Chapter 21/The Theory of Consumer Choice ❖ 21
paperback novels. Which consumer(s) can afford to purchase 5 slices of pizza and 5 paperback nov-
els?
a.
Jack only
b.
Diane only
c.
both Jack and Diane
d.
neither Jack nor Diane
62. Suppose a consumer has an income of $800 per month and that she spends her entire income each
month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4.
Which of the following combinations of beers and bratwursts represents a point that would lie to the
interior of the consumer’s budget constraint?
a.
160 beers and 200 bratwursts
b.
40 beers and 50 bratwursts
c.
80 beers and 100 bratwursts
d.
160 beers and 0 bratwursts
63. Suppose a consumer has an income of $800 per month and that she spends her entire income each
month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4.
Which of the following combinations of beers and bratwursts represents a point that would lie to the
exterior of the consumer’s budget constraint?
a.
160 beers and 200 bratwursts
b.
40 beers and 50 bratwursts
c.
80 beers and 100 bratwursts
d.
160 beers and 0 bratwursts
64. Suppose a consumer has an income of $800 per month and that she spends her entire income each
month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4.
Which of the following combinations of beers and bratwursts represents a point that would lie di-
rectly on the consumer’s budget constraint?
a.
160 beers and 200 bratwursts
b.
40 beers and 50 bratwursts
c.
80 beers and 100 bratwursts
d.
80 beers and 0 bratwursts
22 ❖ Chapter 21/The Theory of Consumer Choice
65. Consider two goods, books and hamburgers. The slope of the consumer’s budget constraint is meas-
ured by the
a.
consumer’s income divided by the price of hamburgers.
b.
relative price of books and hamburgers.
c.
consumer’s marginal rate of substitution.
d.
number of books purchased divided by the number of hamburgers purchased.
66. Suppose a consumer spends his income on CDs and DVDs. If his income decreases, the budget
constraint for CDs and DVDs will
a.
shift outward, parallel to the original budget constraint.
b.
shift inward, parallel to the original budget constraint.
c.
rotate outward along the CD axis because he can afford more CDs.
d.
rotate outward along the DVD axis because he can afford more DVDs.
67. Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and
the price of a book is $15. If she has $100 in income, she could choose to consume
a.
8 pizzas and 4 books.
b.
4 pizzas and 5 books.
c.
9 pizzas and 3 books.
d.
4 pizzas and 3 books.
68. Assume that a college student spends her income on mac-n-cheese and CDs. The price of one box of
mac-n-cheese is $1, and the price of one CD is $12. If she has $100 of income, she could choose to
consume
a.
15 boxes of mac-n-cheese and 6 CDs.
b.
20 boxes of mac-n-cheese and 7 CDs.
c.
10 boxes of mac-n-cheese and 8 CDs.
d.
30 boxes of mac-n-cheese and 6 CDs.
69. A consumer who doesn’t spend all of her income
a.
would be at a point outside of her budget constraint.
b.
would be at a point inside her budget constraint.
c.
must not be consuming positive quantities of all goods.
d.
must be consuming at a point where her budget constraint touches one of the axes.
Chapter 21/The Theory of Consumer Choice ❖ 23
70. An increase in income will cause a consumer’s budget constraint to
a.
shift outward, parallel to its initial position.
b.
shift inward, parallel to its initial position.
c.
pivot along the horizontal axis.
d.
pivot along the vertical axis.
71. 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.
72. 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.
73. 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
74. 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
24 ❖ Chapter 21/The Theory of Consumer Choice
75. 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
76. 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 horizontal axis and the quantity of DVDs on the vertical 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.
77. 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
78. 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
Chapter 21/The Theory of Consumer Choice ❖ 25
79. 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
80. 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
81. 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
82. If the price of bread is zero, the budget constraint between bread (on the vertical axis) and cheese
(on the horizontal axis) would
a.
be vertical.
b.
coincide with the vertical axis.
c.
coincide with the horizontal axis.
d.
be horizontal.
83. 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.
26 ❖ Chapter 21/The Theory of Consumer Choice
84. 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.
85. 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. Since the price changes, Mark 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.
86. 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.
