Microeconomics Chapter 3

An indifference curve that lies tangent to the budget constraint illustrates the combination of goods X and Y that provide the consumer the least satisfaction.

false

An indifference curve that lies tangent to the budget constraint illustrates the combination of goods X and Y that provides the consumer the least satisfaction.

false

Economists use budget constraints and indifference curves together to find the producer's optimal choice under the constraint of the budget and prices.

false

If a person is receiving greater utility per dollar from consuming apples than from consuming oranges, then the person is maximizing her total utility.

false

In a two-good model, if the price of good X falls, the budget line changes in exactly the same way as if the consumer had received an income increase.

false

The budget constraint is not affected when a consumer's budget or the price of either of the goods changes.

false

When marginal utility becomes negative, total utility begins to increase.

false

A rational consumer would be indifferent between point A and B and would choose either one.

false to be indifferent means they have to be on the same indifference curve

The slope of an indifference curve is all of the following except

increasing

jack likes to play golf. Although he is experiencing diminishing marginal utility, his marginal utility remains positive. We can say that Jack's total utility is

increasing at a decreasing rate

Find the price of good x

max of good x divided by max of good y and multiply that number by the price of good x

examine the graph below the budget for this consumer is 1

not determinable from the information provided

Suppose a person is obtaining greater utility per dollar from consuming one good than from another. This person is

not maximizing utility.

At which point does the marginal rate of substitution equal the relative price ratio (MRS = Px / Py)?

point a and b wherever the indifference curve is tangent to the budget constraint curve

If a consumer's income increases, that consumer's budget constraint

shifts outward away from the origin.

The economic interpretation of an indifference curve is

the rate at which the consumer is willing to trade one good for another to remain equally satisfied.

Refer to the graph below. The marginal rate of substitution at point b is _______________ the marginal rate of substitution at point a.

the slope is less at point b than it is at point a

The consumer trades until he / she reaches the point of maximum attainable satisfaction. This is the point at which

the slope of the budget constraint is equal to the marginal rate of substitution.

The marginal rate of substitution is

the slope of the consumer's indifference curve.

A linear indifference curve reflects the fact that the two goods are perfect substitutes for each other.

true

The demand curve comes from a consumer's making optimal choices subject to his / her constraints.

true

The slope of a consumer's budget constraint is the opportunity cost of buying one good in terms of how much of the other that he gives up.

true

An indifference curve is a set of points representing combinations of ________ goods that a consumer finds __________ desirable and satisfying.

two; equally

Refer to the graph below. U0, U1, and U2 are indifference curves for a consumer choosing ice cream cones and soda. The equilibrium position for this consumer is

where the indifference curve and the budget constraint have the same slope (the one that is tanget)

The marginal rate of substitution is greater than the slope of the budget constraint; that is, the consumer is willing to give up more soda than the market requires at point

where the slope of the indifference curve is greater than the slope of the budget constraint

Assume that the price for peanut butter and bread is $1 each. Dan's marginal utility for peanut butter is 10 utils, and his marginal utility for bread is 20 utils. Given this situation,

Dan gains more utility per dollar from consuming bread than from consuming peanut butter.

Based on the graph shown, the consumer is indifferent to combinations of X and Y at

Each indifference curve represents a different level of satisfaction. There is increasing satisfaction at each indifference curve as one goes out from the origin. Points on the same indifference curve, however, provide the consumer with the same satisfaction, so the consumer is indifferent to combinations on the same curve.

When a consumer's income decreases, the consumer's budget constraint

shifts inward

Tom receives 30 utils from one candy bar, 45 utils from two candy bars, and 55 utils from three candy bars. The marginal utility of the third candy bar is ____________, and Tom's _________ utility rises as his ______________ utility declines.

10; total; marginal

If the total utility of one golf game is 10 utils, and the total utility of two golf games is 24 utils, the marginal utility of the second game is

14 utils

Suppose you are eating nachos. The total utility after the fourth, fifth, sixth, and seventh nachos are, respectively, 50, 86, 106, and 120. The marginal utility of the sixth nacho is

20 utils

Assume Joe gets 60 utils from consuming one hamburger and gets 90 utils from consuming two hamburgers. When Joe consumes two hamburgers, the marginal utility from consuming the second hamburger is

30 utils

What does the demand curve in the lower graph represent?

All the consumer's optimal choices of good X when the price of good X changes

Suppose that the marginal utility per dollar of apples is greater than the marginal utility per dollar for candy bars as the result of a fall in the price of apples. To achieve consumer equilibrium the consumer reallocates dollars from candy bars to apples. In the process, he

B and C. maximizes total utility .acts according to the law of demand.

The slope of the budget constraint tells us

Both b and c the relative prices for each of the two goods .the market's opportunities for trade.

Suppose Valerie is consuming one novel per week and one movie per week. Further assume that the marginal utility of novels is 40 utils, and the marginal utility of movies is 50 utils. If each novel and each movie costs $4.00, is Valerie attaining consumer equilibrium?

No. She needs to buy fewer novels and see more movies.

Suppose Val is buying chips and beer in quantities such that she is achieving consumer equilibrium. The price of chips then increases. Which of the following is true?

The marginal utility of chips per dollar spent on chips is less than the marginal utility of beer per dollar spent on beer.

In regard to potato chips, marginal utility is the _____________ satisfaction from eating ___________ potato chip(s).

additional; one more

The demand curve comes from

all of the above consumers who have preferences. consumers who have constraints. consumers who do the best with what they have

Indifference curves are

both a and b Indifference curves can never cross because this violates the rule of transitivity. Indifference curves can be in any shape as long as they are downward sloping.

When the price of good X falls, more of that good will be consumed. To find the highest satisfaction from a combination of goods, the consumer will

both b and c find a combination that falls on the new budget line and is tangent to an indifference curve .find a combination of goods that maximizes the consumer's utility within the constraint of his new budget.

The law of diminishing marginal utility states that at some point, a person's marginal utility from additional consumption

decreases

Suppose Mike has a budget of $6, and he can purchase some combination of tacos or burritos. Tacos are $1.25 each, and burritos are $1.50 each. If Mike's budget increases to $12, his purchasing power for tacos and burritos _________, and his budget constraint shifts __________.

doubles; outward

Heather's indifference curve for frozen cappuccinos and donuts illustrates that the only way she can remain equally satisfied when you take away a frozen cappuccino is to give her some quantity of donuts instead. This implies that the indifference curve is

downward sloping

The shape of the indifference curves in this graph show that the marginal rate of substitution

is different for each bundle. The marginal rate of substitution is the consumer's willingness to trade one good for another. The MRS gets smaller as one moves down the indifference curve, reflecting the fact that the consumer is willing to give up less of good Y to get one more unit of good X.

Suppose you are eating nachos. The total utility after the fourth, fifth, sixth, and seventh nachos are, respectively, 50, 86, 106, and 120. This situation demonstrates the

law of diminishing marginal utility.

If the consumer moves from point b to point d , the consumer would

lose satisfaction because the consumer moves to another indifference curve.

When a consumer optimizes his / her satisfaction at a point at which an indifference curve is tangent to the budget constraint,

the consumer can increase his / her satisfaction only by increasing his / her income.

Use the graphs below to analyze goods X and Y. Assume that the price of one of the goods changes. In the lower graph, the price, quantity (P0, Q0 ) is

the quantity of X demanded at X's original price.