of M&M’s
58 ❖ Chapter 21/The Theory of Consumer Choice
15. Refer to Figure 21-18. Assume that the consumer depicted in the figure has an income of $20. The
price of Skittles is $2 and the price of M&M’s is $4. The consumer will choose a consumption bun-
dle where the marginal rate of substitution is
a.
2.
b.
2/3.
c.
1/2.
d.
1/3.
16. Refer to Figure 21-18. Assume that the consumer depicted in the figure has an income of $50. The
price of Skittles is $5 and the price of M&M’s is $5. This consumer will choose a consumption bun-
dle where the marginal rate of substitution is
a.
10.
b.
5.
c.
1.
d.
1/5.
Figure 21-19
The following graph illustrates a representative consumer’s preferences for marshmallows and
chocolate chip cookies:
Chapter 21/The Theory of Consumer Choice ❖ 59
17. Refer to Figure 21-19. Assume that the consumer has an income of $40, the price of a bag of
marshmallows is $2, and the price of a bag of chocolate chips is $2. The optimizing consumer will
choose to purchase which bundle of marshmallows and chocolate chips?
a.
A
b.
B
c.
C
d.
D
18. Refer to Figure 21-19. Assume that the consumer has an income of $100 and currently optimizes at
bundle A. When the price of marshmallows decreases to $5, which bundle will the optimizing con-
sumer choose?
a.
A
b.
B
c.
C
d.
D
19. Refer to Figure 21-19. Assume that the consumer has an income of $40. If the price of chocolate
chips is $4 and the price of marshmallows is $4, the optimizing consumer would choose to purchase
a.
9 marshmallows and 6 chocolate chips.
b.
10 marshmallows and 10 chocolate chips.
c.
5 marshmallows and 5 chocolate chips.
d.
3 marshmallows and 9 chocolate chips.
20. Refer to Figure 21-19. Assume that the consumer has an income of $80. If the price of chocolate
chips is $4 and the price of marshmallows is $4, the optimizing consumer would choose to purchase
a.
9 marshmallows and 6 chocolate chips.
b.
10 marshmallows and 10 chocolate chips.
c.
5 marshmallows and 5 chocolate chips.
d.
3 marshmallows and 9 chocolate chips.
21. Refer to Figure 21-19. Assume that the consumer has an income of $40. Based on the information
available in the graph, which of the following price-quantity combinations would be on her demand
curve for marshmallows if the price of chocolate chips were $4?
a.
P=$2, Q=3
b.
P=$2, Q=9
c.
P=$4, Q=3
d.
P=$4, Q=9
60 ❖ Chapter 21/The Theory of Consumer Choice
22. Refer to Figure 21-19. Assume that the consumer depicted the figure has an income of $50. Based
on the information available in the graph, which of the following price-quantity combinations would
be on her demand curve for chocolate chips if the price of marshmallows is $2.50?
a.
P=$2.50, Q=6
b.
P=$2.50, Q=10
c.
P=$5.00, Q=3
d.
P=$5.00, Q=5
23. The goal of the consumer is to
a.
maximize utility.
b.
be on the highest indifference curve.
c.
maximize satisfaction.
d.
All of the above are the goals of the consumer.
24. The goal of the consumer is to
a.
maximize utility.
b.
minimize expenses.
c.
spend more income in the current time period than in the future.
d.
All of the above are the goals of the consumer.
25. When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget
constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice
point shows that it occurs
a.
along the highest attainable indifference curve.
b.
where the indifference curve is tangent to the budget constraint.
c.
where the marginal utility per dollar spent is the same for both X and Y.
d.
All of the above are correct.
26. When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget
constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice
point shows that it occurs
a.
along the highest indifference curve.
b.
along the lowest budget constraint.
c.
where the indifference curve is tangent to the budget constraint.
d.
All of the above are correct.