Chapter 5: THEORY OF CONSUMER BEHAVIOR
Chapter 5: THEORY OF CONSUMER BEHAVIOR
Multiple Choice
5-1 If Mary prefers bananas to plums and plums to peaches, but is indifferent between bananas and
oranges, she
a. prefers oranges to peaches.
b. prefers plums to oranges.
c. is indifferent between oranges and plums.
d. is indifferent between oranges and peaches.
5-2 A typical indifference curve
a. shows all combinations of goods that give a consumer the same level of utility.
b. shows that as a consumer has more of a good he is less willing to exchange it for one unit
of another good.
c. shifts out if income increases.
d. both a and b
e. all of the above
5-3 The rate at which a consumer is ABLE to substitute one good for another is determined by
a. the indifference map.
b. the marginal rate of substitution.
c. the consumer’s income.
d. the budget line
5-4 A utility function
a. shows the relation between prices and a consumer’s utility.
b. shows the relation between income and a consumer’s utility.
c. shows the relation between the amount of goods consumed and a consumer’s utility.
d. all of the above
e. none of the above
Chapter 5: THEORY OF CONSUMER BEHAVIOR
5-5 Along an indifference curve
a. the MRS is constant.
b. the ratio of the marginal utilities is constant.
c. the price ratio is constant.
d. all of the above
e. none of the above
5-6 The slope of an indifference curve
a. shows the change in utility from an additional unit of the good.
b. shows the rate at which the consumer is able to substitute goods in the market.
c. is equal to the price ratio at all points.
d. is the rate at which the consumer is willing to exchange one good for another, utility held
constant.
e. all of the above
5-7 Which of the following assumptions is(are) NOT made in consumer behavior theory?
a. Consumers can rank all bundles of goods.
b. Consumers can measure the utility they get from all bundles of goods.
c. Consumers have complete information.
d. both a and b
e. None of the above are assumptions made in consumer behavior theory.
5-8 Suppose that 2 units of X and 8 units of Y give a consumer the same satisfaction as 4 units of X
and 2 units of Y. Then
a. the consumer is willing to give up 3 units of Y to obtain 1 more unit of X.
b. the consumer is willing to give up 1 unit of Y to obtain 3 more units of X.
c. the marginal rate of substitution of Y for X is 3.
Chapter 5: THEORY OF CONSUMER BEHAVIOR
d. both a and c
e. both b and c
5-9 Alexandra consumes only caviar and champagne, but she does have a limited income of $400.
Her current consumption choice is 5 ounces of caviar, at a price of $50 per ounce, and 6 bottles of
champagne, at $25 each. The last ounce of caviar added 100 units to Alexandra’s total utility,
while the last bottle of champagne added 75 units. If Alexandra chooses 4 ounces of caviar and 8
bottles of champagne instead her total utility will:
a. increase by 150 units
b. decrease by 150 units
c. increase by 100 units
d. decrease by 100 units
e. increase by 50 units
5-10 According to the following figure, what could have caused a consumer’s budget line to shift from
ML to MN?
Chapter 5: THEORY OF CONSUMER BEHAVIOR
a. an increase in the price of X
b. a decrease in the price of X
c. an increase in the price of Y
d. a decrease in the price of Y
e. cannot determine without more information
5-11 According to the following figure, at point A,
a. the marginal rate of substitution of X for Y is greater than it is at point B.
b. the ratio of the price of X to the price of Y is greater than it is at point B.
c. the consumer’s utility is less than it is at point B.
d. both a and c
e. all of the above
5-12 Marginal utility is
a. the utility obtained from the consumption of all but the last unit of a good.
b. the relative value of two goods when a utility−maximizing decision has been made.
Chapter 5: THEORY OF CONSUMER BEHAVIOR
c. the change in utility that results from increasing the amount of a good consumed by one
unit.
d. the change in the amount of a good consumed that increases total utility by one unit.
5-13 If the marginal rate of substitution of X for Y is 2, the price of X is $3, and the price of Y is $1, a
utility−maximizing consumer should
a. be indifferent between 1X and 2Y.
b. prefer 3Y to 1X.
c. choose less X and more Y.
d. choose more X and less Y.
