Chapter 21

60. Which of the following is a property of a typical indifference curve? a. upward sloping b. bowed away from the origin c. does not intersect another indifference curve d. a lower one is preferred to a higher one

c. does not intersect another indifference curve

2. Economists represent a consumer's preferences using a. demand curves. b. budget constraints. c. indifference curves. d. supply curves.

c. indifference curves

76. Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of DVDs the consumer can purchase? a. 10 b. 20 c. 40 d. 50

a. 10

83. A family on a trip budgets $1,000 for meals and gasoline. If the price of a meal for the family is $50 and if gasoline costs $3.50 per gallon, then how many meals can the family buy if they buy 100 gallons of gasoline? a. 13 b. 16 c. 19 d. 21

a. 13

65. Suppose a consumer has an income of $800 per month and that she spends her entire income each month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4. Which of the following combinations of beers and bratwursts represents a point that would lie to the exterior of the consumer's budget constraint? a. 160 beers and 200 bratwursts b. 40 beers and 50 bratwursts c. 80 beers and 100 bratwursts d. 160 beers and 0 bratwursts

a. 160 beers and 200 bratwursts

70. Assume that a college student spends her income on mac-n-cheese and CDs. The price of one box of mac-n-cheese is $1, and the price of one CD is $12. If she has $200 of income, she could choose to consume a. 30 boxes of mac-n-cheese and 12 CDs. b. 40 boxes of mac-n-cheese and 14 CDs. c. 20 boxes of mac-n-cheese and 16 CDs. d. 60 boxes of mac-n-cheese and 12 CDs.

a. 30 boxes of mac-n-cheese and 12 CDs.

97. Andi uses all of her income to purchase books and games. At any two points A and B on Andi's budget constraint, a. Andi is spending all of her income on books and games. b. Andi is spending one half of her income on books and the other half of her income on games. c. the price of books relative to the price of games is different. d. All of the above are correct.

a. Andi is spending all of her income on books and games.

103. Which of the following statements is necessarily true regarding a point along a budget line? a. It implies an individual has spent her entire income. b. It implies an individual is as happy as possible given her income. c. It implies an individual no longer faces tradeoffs between both goods. d. It implies an individual would be better off consuming a different bundle of goods.

a. It implies an individual has spent her entire income.

61. Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 5 slices of pizza and 3 paperback novels? a. Jack only b. Diane only c. both Jack and Diane d. neither Jack nor Diane

a. Jack only

62. Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 3 slices of pizza and 4 paperback novels? a. Jack only b. Diane only c. both Jack and Diane d. neither Jack nor Diane

a. Jack only

4. The theory of consumer choice most closely examines which of the following Ten Principles of Economics? a. People face trade-offs. b. Governments can sometimes improve market outcomes. c. Trade can make everyone better off. d. Markets are usually a good way to organize economic activity.

a. People face trade-offs.

3. If two bundles of goods give a consumer the same satisfaction, the consumer must be a. on her budget constraint. b. in a position of equilibrium. c. indifferent between the bundles. d. Both a and c are correct.

c. indifferent between the bundles

6. A consumer's preferences provide a ranking of a. all possible consumption bundles. b. only the consumption bundles that fall on the same indifference curve. c. consumption bundles based their prices. d. consumption bundles based on the consumer's income.

a. all possible consumption bundles.

99. On a graph we draw a consumer's budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then a. an apple costs twice as much as a light bulb. b. the opportunity cost of a light bulb is 2 apples. c. the opportunity cost of an apple is one-half of a light bulb. d. All of the above are correct.

a. an apple costs twice as much as a light bulb.

1. Which of the following does not represent a tradeoff facing a consumer? a. choosing to purchase more of all goods b. choosing to spend more time on leisure and less time on work c. choosing to spend more now and consume less in the future d. choosing to purchase less of one good in order to purchase more of another good

a. choosing to purchase more of all goods

3. Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of a. demand. b. profits. c. production possibility frontiers. d. wages.

a. demand.

42. Indifference curves tend to be bowed inward because of diminishing a. marginal rates of substitution. b. demand for the good as prices rise. c. income. d. Both a and b are correct.

a. marginal rates of substitution.

