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
3
4
5
6
Marginal utility
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
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
3
4
5
6
Marginal utility
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.
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.
59. Suppose at the consumer’s current consumption bundle the marginal rate of substitution of cheese for wine is 1/2
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
93. If the income effect counteracts the substitution effect, we know that the good in question is a(n)
a.
complementary good.
b.
inferior good.
c.
luxury good.
d.
normal good.
94. When the price of a normal good increases,
a.
both the income and substitution effects encourage the consumer to purchase more of the good.
b.
both the income and substitution effects encourage the consumer to purchase less of the good.
c.
the income effect encourages the consumer to purchase more of the good, and the substitution effect
encourages the consumer to purchase less of the good.
d.
the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages
the consumer to purchase more of the good.
95. When the price of a normal good decreases,
a.
both the income and substitution effects encourage the consumer to purchase more of the good.
b.
both the income and substitution effects encourage the consumer to purchase less of the good.
c.
the income effect encourages the consumer to purchase more of the good, and the substitution effect
encourages the consumer to purchase less of the good.
d.
the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages
the consumer to purchase more of the good.
96. When the price of an inferior good increases,
a.
both the income and substitution effects encourage the consumer to purchase more of the good.
b.
both the income and substitution effects encourage the consumer to purchase less of the good.
c.
the income effect encourages the consumer to purchase more of the good, and the substitution effect
encourages the consumer to purchase less of the good.
d.
the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages
the consumer to purchase more of the good.
97. When the price of an inferior good decreases,
a.
both the income and substitution effects encourage the consumer to purchase more of the good.
b.
both the income and substitution effects encourage the consumer to purchase less of the good.
c.
the income effect encourages the consumer to purchase more of the good, and the substitution effect
encourages the consumer to purchase less of the good.
d.
the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages
the consumer to purchase more of the good.
Figure 21–22
98. Refer to Figure 21–22. If the consumer is currently at point A in the figure, a movement to point B as a result of a
decrease in the price of potato chips represents the
a.
substitution effect.
b.
income effect.
c.
budget effect.
d.
price effect.
99. Refer to Figure 21–22. If the consumer were initially at point A in the figure, a movement from point B to point C as
a result of a decrease in the price of potato chips represents the
a.
substitution effect.
b.
income effect.
c.
budget effect.
d.
price effect.
100. Refer to Figure 21–22. The shift from point B to point C in the figure is due to the
a.
substitution effect of an increase in the price of potato chips.
b.
income effect of an increase in the price of potato chips.
c.
substitution effect of a decrease in the price of potato chips.
d.
income effect of a decrease in the price of potato chips.
101. If the price of a good increases, all else equal, consumers perceive
a.
an increase in purchasing power if the good is an inferior good.
b.
an increase in income if the price increase occurs for a normal good.
c.
a decrease in purchasing power.
d.
a net gain in purchasing power if they decrease consumption of some goods.
102. A consumer consumes two normal goods, coffee and chocolate. The price of coffee rises. The income effect, by
itself, suggests that the consumer will consume
a.
more coffee and more chocolate.
b.
less coffee and less chocolate.
c.
more coffee and less chocolate.
d.
less coffee and more chocolate.
103. A decrease in the price of DVD players leads consumers to buy more DVD players. From this information we can
conclude that DVD players
a.
are normal goods.
b.
are inferior goods.
c.
are luxury goods.
d.
could be any of the above.
104. Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect
causes a
a.
shift to a lower indifference curve, and the consumer buys fewer granola bars.
b.
shift to a higher indifference curve, and the consumer buys more granola bars.
c.
movement along the indifference curve, and the consumer buys fewer granola bars.
d.
movement along the indifference curve, and the consumer buys more granola bars.