CHAPTER 4 Consumer Choice

MULTIPLE CHOICE
Choose the one alternative that best completes the statement or answers the question.

1) An indifference curve represents bundles of goods that a consumer

A) views as equally desirable.
B) ranks from most preferred to least preferred.
C) prefers to any other bundle of goods.
D) All of the above.

Answer: A
Diff: 0
Topic: Preferences

2) The principle that "More is better" results in indifference curves

A) sloping down.
B) not intersecting.
C) reflecting greater preferences the further they are from the origin.
D) All of the above.

Answer: D
Diff: 0
Topic: Preferences

3) There is an indifference curve through every bundle because of the assumption of

A) transitivity.
B) completeness.
C) rationality.
D) nonsatiation.

Answer: B
Diff: 0
Topic: Preferences

4) Indifference curves are downward sloping because of the assumption of

A) completeness.
B) transitivity.
C) more is better.
D) All of the above.

Answer: C
Diff: 0
Topic: Preferences

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5) If two indifference curves were to intersect at a point, this would violate the assumption of
A) transitivity.
B) completeness.
C) Both A and B above.
D) Neither A nor B above.

Answer: A
Diff: 0
Topic: Preferences

6) Indifference curves that are thick violate

A) the assumption of transitivity.
B) the assumption that more is better.
C) the assumption of completeness.
D) none of the assumptions.

Answer: B
Diff: 0
Topic: Preferences

7) Convexity of indifference curves implies that consumers are willing to

A) give up more "y" to get an extra "x" the more "x" they have.
B) give up more "y" to get an extra "x" the less "x" they have.
C) settle for less of both "x" and "y".
D) acquire more "x" only if they do not have to give up any "y".

Answer: B
Diff: 1
Topic: Preferences

8) Measuring "y" on the vertical axis and "x" on the horizontal axis, convexity of indifference
curves implies that the MRS of "y" for "x"
A) is decreasing as "x" increases.
B) is increasing as "x" increases.
C) is constant as "x" increases.
D) cannot be calculated for large levels of "x".

Answer: A
Diff: 1
Topic: Preferences

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9) For which of the following pairs of goods would most people likely have convex indifference
curves?
A) nickels and dimes
B) left shoes and right shoes
C) movie tickets and concert tickets
D) None of the above.

Answer: C
Diff: 1
Topic: Preferences

10) If two goods are perfect substitutes, then the indifference curves for those two goods would
be
A) upward sloping and concave to the origin.
B) downward sloping and convex to the origin.
C) downward sloping and straight.
D) L-shaped.

Answer: C
Diff: 0
Topic: Preferences

11) The indifference curves for left shoes and right shoes would most likely be
A) upward sloping and concave to the origin.
B) downward sloping and convex to the origin.
C) downward sloping and straight lines.
D) L-shaped.

Answer: D
Diff: 1
Topic: Preferences

12) If two bundles are on the same indifference curve, then

A) the consumer derives the same level of utility from each.
B) the consumer derives the same level of ordinal utility from each but not the same level of
cardinal utility.
C) no comparison can be made between the two bundles since utility cannot really be
measured.
D) the MRS between the two bundles equals one.

Answer: A
Diff: 0
Topic: Utility

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13) If the utility function (U) between food (F) and clothing (C) can be represented as
U= , the marginal utility of food equals
A) .
B) .
C) 1/2 .
D) 1/2 .

Answer: C
Diff: 2
Topic: Utility

14) If the utility function (U) between food (F) and clothing (C) can be represented as
U= , the marginal utility of food
A) is not positive.
B) does not diminish as food increases.
C) is not affected by the amount clothing.
D) increases as one obtains more clothing.

Answer: D
Diff: 2
Topic: Utility

15) If the utility function (U) between food (F) and clothing (C) can be represented as
U= , the marginal rate of substitution of clothing for food equals
A) - C/F.
B) - F/C.
C) - .
D) - .

Answer: A
Diff: 2
Topic: Utility

16) If Fred's marginal utility of pizza equals 10 and his marginal utility of salad equals 2, then
A) he would give up 5 pizzas to get the next salad.
B) he would give up 5 salads to get the next pizza.
C) he will eat five times as much pizza as salad.
D) he will eat five times as much salad as pizza.

Answer: B
Diff: 1
Topic: Utility

17) If Fred's marginal rate of substitution of salad for pizza equals 5, then
A) he would give up 5 pizzas to get the next salad.
B) he would give up 5 salads to get the next pizza.