15. Laura consumes only beer and chips. Her indifference curves are all bowed inward. Consider the bundles (2,6), (4,4), and (6,2). If Laura is indifferent between (2,6) and (6,2), then Laura must a. prefer (4,4) to (6,2). b. be indifferent between (4,4) and (6,2). c. prefer (6,2) to (4,4). d. prefer (2,6) to (4,4).

a. prefer (4,4) to (6,2).

73. The slope of the budget constraint is determined by the a. relative price of the goods measured on the axes. b. relative price of the goods measured on the axes and the consumer's income. c. endowment of productive resources. d. preferences of the consumer.

a. relative price of the goods measured on the axes.

92. If the relative price of a concert ticket is three times the price of a meal at a good restaurant, then the opportunity cost of a concert ticket can be measured by the a. slope of the budget constraint. b. slope of an indifference curve. c. marginal rate of substitution. d. income effect.

a. slope of the budget constraint.

45. The marginal rate of substitution is equal to the a. slope of the indifference curve. b. ratio of the prices of the two goods. c. slope of the budget constraint. d. All of the above are correct.

a. slope of the indifference curve.

48. Clark enjoys fishing and hunting. He divides his leisure hours between the two outdoor activities. Suppose we were to draw Clark's indifference curves for the two activities, placing fishing on the horizontal axis and hunting on the vertical axis. If Clark's indifference curves are bowed inward, then a. the rate at which he is willing to give up an hour of hunting for an hour of fishing changes depending on how many hours of each activity he has done. For example, if Clark has already fished a lot in one week, he will be more willing to give up an hour of fishing for an hour of hunting than if he has only fished a little that week. b. the rate at which he is willing to give up an hour of hunting for an hour of fishing is constant because he must derive the same enjoyment out of each activity. c. the rate at which he is willing to give up an hour of hunting for an hour of fishing changes depending on how many hours of each activity he has done. For example, if Clark has already fished a lot in one week, he will be less willing to give up an hour of fishing for an hour of hunting than if he has only fished a little that week. d. Clark's indifference curves will not cross. When indifference curves are bowed outward, the indifference curves must cross.

a. the rate at which he is willing to give up an hour of hunting for an hour of fishing changes depending on how many hours of each activity he has done. For example, if Clark has already fished a lot in one week, he will be more willing to give up an hour of fishing for an hour of hunting than if he has only fished a little that week.

12. The theory of consumer choice a. underlies the concept of the demand for a particular good. b. underlies the concept of the supply of a particular good. c. ignores, for the sake of simplicity, the trade-offs that consumers face. d. can be applied to many questions about household decisions, but it cannot be applied to questions concerning wages and labor supply.

a. underlies the concept of the demand for a particular good.

79. Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs. If the price of a CD is $9, the price of a DVD is $18, and she is currently consuming 10 CDs and 5 DVDs, what is the consumer's income? a. $90 b. $180 c. $270 d. $360

b. $180

80. A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD? a. $4 b. $8 c. $12 d. $20

b. $8

78. Suppose a consumer spends her income on two goods: music CDs and DVDs. The price of a CD is $8, and the price of a DVD is $20. If we graph the budget constraint by measuring the quantity of CDs purchased on the vertical axis and the quantity of DVDs on the horizontal axis, what is the slope of the budget constraint? a. -5.0 b. -2.5 c. -0.4 d. The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods.

b. -2.5

82. A family on a trip budgets $800 for meals and gasoline. If the price of a meal for the family is $50, how many meals can the family buy if they do not buy any gasoline? a. 8 b. 16 c. 24 d. 32

b. 16

75. Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of CDs the consumer can purchase? a. 10 b. 20 c. 40 d. 50

b. 20

13. A consumer likes two goods: books and movies. The two bundles shown in the table below lie on the same indifference curve for the consumer. Bundle Books Movies A 2 3 B 3 2 Which of the following bundles could not lie on the same indifference curve with A and B and satisfy the four properties of indifference curves? a. 1 movie and 5 books b. 3 movies and 3 books c. 5 movies and 1 book d. 1 movie and 7 books