87. Suppose the only two goods that Brett 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 in-
creases 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 Brett’s income at the new prices.
c.
more than Brett’s income at the new prices.
d.
We do not have enough information to answer the question.
88. Suppose the only two goods that Brett 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
Chapter 21/The Theory of Consumer Choice ❖ 27
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 Brett’s budget has not changed.
b.
the slope of Brett’s budget constraint is flatter at the new prices.
c.
the slope of Brett’s budget constraint is steeper at the new prices.
d.
Brett’s budget constraint has shifted in a parallel fashion to the budget constraint with the
old prices.
89. 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.
90. Monica consumes two goods, iced tea and spaghetti. The price of iced tea is $2 per bottle. Her in-
come is $500 per month. She 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
91. Bill consumes two goods, iced tea and spaghetti. The price of iced tea is $4 per bottle, and the price
of spaghetti is $6 per serving. His income is $1,000 per month. He spends all his income each
month. He purchases 100 bottles of iced tea. How many servings of spaghetti can he purchase?
a.
250
b.
166.67
c.
100
d.
10
92. 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.
28 ❖ Chapter 21/The Theory of Consumer Choice
93. 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.
PREFERENCES: WHAT THE CONSUMER WANTS
1. An indifference curve illustrates
a.
a firm’s profits.
b.
a consumer’s budget.
c.
a consumer’s preferences.
d.
the prices of two goods.
2. Economists represent a consumer’s preferences using
a.
demand curves.
b.
budget constraints.
c.
indifference curves.
d.
supply curves.
3. If two bundles of goods give a consumer the same satisfaction, the consumer must be
a.
on her budget constraint.
b.
in a position of equilibrium.
c.
indifferent between the bundles.
d.
Both a and c are correct.
4. Indifference curves graphically represent
a.
an income level sufficient to allow an individual to achieve a given level of satisfaction.
b.
the constraints faced by individuals.
c.
an individual’s preferences.
d.
the relative price of commodities.
Chapter 21/The Theory of Consumer Choice ❖ 29
5. A consumer
a.
is equally satisfied with any indifference curve.
b.
prefers indifference curves with positive slopes.
c.
prefers higher indifference curves to lower indifference curves.
d.
prefers indifference curves that are straight lines to indifference curves that are right
angles.
6. A consumer’s preferences provide a ranking of
a.
all possible consumption bundles.
b.
only the consumption bundles that fall on the same indifference curve.
c.
consumption bundles based their prices.
d.
consumption bundles based on the consumer’s income.
7. If Walter has one hour of leisure time in which to watch a sporting event on television, his prefer-
ences are as follows: Walter prefers watching football to watching baseball, but he prefers watching
baseball to watching basketball. He is indifferent between watching baseball and watching hockey.
Bundle A contains one hour of football and zero hours of all other sports. Bundle B contains one
hour of baseball and zero hours of all other sports. Bundle C contains one hour of basketball and
zero hours of all other sports. Bundle D contains one hour of hockey and zero hours of all other
sports. If we were to graph Walter’s preferences using indifference curves, which of the following
bundles would be on the same indifference curve?
a.
A, B, and C only
b.
B and D only
c.
A and D only
d.
There is no combination of the sports that could be drawn on the same indifference curve.
8. Diana and Sarah each like jewelry and music by the Rolling Stones. If we were to graph an indiffer-
ence curve with jewelry on the horizontal axis and cds by the Rolling Stones on the vertical axis,
then
a.
Diana and Sarah would have identical indifference curves.
b.
Diana’s indifference curve would be higher than Sarah’s indifference curve.
c.
Sarah’s indifference curve would be higher than Diana’s indifference curve.
d.
Because we do not know the intensity of each woman’s preferences, we do not have
enough information to compare their indifference curves.
9. Both Diana and Sarah like jazz music and music by the Beatles. Diana likes music by the Beatles
much better than jazz music, whereas Sarah prefers jazz music to music by the Beatles. If we were
30 ❖ Chapter 21/The Theory of Consumer Choice
to graph an indifference curve with cds by the Beatles on the horizontal axis and jazz cds on the ver-
tical axis, then
a.
