ID NUMBER: ______________________________

Chapter 6: Consumer Behaviour

1. The theory of consumer behavior is based on certain assumptions. It includes at least the assumption(s) that
preferences are:
a. transitive.
b. complete.
c. intransitive.
d. both (a) and (b) are correct.
2. The assumption of transitive preferences implies that indifference curves must:
a. not cross one another.
b. have a positive slope.
c. be L-shaped.
d. be convex to the origin.

3. A consumer prefers market basket A to market basket B, and prefers market basket B to market basket C.
Therefore, A is preferred to C. The assumption that leads to this conclusion is:
a. transitivity.
b. completeness.
c. diminishing MRS.
d. assumption of rationality.

4. The assumption that preferences are complete:

a. means that a consumer will spend her entire income.
b. is unnecessary, as long as transitivity is assumed.
c. recognizes that there may be pairs of market baskets that cannot be compared.
d. means that between any two market baskets of goods, the consumer can determine that either one is
preferred to the other or that she is indifferent between them.

5. A curve that represents all combinations of market baskets that provide the same level of utility to a consumer
is called:
a. a budget line.
b. an isoquant.
c. an indifference curve.
d. a demand curve.

6. An upward sloping indifference curve defined over two goods violates which of the following assumptions
from the theory of consumer behavior?
a. transitivity.
b. preferences are complete.
c. more is preferred to less.
d. all of the above.

7. An upward sloping indifference curve defined over two goods violates which of the following assumptions
from the theory of consumer behavior?
a. transitivity.
b. preferences are complete.
c. more is preferred to less.
d. all of the above.
e. none of the above.

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8. The slope of an indifference curve reveals:
a. that preferences are complete.
b. the marginal rate of substitution of one good for another good.
c. the ratio of market prices.
d. that preferences are transitive.
e. none of the above.

9. Indifference curves are convex to the origin because of:

a. transitivity of consumer preferences.
b. the assumption of a diminishing marginal rate of substitution.
c. the assumption that more is preferred to less.
d. the assumption of completeness.
e. none of the above.

10. If indifference curves cross, then:

a. the assumption of a diminishing marginal rate of substitution is violated.
b. the assumption of transitivity is violated.
c. the assumption of completeness is violated.
d. consumers minimize their satisfaction.
e. all of the above.

Alvin's preferences for good X and good Y are shown in the diagram below.

Figure 3.1
11. Based on Figure 3.1, it can be inferred that:
a. Alvin does not consider good X as "good."
b. Alvin will never purchase any of good Y.
c. Alvin regards good X and good Y as perfect substitutes.
d. Alvin regards good X and good Y as perfect complements.
e. none of the above.

12. . Refer to Figure 3.1. Which of the following is true concerning Alvin's marginal rate of substitution?
a. It is diminishing.
b. It is positive.
c. It is constant.
d. It is zero.

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13 .Refer to Figure 3.1. Which assumption concerning preferences do Alvin's indifference curves violate?
a. Diminishing marginal rates of substitution.
b. Transitivity of preferences.
c. More is preferred to less.
d. Completeness.

Alvin's preferences for good X and good Y are shown in the diagram below.

Good Y

45°

Good X
Figure 3.2

14. Based on Figure 3.2, it can be inferred that:

a.Alvin does not consider good X as "good."
b.Alvin will never purchase any of good Y.
c.Alvin regards good X and good Y as perfect substitutes.
d.Alvin regards good X and good Y as perfect complements.

15. Refer to Figure 3.2. At any consumption bundle with the quantity of good X exceeding the quantity of good
Y (that is, a bundle located below the 45 degree line, like point A), Alvin’s marginal rate of substitution of
good X for good Y is
a. diminishing.
b. positive.
c. constant and positive.
d. zero.

16. Refer to Figure 3.2. Which assumption concerning preferences do Alvin's indifference curves violate?
a. Diminishing marginal rates of substitution.
b. Transitivity of preferences.
c. More is preferred to less.
d. Both (a) and (c).
17. Which of the following is true about the indifference curve where one commodity (such as pollution) is
"bad"?
a. It has a negative slope.
b. It has a positive slope.
c. It is horizontal.
d. It is vertical.

18. . If indifference curves are concave to the origin, which assumption on preferences is violated?
a. Diminishing marginal rates of substitution.
b. Transitivity of preferences.
c. More is preferred to less.
d. Completeness.

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19. Envision a graph with meat on the horizontal axis and vegetables on the vertical axis. A strict vegetarian
would have indifference curves that are:
a. vertical.
b. horizontal.
c. diagonal straight lines.
d. right angles.