b. 3 movies and 3 books

64. Suppose a consumer has an income of $800 per month and that she spends her entire income each month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4. Which of the following combinations of beers and bratwursts represents a point that would lie to the interior of the consumer's budget constraint? a. 160 beers and 200 bratwursts b. 40 beers and 50 bratwursts c. 80 beers and 100 bratwursts d. 160 beers and 0 bratwursts

b. 40 beers and 50 bratwursts

94. Bill consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle, and the price of spaghetti is $8 per serving. His income is $1,000 per month. He spends all of his income each month. He purchases 200 bottles of iced tea. How many servings of spaghetti does he purchase? a. 125 b. 75 c. 50 d. 10

b. 75

7. If Walter has one hour of leisure time in which to watch a sporting event on television, his preferences are as follows: Walter prefers watching football to watching baseball, but he prefers watching baseball to watching basketball. He is indifferent between watching baseball and watching hockey. Bundle A contains one hour of football and zero hours of all other sports. Bundle B contains one hour of baseball and zero hours of all other sports. Bundle C contains one hour of basketball and zero hours of all other sports. Bundle D contains one hour of hockey and zero hours of all other sports. If we were to graph Walter's preferences using indifference curves, which of the following bundles would be on the same indifference curve? a. A, B, and C only b. B and D only c. A and D only d. There is no combination of the sports that could be drawn on the same indifference curve.

b. B and D only

9. Both Diana and Sarah like jazz music and music by the Beatles. Diana likes music by the Beatles much better than jazz music, whereas Sarah prefers jazz music to music by the Beatles. If we were to graph an indifference curve with CDs by the Beatles on the horizontal axis and jazz CDs on the vertical axis, then a. Diana and Sarah would have identical indifference curves. b. Diana's indifference curve would be steeper than Sarah's indifference curve. c. Sarah's indifference curve would be steeper than Diana's indifference curve. d. We do not have enough information to compare their indifference curves.

b. Diana's indifference curve would be steeper than Sarah's indifference curve

57. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 8 gallons of ice cream and 5 paperback novels? a. Karen, Tara, and Chelsea b. Karen only c. Tara and Chelsea but not Karen d. none of the women

b. Karen only

102. Suppose good X is on the horizontal axis, good Y is on the vertical axis, and the slope of an individual's budget line is -2. Which of the following is true? a. Good Y is twice as expensive as good X. b. The consumer gives up two units of good Y for each unit of good X she purchases. c. The opportunity cost of good X is one half of a unit of good Y. d. All of the above are correct.

b. The consumer gives up two units of good Y for each unit of good X she purchases.

50. Bundle L contains 10 units of good X and 20 units of good Y. Bundle M contains 8 units of good X and 21 units of good Y. The consumer is indifferent between bundle L and bundle M. Assume that the consumer's preferences satisfy the four properties of indifference curves. Which of the following correctly expresses the marginal rate of substitution of good X for good Y between these two points? a. The consumer will give up 1 unit of good X to gain 2 units of good Y. b. The consumer will give up 2 units of good X to gain 1 unit of good Y. c. The price of good X is twice as large as the price of good Y. d. The price of good X is half as large as the price of good Y.

b. The consumer will give up 2 units of good X to gain 1 unit of good Y.

60. Abby, Bobbi, and Deborah each buy ice cream and paperback novels to enjoy on hot summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Abby has a budget of $80, Bobbi has a budget of $60, and Deborah has a budget of $40 to spend on ice cream and paperback novels. Which of the following statements is correct? a. Each woman faces the same budget constraint. b. The slope of the budget constraint is the same for each woman. c. The area underneath the budget constraint is larger for Deborah than for Abby. d. All of the above are correct.

b. The slope of the budget constraint is the same for each woman.

5. Which of the following statements is correct? a. The theory of consumer choice provides a more complete understanding of supply, just as the theory of the competitive firm provides a more complete understanding of demand. b. The theory of consumer choice provides a more complete understanding of demand, just as the theory of the competitive firm provides a more complete understanding of supply. c. Monetary theory provides a more complete understanding of demand, just as the theory of the competitive firm provides a more complete understanding of supply. d. The theory of public choice provides a more complete understanding of supply, just as the theory of the competitive firm provides a more complete understanding of demand.

b. The theory of consumer choice provides a more complete understanding of demand, just as the theory of the competitive firm provides a more complete understanding of supply.