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C) he will eat five times as much pizza as salad.

D) he will eat five times as much salad as pizza.

Answer: B
Diff: 1
Topic: Utility

18) If Fred's marginal utility of pizza equals 10 and his marginal utility of salad equals 2, then we
know that
A) his indifference curves are convex.
B) his indifference curves are L shaped.
C) his indifference curves are linear.
D) his indifference curves are downward sloping.

Answer: D
Diff: 1
Topic: Utility

19) If the utility for two goods "x" and "y" is measured as U = x + y, then it can be concluded
that
A) "x" and "y" are perfect substitutes.
B) "x" and "y" are perfect complements.
C) "x" and "y" are both bads.
D) the indifference curves on the x,y graph will be upward sloping.

Answer: A
Diff: 1
Topic: Utility

20) If the utility for two goods "x" and "y" can be measured as U = x, then it can be concluded
that
A) "x" and "y" are perfect complements.
B) "y" is a "bad".
C) the indifference curves on the x,y graph are upward sloping where "x" is measured on the
horizontal axis.
D) the indifference curves on the x,y graph are vertical where "x" is measured on the
horizontal axis.

Answer: D
Diff: 1
Topic: Utility

21) If the utility for two goods "x" and "y" can be measured as U = y, then it can be concluded
that
A) "x" and "y" are perfect complements.

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B) "x" is a "bad".
C) the indifference curves on the x,y graph are upward sloping where "x" is measured on the
horizontal axis.
D) the indifference curves on the x,y graph are horizontal where "x" is measured on the
horizontal axis.

Answer: D
Diff: 2
Topic: Utility

22) If two goods, "x" and "y", are perfect substitutes, then which of the following best represents
the utility function for the two goods?
A) U = x + y
B) U = x * y
C) U = x2 + y2
D) Any of the above.

Answer: A
Diff: 2
Topic: Utility

23) If Johnny likes homework (H) but hates exercise (E), which of the following might best
represent his utility function for homework and exercise?
A) U = H + E
B) U = H/E
C) U = H2 +
D) U = H2 *

Answer: B
Diff: 2
Topic: Utility

24) Clifford lives by the motto "Eat, drink and be merry today, for tomorrow doesn't matter." If
today's consumption is measured on the horizontal axis and tomorrow's consumption is
measured on the vertical axis, Clifford's indifference curves
A) are horizontal straight lines.
B) are vertical straight lines.
C) show decreasing utility as one moves upward.
D) cannot be determined from the information given.

Answer: B
Diff: 2
Topic: Utility

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25) Clifford lives by the motto "Eat drink and be merry today, for tomorrow doesn't matter." If
today's consumption is represented by "x" and tomorrow's consumption is represented by
"y", then which of the following best represents Clifford's utility function?
A) U=x-y
B) U=x/y
C) U=x
D) U=y

Answer: C
Diff: 2
Topic: Utility

26) Joe's income is $500, the price of food (F) is $2 per unit and the price of shelter (S) is $100.
Which of the following represents his budget constraint?
A) 500 = 2F + 100S
B) F = 250 - 50S
C) S = 5 - .02F
D) All of the above

Answer: D
Diff: 0
Topic: Budget Constraint

27) Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100.
Which of the following represents his marginal rate of transformation of food for shelter?
A) -5
B) -50
C) -.02
D) None of the above

Answer: B
Diff: 1
Topic: Budget Constraint

28) Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100.
Which of the following represents his budget constraint?
A) 500 = 100F + 2S
B) 500 = 2F + 100S
C) S = 500 - 2F
D) All of the above

Answer: B
Diff: 2
Topic: Budget Constraint

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29) The marginal rate of transformation of y for x represents

A) the slope of the budget constraint.
B) the rate at which the consumer must give up y to get one more x.
C) - Px/Py.
D) All of the above.

Answer: D
Diff: 1
Topic: Budget Constraint

30) The marginal rate of transformation of y for x represents

A) the slope of the budget constraint.
B) the rate at which the consumer must give up x to get one more y.
C) - Py/Px.
D) All of the above.

Answer: A
Diff: 1
Topic: Budget Constraint

31) The rate at which a consumer must give up y to get one more x is equal to
A) -Px/Py.
B) -Py/Px.
C) -MUx/MUy.
D) MUy/MUx.

Answer: A
Diff: 2
Topic: Budget Constraint

32) Betty consumes good x and good y. If the price of x = $3 and the price of y = $4, then
A) an extra unit of x costs 4/3 units of y.
B) an extra unit of y costs 4/3 units of x.
C) an extra unit of x costs 3/4 units of y.
D) Both B and C.