Consider the following three market baskets:

Table 3.1
Food Clothing
A 6 3
B 8 5
C 5 8

20. Refer to Table 3.1. If preferences satisfy all four of the usual assumptions:
a. A is on the same indifference curve as B.
b. B is on the same indifference curve as C.
c. A is preferred to C.
d. B is preferred to A

21. Refer to Table 3.1. Which of the following cannot be true?

a. the consumer could be indifferent between A and B.
b. A and C could be on the same indifference curves.
c. the consumer could be indifferent between B and C.
d. A and C could be on different indifference curves.

22. Consider the following three market baskets:

Food Clothing
A 15 18
B 13 19
C 14 17

If baskets B and C are on the same indifference curve, and if preferences satisfy all four of the usual
assumptions, then:
a. A is preferred to C.
b. A is preferred to B.
c. both (a) and (b) are correct.
d. none of the above.

23. Jane is trying to decide which courses to take next semester. She has narrowed down her choice to two
courses Econ 1 and Econ 2. Now she is having trouble. She just cannot decide which of the two courses to
take. It’s not that she is indifferent between the two courses, she just cannot decide. An economist would
say that this is an example of preferences that:
a. are not transitive.
b. are incomplete.
c. violate the assumption that more is preferred to less.
d. all of the above.

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 Good B

Increasing
utility

Good A

Figure 3.3

24. Refer to the indifference curve in Figure 3.3. Which of the following statements is correct?
a. This individual receives no satisfaction from Good A.
b. This individual receives no satisfaction from Good B.
c. This individual will only consume A and B in fixed proportions.
d. None of the above.
25. Refer to the indifference curve in Figure 3.3. Which of the following statements is correct?
a. MU(a) =0.
b. MU(b) =0.
c. MU(a) is negative.
d. MU(B) is negative.
26. Refer to the indifference curve in Figure 3.3. Which of the following is true about the MRS?
a. It is negative.
b. It is positive.
c. It is equal to zero.
d. It is undefined.
27. The magnitude of the slope of an indifference curve is:
a. called the marginal rate of substitution.
b. equal to the ratio of the total utility of the goods.
c. always equal to the ratio of the prices of the goods.
d. all of the above.
28. If X and Y are perfect substitutes, which of the following assumptions about indifference curves is not
satisfied?
a.completeness.
b.transitivity.
c.more is preferred to less.
d.diminishing MRS.
29. If a consumer is always indifferent between an additional one grapefruit or an additional two oranges, then
when oranges are on the horizontal axis the indifference curves:
a. will be straight lines with a slope of -1/2.
b. will be straight lines with a slope of -1.
c. will be straight lines with a slope of +1/2.
d. will be right angles whose corners occur on a ray from the origin with a slope of +2.

30. Suppose that the prices of good a and good b were to suddenly double. If good a is plotted along the
horizontal axis,
a. the budget line will become steeper.
b. the budget line will become flatter.
c. the slope of the budget line will not change.
d. the slope of the budget line will change, but in an indeterminate way.

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31. Theodore's budget line has changed from A to B. Which of the following explains the change in Theodore's
budget line?

a. The price of food and the price of clothing increased.

b. The price of food increased, and the price of clothing decreased.
c. The price of food decreased, and the price of clothing increased.
d. The price of food and the price of clothing decreased.
e. None of the above.

32. The endpoints (horizontal and vertical intercepts) of the budget line:
a. measure its slope.
b. measure the rate at which one good can be substituted for another.
c. measure the rate at which a consumer is willing to trade one good for another.
d. represent the quantity of each good that could be purchased if all of the budget were allocated to that
good.

33. An increase in income, holding prices constant, can be represented as:

a.a change in the slope of the budget line.
b.a parallel outward shift in the budget line.
c.an outward shift in the budget line with its slope becoming flatter.
d.a parallel inward shift in the budget line.

34. Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food
falls relative to that of clothing, the budget line will:
a. become flatter.
b. become steeper.
c. shift outward.
d. become steeper or flatter depending on the relationship between prices and income.

34. If prices and income in a two-good society double, what will happen to the budget line?
a. The intercepts of the budget line will increase.
b. The slope of the budget line may either increase or decrease.
c. Insufficient information is given to determine what effect the change will have on the budget line but
we know society is worse-off.
d. There will be no effect on the budget line.

35. Which of the following will result in a decrease in a consumer's purchasing power?
a. A decrease in the consumer's income.
b. An increase in the price of the good on the vertical axis.
c. An increase in the price of the good on the horizontal axis.
d. All of the above.