55. A budget constraint shows a. the maximum utility that a consumer can achieve for a given level of income. b. a series of bundles that cost the consumer the same amount of money. c. a series of bundles that give the consumer the same level of utility. d. All of the above are correct.

b. a series of bundles that cost the consumer the same amount of money.

47. The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the a. prices of the products. b. amount of each good the consumer is currently consuming. c. consumer's income. d. marginal value product.

b. amount of each good the consumer is currently consuming.

11. Irene is a vegetarian, so she does not eat pork. That is, pork provides no additional utility to Irene. She loves broccoli, however. If we illustrate Irene's indifference curves by drawing broccoli on the horizontal axis and pork on the vertical axis, her indifference curves will a. slope downward. b. be vertical straight lines. c. slope upward. d. be horizontal straight lines.

b. be vertical straight lines.

62. Which of the following is not a property of a typical indifference curve? a. downward sloping b. bowed away from the origin c. does not intersect another indifference curve d. a higher one is preferred to a lower one

b. bowed away from the origin

9. The theory of consumer choice examines how a. firms make profit-maximizing decisions. b. consumers make utility-maximizing decisions. c. wages are determined in competitive labor markets. d. prices are determined in competitive goods markets.

b. consumers make utility-maximizing decisions.

54. Assume that a consumer's indifference curve is bowed inward and satisfies the other three properties of indifference curves. As the consumer moves from left to right along the horizontal axis, the consumer's marginal rate of substitution a. increases. b. decreases. c. remains constant. d. increases, then decreases.

b. decreases.

55. Assume Victoria's indifference curves are bowed outward but her indifference curves satisfy the other three properties of indifference curves. As Victoria moves from right to left along the horizontal axis, her marginal rate of substitution a. increases. b. decreases. c. remains constant. d. increases, then decreases.

b. decreases.

86. An increase in a consumer's income a. increases the slope of the consumer's budget constraint. b. has no effect on the slope of the consumer's budget constraint. c. decreases the slope of the consumer's budget constraint. d. has no effect on the consumer's budget constraint.

b. has no effect on the slope of the consumer's budget constraint.

89. Mark spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Mark's income has stayed fixed at $46 per week. If you measure gin on the vertical axis and cocktail olives on the horizontal axis, then the budget constraint a. is steeper after the price changes. b. is flatter after the price changes. c. is the same after the price changes. d. shifts in a parallel fashion to the old budget constraint after the price changes.

b. is flatter after the price changes.

67. Consider two goods: peanuts and crackers. The slope of the consumer's budget constraint is measured by the a. consumer's income divided by the price of crackers. b. relative price of peanuts and crackers. c. consumer's marginal rate of substitution. d. number of peanuts purchased divided by the number of crackers purchased.

b. relative price of peanuts and crackers.

72. A decrease in income will cause a consumer's budget constraint to a. shift outward, parallel to its initial position. b. shift inward, parallel to its initial position. c. pivot along the horizontal axis. d. pivot along the vertical axis.

b. shift inward, parallel to its initial position.

68. Suppose a consumer spends his income on CDs and DVDs. If his income decreases, the budget constraint for CDs and DVDs will a. shift outward, parallel to the original budget constraint. b. shift inward, parallel to the original budget constraint. c. rotate outward along the CD axis because he can afford more CDs. d. rotate outward along the DVD axis because he can afford more DVDs.

b. shift inward, parallel to the original budget constraint.

8. The theory of consumer choice examines a. the determination of output in competitive markets. b. the tradeoffs inherent in decisions made by consumers. c. how consumers select inputs into manufacturing production processes. d. the determination of prices in competitive markets.

b. the tradeoffs inherent in decisions made by consumers.

71. A consumer who doesn't spend all of her income a. would be at a point outside of her budget constraint. b. would be at a point inside her budget constraint. c. must not be consuming positive quantities of all goods. d. must be consuming at a point where her budget constraint touches one of the axes.

b. would be at a point inside her budget constraint.