Diana and Sarah would have identical indifference curves.
b.
Diana’s indifference curve would be steeper than Sarah’s indifference curve.
c.
Sarah’s indifference curve would be steeper than Diana’s indifference curve.
d.
We do not have enough information to compare their indifference curves.
10. Alicia is a vegetarian, so she does not eat beef. That is, beef provides no additional utility to Alicia.
She loves potatoes, however. If we illustrate Alicia’s indifference curves by drawing beef on the
horizontal axis and potatoes on the vertical axis, her indifference curves will
a.
slope downward.
b.
be vertical straight lines.
c.
slope upward.
d.
be horizontal straight lines.
11. Irene is a vegetarian, so she does not eat pork. That is, pork provides no additional utility to Irene.
She loves broccoli, however. If we illustrate Irene’s indifference curves by drawing broccoli on the
horizontal axis and pork on the vertical axis, her indifference curves will
a.
slope downward.
b.
be vertical straight lines.
c.
slope upward.
d.
be horizontal straight lines.
12. Bundle A contains 10 units of good X and 5 units of good Y. Bundle B contains 5 units of good X
and 10 units of good Y. Bundle C contains 10 units of good X and 10 units of good Y. The con-
sumer is indifferent between bundle A and bundle B. Assume that the consumer’s preferences sat-
isfy the four properties of indifference curves. Which of the following statements is correct?
a.
The consumer must prefer bundle C to either bundle A or B.
b.
Bundle A and bundle B lie on the same indifference curve.
c.
The consumer must prefer bundle B to bundle C.
d.
Both a) and b) are correct.
Chapter 21/The Theory of Consumer Choice ❖ 31
13. A consumer likes two goods: books and movies. The two bundles shown in the table below lie on
the same indifference curve for the consumer.
Bundle
Books
Movies
A
2
3
B
3
2
Which of the following bundles could not lie on the same indifference curve with A and B and
satisfy the four properties of indifference curves?
a.
1 movie and 5 books
b.
3 movies and 3 books
c.
5 movies and 1 book
d.
1 movie and 7 books
14. A consumer likes two goods: books and movies. The three bundles shown in the table below lie on
the same indifference curve for the consumer.
Bundle
Books
Movies
A
2
4
B
4
2
C
3
3
Which of the following properties of indifference curves would this consumer’s preferences violate?
a.
Indifference curves are downward sloping.
b.
Indifference curves do not cross.
c.
Indifference curves are bowed inward.
d.
These bundles do not violate any of the properties of indifference curves.
15. Laura consumes only beer and chips. Her indifference curves are all bowed inward. Consider the
bundles (2,6), (4,4), and (6,2). If Laura is indifferent between (2,6) and (6,2), then Laura must
a.
prefer (4,4) to (6,2).
b.
be indifferent between (4,4) and (6,2).
c.
prefer (6,2) to (4,4).
d.
prefer (2,6) to (4,4).
16. An indifference curve illustrates the
a.
prices facing a consumer as she chooses how much of good X and good Y to consume.
b.
income facing a consumer as she chooses how much of good X and good Y to consume.
c.
trade-offs facing a consumer as she chooses how much of good X and good Y to consume.
d.
All of the above are correct.
32 ❖ Chapter 21/The Theory of Consumer Choice
Figure 21-10
17. Refer to Figure 21-10. When comparing bundle A to bundle E, the consumer
a.
prefers bundle A because it contains more donuts.
b.
prefers bundle E because it lies on a higher indifference curve.
c.
prefers bundle E because it contains more donuts.
d.
is indifferent between the two bundles.
18. Refer to Figure 21-10. When comparing bundle B to bundle C, the consumer
a.
prefers bundle B because it contains more donuts.
b.
is indifferent between the two bundles.
c.
prefers bundle C because it contains more cake.
d.
In order to compare bundle B to bundle C, we must know the prices of cake and donuts.
19. Refer to Figure 21-10. A person that chooses to consume bundle C is likely to
a.
receive higher total satisfaction at bundle C than at bundle A.
b.
spend more on bundle C than bundle A.
c.
receive higher marginal utility from cake than from donuts.
d.
receive higher marginal utility from donuts than from cake.