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36. A consumer maximizes satisfaction at the point where his valuation of good X, measured as the amount of
good Y he would willingly give up to obtain an additional unit of X, equals:
a. the magnitude of the slope of the indifference curve through that point.
b. one over the magnitude of the slope of the indifference curve through that point.
c. Px/Py
d. Py/Px
37. Which of the following is true about a consumer's optimum when indifference curves are concave?
a. Both goods are consumed.
b. No goods are consumed.
c. Only one of the goods is consumed.
d. It occurs at the point of tangency with the budget line.
38. Pencils sell for 10 cents and pens sell for 50 cents. Suppose Jack, whose preferences satisfy all of the usual
assumptions, buys 5 pens and one pencil each semester. With this consumption bundle, his MRS of pencils
for pens is 3. Which of the following is true?
a. Jack could increase his utility by buying more pens and fewer pencils.
b. Jack could increase his utility by buying more pencils and fewer pens.
c. Jack could increase his utility by buying more pencils and more pens.
d. Jack could increase his utility by buying fewer pencils and fewer pens.
39. An individual consumes only two goods, X and Y. Which of the following expressions represents the utility
maximizing market basket?
a. MRSxy is at a maximum.
b. Px/Py = money income.
c. MRSxy = money income.
d. MRSxy = Px/Py.
40. The fact that Alice spends no money on travel:
a. implies that she does not derive any satisfaction from travel.
b. implies that she is at a corner solution.
c. implies that her MRS does not equal the price ratio.
d. any of the above are possible.
41. The price of lemonade is $0.50; the price of popcorn is $1.00. If Fred has maximized his utility by
purchasing lemonade and popcorn, his marginal rate of substitution will be:
a. 2 lemonades for each popcorn.
b. 1 lemonades for each popcorn.
c. 1/2 lemonade for each popcorn.
d. indeterminate unless more information on Fred's marginal utilities is provided.

42. When Joe maximizes utility, he finds that his MRS of X for Y is greater than Px/Py. It is most likely that:
a. Joe's preferences are incomplete.
b. Joe's preferences are irrational.
c. Joe is not consuming good X.
d. Joe is not consuming good Y.
43. The principle of revealed preference would say that if Xavier chooses market basket A over market basket B
then:
a. if A is more expensive than B, then Xavier must prefer A over B.
b. if A is more expensive than B, then Xavier must prefer B over A.
c. if A is less expensive than B, then Xavier must prefer A over B.
d. if A is less expensive than B, then Xavier must prefer B over A.

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44. Denise is shopping for lobsters and eclairs. When she faces budget line b1, she chooses market basket A over
market basket B. When she faces budget line b2, she chooses basket B over basket C. Which assumption of
consumer theory helps us determine Denise’s preference ordering over basket A and basket C?
a. completeness
b. more is better than less
c. transitivity
d. convexity

45. If a consumer must spend her entire income on some combination of two commodities and chooses to spend
it all on just one of the commodities then:
a. the other commodity is an economic bad.
b. the other commodity must have zero marginal utility.
c. the other commodity generates less utility per dollar spent on the good.
d. the two commodities must be perfect substitutes.

46. Marginal utility measures:

a. the slope of the indifference curve.
b. the additional satisfaction from consuming one more unit of a good.
c. the slope of the budget line.
d. the marginal rate of substitution.

47. Oscar consumes only two goods, X and Y. Assume that Oscar is not at a corner solution, but he is
maximizing utility. Which of the following is NOT necessarily true?
a. MRSxy = Px/Py.
b. MUx/MUy = Px/Py.
c. Px/Py = money income.
d. Px/Py = slope of the indifference curve at the optimal choice.

Scenario 1:
Andy derives utility from two goods, potato chips (Qp) and Cola (Qc). Andy receives zero utility
unless he consumes some of at least one good. The marginal utility that he receives from the two
goods is given as follows:
Qp MUp Qc MUc
1 12 1 24
2 10 2 22
3 8 3 20
4 6 4 18
5 4 5 16
6 2 6 14
7 -2 7 12
8 -4 8 10

48. Refer to Scenario 1. What is the total utility that Andy will receive if he consumes 5 units of potato chips
(Qp) and no Cola drink (Qc)?
a. 4 utils.
b. 10 utils.
c. 30 utils.
d. 40 utils.

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49. Refer to Scenario 1. If the price of potato chips is $0.50 and the price of Cola is $4.00, and Andy has an
unlimited income, how many units of potato chips will he consume?
a. 5
b. 6
c. 7
d. 8

50. Refer to Scenario 1. If the price of potato chips is $0.50 and the price of Cola is $4.00, and Andy has an
income of $14.50, how many units of potato chips will he consume?
a. 5
b. 6
c. 7
d. 8
51. When a person consumes two goods (A and B), that person's utility is maximized when the budget is
allocated such that:
a. the marginal utility of A equals the marginal utility of B.
b. the marginal utility of A times the price of A equals the marginal utility of B times the price of B
c. the ratio of total utility of A to the price of A equals the ratio of the marginal utility of B to the price of
A.
d. the ratio of the marginal utility of A to the price of A equals the ratio of the marginal utility of B to the
price of B.