Answer: D
Diff: 1
Topic: Budget Constraint

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33) If the price of one good increases while the price of the other good and the consumer's
income remain unchanged, what will happen to the budget line?
A) The budget line rotates inward from the intercept on the axis of the good that did not
change in price.
B) The budget line rotates outward from the intercept on the axis of the good that did not
change in price.
C) The budget line shifts inward without a change in slope.
D) The budget line shifts outward without a change in slope.

Answer: A
Diff: 1
Topic: Budget Constraint

34) Lisa eats both pizzas and burritos. If the price of a pizza increases, Lisa's opportunity set
A) becomes larger.
B) becomes smaller.
C) is unchanged.
D) Unable to determine without more information.

Answer: B
Diff:1
Topic: Budget Constraint

35) If the consumer's income increases while the prices of both goods remain unchanged, what
will happen to the budget line?
A) The budget line rotates inward from the intercept on the horizontal axis.
B) The budget line rotates outward from the intercept on the vertical axis.
C) The budget line shifts inward without a change in slope.
D) The budget line shifts outward without a change in slope.

Answer: D
Diff: 1
Topic: Budget Constraint

36) If the prices of both goods and income increase by the same percentage, what will happen to
the budget line?
A) The budget line rotates inward from the intercept on the axis of the good that did not
change in price.
B) The budget line rotates outward from the intercept on the axis of the good that did not
change in price.
C) The budget line shifts outward without a change in slope.
D) Nothing.

Answer: D
Diff: 1
Topic: Budget Constraint

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37) A consumer buys food (F) and shelter (S). If the consumer's income rises and there is no
change in the prices of F or S, the marginal rate of transformation of F for S will
A) increase.
B) decrease.
C) stay the same.
D) change, but there is not enough information to know how.

Answer: C
Diff: 1
Topic: Budget Constraint

38) If a consumer's budget line for food (F) and shelter (S) is represented as F = 250 - 5S, we
know that
A) the consumer's income is 250.
B) the price of shelter is 5.
C) the price of shelter is 5 times the price of food.
D) All of the above.

Answer: C
Diff: 2
Topic: Budget Constraint

39) The consumer is in equilibrium when

A) MRT = MRS.
B) Px/Py = MUx/MUy.
C) the budget line is tangent to the indifference curve at the bundle chosen.
D) All of the above.

Answer: D
Diff: 1
Topic: Consumer's Constrained Choice

40) By selecting a bundle where MRS = MRT, the consumer is

A) achieving a corner solution.
B) reaching the highest possible indifference curve she can afford.
C) not behaving in an optimal way.
D) All of the above.

Answer: B
Diff: 1
Topic: Consumer's Constrained Choice

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41) By selecting a bundle where MRS = MRT, the consumer is saying

A) "I value my last unit of each good equally."
B) "I am willing to trade one good for the other at the same rate that I am required to do so."
C) "I will equate the amounts spent on all goods consumed."
D) All of the above.

Answer: B
Diff: 1
Topic: Consumer's Constrained Choice

42) With respect to consuming food and shelter, two consumers face the same prices and both
claim to be in equilibrium. We therefore know that
A) they both have the same marginal utility for food.
B) they both have the same marginal utility for shelter.
C) they both have the same MRS of food for shelter.
D) All of the above.

Answer: C
Diff: 2
Topic: Consumer's Constrained Choice

43) Johnny has allocated $30 toward coffee and tea and feels that coffee and tea are perfect
substitutes. Due to differences in caffeine levels, his MRS of tea for coffee equals 2. If coffee
and tea sell for the same price, Johnny will
A) spend all $30 on tea.
B) spend all $30 on coffee.
C) spend $20 on coffee and $10 on tea.
D) be indifferent between any bundle of coffee and tea costing $30.

Answer: B
Diff: 2
Topic: Consumer's Constrained Choice

44) Lisa maximizes her utility by eating both pizzas and burritos. The price of a pizza is $10
and the price of a burrito is $5. When Lisa's utility is maximized,
A) the marginal utility of pizza is larger than the marginal utility of burritos.
B) the marginal utility of a burrito is larger than the marginal utility of a pizza.
C) the marginal utility of both goods is the same.
D) the good with a larger marginal utility cannot be determined without more information.

Answer: A
Diff: 2
Topic: Budget Constraint

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