D
B
A
C
E
Indifference Curve 1
Indifference Curve 2
Indifference Curve 3
Cake
Donuts
Chapter 21/The Theory of Consumer Choice ❖ 33
20. Refer to Figure 21-10. Which of the following statements is correct?
a.
Bundle A provides the same utility as bundle E.
b.
Bundle A provides the same utility as bundle C.
c.
Bundle B contains more cake than bundle C.
d.
The bundles along indifference curve Indifference Curve 2 are preferred to those along
indifference curve Indifference Curve 3.
21. Refer to Figure 21-10. Which of the following statements is correct?
a.
If a consumer moves from bundle C to bundle A, her loss of cake cannot be compensated
for by an increase in donuts.
b.
Bundle E is preferred to all other points identified in the figure.
c.
Because more is preferred to less, bundle C may be preferred to bundle E in some
circumstances for this consumer.
d.
Even though bundle E has more of both goods than bundle B, we could draw a different
set of indifference curves in which bundle B is preferred to bundle E.
22. Refer to Figure 21-10. Which of the following statements is not true for a consumer who moves
from bundle B to bundle C?
a.
At bundle C the consumer would be willing to give up a larger amount of cake in
exchange for a donut than at bundle B.
b.
The marginal rate of substitution at bundles B and C are the same since the points lie on
the same indifference curve.
c.
The consumer is willing to sacrifice donuts to obtain cake.
d.
The consumer receives the same level of satisfaction at bundles B and C.
23. Refer to Figure 21-10. Which of the following statements is not correct?
a.
Bundles on Indifference Curve 3 are preferred to bundles on Indifference Curve 1.
b.
The consumer is indifferent between bundles A and E because they contain the same
number of donuts.
c.
The consumer is indifference between bundles B and C.
d.
The consumer prefers bundle C to bundle D.
34 ❖ Chapter 21/The Theory of Consumer Choice
24. Refer to Figure 21-10. Which of the following comparisons is correct regarding the marginal rate
of substitution (MRS) of donuts for cake?
a.
The MRS is greater between bundles A and B than between bundles B and C.
b.
The MRS is greater between bundles B and C than between bundles A and B.
c.
The MRS is the same between bundles A and B and bundles B and C because all three
bundles lie on the same indifference curve.
d.
The MRS is greater between bundles E and B than between bundles B and D.
Figure 21-11
25. Refer to Figure 21-11. The graph illustrates
a.
a typical budget constraint.
b.
a typical indifference curve.
c.
an indifference curve where goods X and Y are perfect complements.
d.
an indifference curve where goods X and Y are perfect substitutes.
26. Refer to Figure 21-11. What is the consumer’s marginal rate of substitution?
a.
12
b.
4
c.
1
d.
We do not have enough information to answer the question because the MRS varies along
the graph.
A
B
C
D
1 2 3 4 5 6 7 8 9 10 11 12 13 14 x
1
2
3
4
5
6
7
8
9
10
11
12
13
y
Chapter 21/The Theory of Consumer Choice ❖ 35
27. Refer to Figure 21-11. What is the consumer’s marginal rate of substitution as she moves from A
to B?
a.
12
b.
6
c.
4
d.
1
28. Refer to Figure 21-11. What is the consumer’s marginal rate of substitution as she moves from B
to C?
a.
12
b.
6
c.
4
d.
1
29. Refer to Figure 21-11. As the consumer moves from point A to B to C to D, the consumer’s mar-
ginal rate of substitution
a.
remains constant.
b.
increases.
c.
decreases.
d.
first increases, then decreases.
30. Refer to Figure 21-11. As the consumer moves from point A to B to C to D, the consumer’s total
utility
a.
remains constant.
b.
increases.
c.
decreases.
d.
first increases, then decreases.
36 ❖ Chapter 21/The Theory of Consumer Choice
Figure 21-12
31. Refer to Figure 21-12. Which of the following statements is not correct?
a.
The consumer prefers bundle Y to bundle Z.
b.
The consumer is indifference between bundle W and bundle X.
c.
The consumer is indifference between bundle X and bundle V.
d.
The consumer prefers bundle X to bundle Z.