5-14 If a consumer is choosing the bundle of goods that maximizes utility subject to a budget
constraint, then
a. the rate at which income affects the utility−maximizing choice is equal for all goods.
b. the rate at which the consumer is willing to substitute between goods is equal to the
market rate of exchange.
c. the ratio of marginal utility to price is equal for all goods.
d. both b and c
e. all of the above
5-15 Ronald, who consumes only hamburgers and hot dogs, has a weekly income of $50. He is
currently consuming 20 hamburgers, at a price of $2 each, and 10 hot dogs, at a price of $1 each.
If the last hamburger and the last hot dog both added 50 units to Ronald’s total utility, he
a. is making the utility−maximizing choice.
b. should buy more hamburgers and fewer hot dogs.
c. should buy more hot dogs and fewer hamburgers.
d. obtains more additional utility per dollar from hot dogs than from hamburgers.
e. both c and d
Chapter 5: THEORY OF CONSUMER BEHAVIOR
The price of Y is $10.
5-16 According to the above figure, if the price of X is $5, what combination of X and Y will a utility-
maximizing consumer choose?
a. 80X, 20Y
b. 120X, 620Y
c. 120X, 250Y
d. 200X, 620Y
e. none of the above
Chapter 5: THEORY OF CONSUMER BEHAVIOR
The price of Y is $10.
5-17 According to the above figure, the marginal rate of substitution of X for Y at point C is:
a. 5
b. 2
c. 0.5
d. 0.3
e. none of the above
Chapter 5: THEORY OF CONSUMER BEHAVIOR
The price of Y is $10.
5-18 According to the above figure, which of the following are points on the consumer’s demand curve
for X?
a. $2, 300 units
b. $3, 120 units
c. $5, 120 units
d. both a and b
e. both c and d
Chapter 5: THEORY OF CONSUMER BEHAVIOR
The consumer’s income is $800.
5-19 According to the above figure, what are the prices of goods X and Y?
a.
X
P
= $10,
Y
P
= $8
b.
X
P
= $8,
Y
P
= $10
c.
X
P
= $100,
Y
P
= $80
d.
X
P
= $20,
Y
P
= $60
e.
P
= $60,
P
= $20
X
Y
Chapter 5: THEORY OF CONSUMER BEHAVIOR
The consumer’s income is $800.
5-20 According to the above figure, what is the consumer’s marginal rate of substitution in
equilibrium?
a. 1.5
b. 2
c. 2.5
d. 0.8
e. unable to tell from information given
The consumer’s income is $800.
5-21 According to the above figure, why doesn’t the consumer choose the combination of 30X and 56Y
at point A?
a. MRS is less than
X X
P P
.
b. MRS is greater than
X Y
P P
.
c.
X
MU
is greater than
Y
MU
.
d.
MU P
is less than
MU P
.
Chapter 5: THEORY OF CONSUMER BEHAVIOR
The consumer’s income is $800.
5-22 According to the above figure, why doesn’t the consumer choose the combination at point B?
a. The consumer is willing to give up more X for additional units of Y than the rate in the
market.
b. The marginal utility of Y exceeds the marginal utility of X.
c. The marginal utility per dollar spent on Y exceeds the marginal utility per dollar spent on
X.
d. both a and c
e. both b and c
5-23 An individual’s demand curve for X
a. shows how the utility−maximizing choice of X changes as the price of X changes.
b. shows how the individual’s preferences change as the price of X changes.
c. shows how the individual’s preferences change as the consumer income changes.
d. both a and b
e. both a and c
Chapter 5: THEORY OF CONSUMER BEHAVIOR
5-24 Suppose a consumer who purchases only two goods is making a utility−maximizing choice and
then the price of one of the goods decreases. What will happen?
a. The consumer’s purchasing power will increase.
b. The consumer’s total utility will increase.
c. The consumer’s money income will increase.
d. both a and b
e. all of the above
5-25 If Ferdinand prefers a Big Mac to a Whopper and a Whopper to a hotdog, but is indifferent
between a Big Mac and a Quarter Pounder he must
a. prefer a Quarter Pounder to a hotdog.
b. prefer a Whopper to a Quarter Pounder.
c. be indifferent between a Quarter Pounder and a Whopper.
d. be indifferent between a Whopper and a hotdog.
5-26 Which of the following is NOT a characteristic of a typical indifference curve?
a. The curve shows all combinations of goods that give the consumer the same level of
utility.
b. As a consumer has less of a good, he is less willing to exchange less of it for one more
unit of another good.
c. The marginal rate of substitution is measured by the slope of the tangent to the curve.
d. The curve will shift out if income increases.
