61. Which of the following goods is given in the textbook as an example of a good whose price
is subject to volume penalties?
D. Yogurt
62. Which of the following goods is given in the textbook as an example of a good whose price
is subject to volume discounts?
D. Yogurt
63. If a good’s price is volume sensitive, the consumer will:
A. choose the bundle on the budget line that lies on the lowest indifference curve.
64. If electricity is measured on the horizontal axis, and the price of electricity becomes more
expensive beyond 500 kilowatts, we draw:
D. an Engle curve that becomes negatively-sloped at 500 kilowatts.
65. In the United States, some state governments set tiered prices for electricity. These tiered
prices lead to budget lines that are:
D. vertical at a specific level of electricity consumption.
66. The revealed preference approach refers to:
A. asking consumer to reveal their preferences using survey methods.
67. Which of the following is NOT given in the text as a problem with using surveys to
determine consumer preferences?
A. Subjects are asked to imagine choices that they do not actually face, and few people take
hypothetical questions as seriously as they would actual choices.
68. One consumption bundle is revealed preferred to a second bundle if:
D. it lies on a higher indifference curve than the second bundle.
Essay Questions
69. Using carefully-labeled graphs, explain how an individual demand curve is derived from
the utility-maximizing behavior of a consumer.
70. The price of CDs is $15 and the price of pizzas is $10. Derek spends all of his income
buying 2 CDs and 6 pizzas per week (and nothing else). Determine Derek’s income, draw his
budget line and represent his utility-maximizing point using an indifference curve.
71. Suppose that steak is a normal good and vegetables are inferior goods. Using a carefully–
labeled diagram, illustrate the income-consumption curve that would result from an increase in a
consumer’s income.
72. Suppose that an individual consumes just hamburgers and soft drinks. Using a carefully–
labeled diagram, derive the price-consumption curve that would result from a decrease in the
price of hamburgers.
73. Using a carefully-labeled diagram, explain an Engel curve for a good that is initially a
normal good, but eventually becomes an inferior good.
74. Nicole’s income is $1,000 per month. She spends all of it on shoes (S) and books (B).
Shoes cost $50 and books cost $25. Her marginal rate of substitution for shoes with books is
MRSSB = 2B/3S. Illustrate her utility-maximizing combination of shoes and books and draw her
price-consumption curve if the price of books rises to $30.
75. Stewie spends all of his income on movie rentals (R) and noodles (N). His marginal rate of
substitution for rentals with noodles is given by MRSRN = 20/√R. Suppose that movies rent for $2
and noodles cost $1. Plot his income-consumption curve, his Engle curve for movie rentals and his
Engel curve for noodles.