32. Refer to Figure 21-12. Which of the following statements is correct?
a.
The consumer prefers bundle Y to bundle Z.
b.
The consumer is indifference between bundle X and bundle V.
c.
The consumer prefers bundle Y to bundle X.
d.
The consumer prefers bundle Z to bundle V.
33. Refer to Figure 21-12. The marginal rate of substitution between bundles V and Z is
a.
greater than the marginal rate of substitution between bundles Z and T.
b.
less than the marginal rate of substitution between bundles Z and T.
c.
equal to the marginal rate of substitution between bundles Z and T.
d.
We are unable to compare the marginal rates of substitution.
Z
X
W
Y
Indifference Curve A
Indifference Curve B
V
T
Iced tea
Cookies
Chapter 21/The Theory of Consumer Choice ❖ 37
34. Refer to Figure 21-12. If the consumer moves from bundle V to bundle X, the
a.
marginal rate of substitution remains constant.
b.
total utility remains constant.
c.
total utility increases.
d.
Both a) and b) are correct.
35. Refer to Figure 21-12. If the consumer moves from bundle W to bundle Z, the
a.
marginal rate of substitution remains constant.
b.
total utility remains constant.
c.
total utility decreases.
d.
Both a) and b) are correct.
Figure 21-13
36. Refer to Figure 21-13. What is the consumer’s marginal rate of substitution as she moves from A
to B?
a.
4
b.
2
c.
1
d.
0.5
A
B
C
1 2 3 4 5 x
1
2
3
4
5y
38 ❖ Chapter 21/The Theory of Consumer Choice
37. Refer to Figure 21-13. What is the consumer’s marginal rate of substitution as she moves from B
to C?
a.
4
b.
2
c.
1
d.
0.5
38. Refer to Figure 21-13. As the consumer moves from A to B to C, the marginal rate of substitution
a.
increases.
b.
decreases.
c.
remains constant.
d.
first increases, then decreases.
39. Refer to Figure 21-13. As the consumer moves from A to B to C, the consumer’s total utility
a.
increases.
b.
decreases.
c.
remains constant.
d.
first increases, then decreases.
40. The following diagram shows one indifference curve representing the preferences for goods X and
Y for one consumer.
A
B
1 2 3 4 5 6 7 8 9 x
1
2
3
4
5
6
7
8
9
10 y
Chapter 21/The Theory of Consumer Choice ❖ 39
What is the marginal rate of substitution between points A and B?
a.
2/5
b.
1
c.
5/2
d.
3
41. The following diagram shows one indifference curve representing the preferences for goods X and
Y for one consumer.
What is the marginal rate of substitution between points A and B?
a.
1/2
b.
4/3
c.
2
d.
3
42. Indifference curves tend to be bowed inward because of diminishing
a.
marginal rates of substitution.
b.
demand for the good as prices rise.
c.
income.
d.
Both a and b are correct.
43. The slope of an indifference curve is
a.
the rate of change of consumer’s preferences.
b.
the marginal rate of preference.
c.
the marginal rate of substitution.
d.
always equal to the slope of the budget constraint.
A
B
1 2 3 4 5 6 7 8 9 x
1
2
3
4
5
6
7
8
9
10 y
40 ❖ Chapter 21/The Theory of Consumer Choice
44. The rate at which a consumer is willing to exchange one good for another while maintaining a con-
stant level of satisfaction is called the
a.
relative expenditure ratio.
b.
value of marginal product.
c.
marginal rate of substitution.
d.
relative price ratio.
45. The marginal rate of substitution is equal to the
a.
slope of the indifference curve.
b.
ratio of the prices of the two goods.
c.
slope of the budget constraint.
d.
All of the above are correct.
46. The marginal rate of substitution is
a.
the slope of a budget constraint.
b.
always constant.
c.
the slope of an indifference curve.
d.
the point at which the budget constraint and the indifference curve are tangent.
47. The rate at which a consumer is willing to trade one good for another to maintain the same level of
satisfaction is affected by the
a.
prices of the products.
b.
amount of each good the consumer is currently consuming.
c.
consumer’s income.
d.
marginal value product.