5-27 According to the Rolling Stones, “You can’t always get what you want.” Which does this mean in
the context of utility maximization?
a. A bundle of goods between the budget line and the origin
b. Vertical indifference curves
c. A bundle of goods above the budget line
d. Horizontal indifference curves
Chapter 5: THEORY OF CONSUMER BEHAVIOR
5-28 The consumer chooses the bundle of goods that maximizes his utility and spends all his income.
Which of the following statements is correct?
a. The marginal utilities of all goods are equal.
b. Expenditures on all goods are equal.
c. The addition to utility of the last unit of the good is equal across all goods.
d. The addition to utility of the last unit of the good per dollar is equal across all goods.
5-29 An indifference curve is drawn on a graph with good X on the horizontal axis and good Y on the
vertical axis. One point on the curve is X = 5, Y = 5. Which of the following points CANNOT
also be on the curve?
a. X = 6, Y = 6
b. X = 6, Y = 4
c. X = 9, Y = 4
d. X = 2, Y = 11
5-30 Ms. Birnbaum is buying bottles of beer and bags of pretzels. The marginal utility of the last bottle
of beer is 60 and the marginal utility of the last bag of pretzels is 30. The price of beer is $0.30
per bottle and the price of pretzels is $0.20 per bag. Ms. Birnbaum
a. is buying beer and pretzels in the utility-maximizing amounts.
b. should buy more beer and fewer pretzels.
c. should buy more pretzels and less beer.
5-31 The rate at which a consumer is WILLING to substitute one good for another is measured by
a. the corner solution on the Y axis.
b. the slope of the budget line.
c. the consumer’s real income.
d. the slope of the tangent to the indifference curve.
Chapter 5: THEORY OF CONSUMER BEHAVIOR
5-32 Based on the following graph, what is the price of Y?
The consumer’s income is $600.
a. $0.25
b. $4
c. $8
d. $6
e. none of the above
5-33 Based on the following graph, if the price of X is $7.50 per unit, how many units of X will a
utility-maximizing consumer choose?
Chapter 5: THEORY OF CONSUMER BEHAVIOR
The consumer’s income is $600.
a. 25
b. 30
c. 35
d. 50
e. none of the above
5-34 Based on the following graph, at point C,
Chapter 5: THEORY OF CONSUMER BEHAVIOR
The consumer’s income is $600.
a. MRS is greater than 1.25.
b. MRS is less than 0.4.
c. MRS is greater than 2.
d. MRS is less than 2.5.
5-35 Based on the following graph, one point on the consumer’s demand curve for X is
Chapter 5: THEORY OF CONSUMER BEHAVIOR
The consumer’s income is $600.
a. 60 units at a price of $10.
b. 35 units at a price of $10.
c. 35 units at a price of $6.
d. 25 units at a price of $10.
e. 25 units at a price of $7.50.
5-36 A market demand curve
a. is the horizontal summation of the demand curves of all consumers in the market.
b. is the sum of the prices consumers are willing to pay at each quantity.
c. shows that consumers demand more at higher prices.
d. both a and b
e. all of the above
Chapter 5: THEORY OF CONSUMER BEHAVIOR
5-37 The ratio of the prices of two goods measures
a. the rate at which a consumer is willing to substitute one good for another in the market.
b. the rate at which a consumer is able to substitute one good for another in the market.
c. the marginal rate of substitution of X for Y.
d. both a and c
e. both b and c
The price of X is $20 and the price of Y is $40.
5-38 Based on the above graph, if U1 is the highest level of utility the consumer can achieve, what is
the consumer’s income?
a. $ 480
b. $ 600
c. $ 800
d. $1,200
e. none of the above
The price of X is $20 and the price of Y is $40.
Chapter 5: THEORY OF CONSUMER BEHAVIOR
5-39 Based on the above graph, how many units of X will the consumer choose if point B is the utility-
maximizing choice?
a. 28
b. 30
c. 32
d. 60
e. none of the above
The price of X is $20 and the price of Y is $40.
Chapter 5: THEORY OF CONSUMER BEHAVIOR
5-40 Based on the above graph, at point B,
a. if the consumer obtains one more unit of Y, ½ unit of X must be foregone in order to keep
utility unchanged.
b. if the consumer obtains one more unit of X, two units of Y must be foregone in order to
keep utility unchanged.
c. the marginal rate of substitution is ½.
d. both a and c
e. all of the above
The price of X is $20 and the price of Y is $40.