52. If Px = Py, then when the consumer maximizes utility,

a. X must equal Y.
b. MU(X) must equal MU(Y).
c. MU(X) may equal MU(Y), but it is not necessarily so.
d. X and Y must be substitutes.

53. Monica consumes only goods A and B. Suppose that her marginal utility from consuming good A is equal to
1/Qa, and her marginal utility from consuming good B is 1/Qb. If the price of A is $0.50, the price of B is
$4.00, and the Monica’s income is $120.00, how much of good A will she purchase?
a.0
b.12
c.48
d.120
54. Jane is attempting to maximize utility by selecting a market basket of goods. For each of the goods in the
market basket the marginal utility per dollar spent is equal. There are some goods which are affordable but
do not appear in the Jane's market basket. If Jane has maximized utility, the marginal utility per dollar spent
on each of the goods that does not appear in the market basket is:
a. too high.
b. too low.
c. infinite.
d. none of the above.

Refer to the information provided in Figure 6.8 below to answer the questions that follow.

Figure 6.8
55.

9
 Refer to Figure 6.8. The marginal utility of the second movie rental is
A)

10
 10.
B)

11
 12.5.
C)

12
 25.
D)

13
 40.
56.

14
 Refer to Figure 6.8. The marginal utility of the third movie rental is
A)

15
1.
B)

16
3.
C)

17
9.33.
D)

18
28.

57.

19
 Refer to Figure 6.8. The __________ movie rental has a marginal utility of zero.
A)

20
first
B)

21
second
C)

22
third
D) fourth

Refer to the information provided in Figure 6.6 below to answer the questions that follow.

Figure 6.6

58.

23
Refer to Figure 6.6. Bill's budget constraint was originally CD. If his new budget constraint is EF, then his income
A)

24
increased.
B)

25
decreased.
C)

26
increased and the price of black beans decreased.
D)

27
decreased and the price of black beans increased.

59.

28
Refer to Figure 6.6. Bill's budget constraint is BD. If the price of bell peppers increases, Bill's new budget constraint is
A)

29
AD.
B)

30
AO.
C)

31
CD.
D)

32
EF.
60.

33
Refer to Figure 6.6. Bill's budget constraint is BD. Bill's income is $800, the price of a bell pepper is $1, and the price of a bag of
black beans is $1. At Point B Bill is buying __________ bell peppers and __________ bags of black beans.
A)

34
800; 0
B)

35
0; 800
C)

36
400; 400
D)

37
600; 200

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STRUCTURAL QUESTIONS

a)If MUa/Pa is greater than MUb/Pb, and the consumer is consuming both goods, the consumer is not maximizing utility. True
or false. Explain.
b)John consumes two goods, X and Y. The marginal utility of X and the marginal utility of Y satisfy the following equations:
MUX = Y MUY = X.
The price of X is $9, and the price of Y is $12.
a. Write an expression for John's MRS.
b. What is the optimal mix between X and Y in John's market basket?
c. John is currently consuming 15 X and 10 Y per time period. Is he consuming an optimal mix of X and
Y?

c)The following table presents Alfred's marginal utility for each good while exhausting his income. Fill in the remaining column
in the table. If the price of tuna is twice the price of peanut butter, at what consumption bundle in the table is Alfred
maximizing his level of satisfaction? Which commodity bundle entails the largest level of tuna fish consumption
(optimal)?
Marginal Rate of
Bundle MU of peanut butter MU of tuna
Substitution

A 0.25 2.41

B 0.31 1.50
C 0.42 0.84
D 0.66 0.33

d) Refer to the information provided in Table A below to answer the questions that follow.

Number of
Total Utility Marginal Utility
Candy Bars per Day
1 40
2 75
3 100
4 115
5 5
Number of
Total Utility Marginal Utility
Hot Dogs per Day
1 30
2 54
3 72
4 84
5 6

i) Refer to Table A. The marginal utility of the second candy bar per day is ________.
ii) Refer to Table A. Diminishing marginal utility sets in after the __________ candy bar per day.
iii) Refer to Table A. The total utility of five candy bars per day is _________________.
iv) Refer to Table A. If the price of a candy bar is $1, the price of a hot dog is $2, and Aaron has $6 of
income, Aaron's utility maximizing combination of sodas and hamburgers per day is __________.