7. The theory of consumer choice provides the foundation for understanding the a. structure of a firm. b. profitability of a firm. c. demand for a firm's product. d. supply of a firm's product.

c. demand for a firm's product.

93. Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti? a. $10 b. $5 c. $4 d. $2

c. $4

84. A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals. How many meals could the family afford if they gave up two nights in the hotel? a. 1 b. 2 c. 5 d. 8

c. 5

69. Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and the price of a book is $15. If she has $120 in income, she could choose to consume a. 8 pizzas and 4 books. b. 4 pizzas and 6 books. c. 5 pizzas and 5 books. d. 2 pizzas and 7 books.

c. 5 pizzas and 5 books.

66. Suppose a consumer has an income of $800 per month and that she spends her entire income each month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4. Which of the following combinations of beers and bratwursts represents a point that would lie directly on the consumer's budget constraint? a. 160 beers and 200 bratwursts b. 40 beers and 50 bratwursts c. 80 beers and 100 bratwursts d. 80 beers and 0 bratwursts

c. 80 beers and 100 bratwursts

59. Abby, Bobbi, and Deborah each buy ice cream and paperback novels to enjoy on hot summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Abby has a budget of $80, Bobbi has a budget of $60, and Deborah has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 4 gallons of ice cream and 5 paperback novels? a. Abby, Bobbi, and Deborah b. Abby only c. Abby and Bobbi, but not Deborah d. None of the women can afford to purchase 4 gallons of ice cream and 5 paperback novels.

c. Abby and Bobbi, but not Deborah

14. A consumer likes two goods: books and movies. The three bundles shown in the table below lie on the same indifference curve for the consumer. Bundle Books Movies A 2 4 B 4 2 C 3 3 Which of the following properties of indifference curves would this consumer's preferences violate? a. Indifference curves are downward sloping. b. Indifference curves do not cross. c. Indifference curves are bowed inward. d. These bundles do not violate any of the properties of indifference curves.

c. Indifference curves are bowed inward.

2. How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving? a. They all relate to macroeconomics. b. They all relate to monetary economics. c. They all relate to the theory of consumer choice. d. They are not related to each other in any way.

c. They all relate to the theory of consumer choice.

1. Indifference curves illustrate a. a firm's profits. b. a consumer's budget. c. a consumer's preferences. d. the prices of two goods.

c. a consumer's preferences.

4. Indifference curves graphically represent a. an income level sufficient to allow an individual to achieve a given level of satisfaction. b. the constraints faced by individuals. c. an individual's preferences. d. the relative price of commodities.

c. an individual's preferences.

54. A budget constraint illustrates the a. prices that a consumer chooses to pay for products he consumes. b. purchases made by consumers. c. consumption bundles that a consumer can afford. d. consumption bundles that give a consumer equal satisfaction.

c. consumption bundles that a consumer can afford.

88. Gerald spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Gerald's income has stayed fixed at $46 per week. Since the price changes, Gerald has been buying 4 bottles of gin and 2 jars of cocktail olives per week. At the original prices, 4 bottles of gin and 2 jars of cocktail olives would have a. exactly exhausted his income. b. cost more than his income. c. cost less than his income. d. could have maximized his satisfaction given his budget constraint.

c. cost less than his income.

56. When indifference curves are bowed inward, the marginal rate of substitution is a. the same at all points along an indifference curve. b. increasing as the consumer moves to the right along an indifference curve. c. decreasing as the consumer moves to the right along an indifference curve. d. constant.

c. decreasing as the consumer moves to the right along an indifference curve.

44. The rate at which a consumer is willing to exchange one good for another while maintaining a constant level of satisfaction is called the a. relative expenditure ratio. b. value of marginal product. c. marginal rate of substitution. d. relative price ratio.

c. marginal rate of substitution.

90. Suppose the only two goods that Charlie consumes are wine and cheese. When wine sells for $10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese — spending his entire income of $100. One day the price of wine falls to $5 a bottle and the price of cheese increases to $20 a pound, while his income does not change. The bundle of wine and cheese that he purchased at the old prices now costs a. the same amount at the new prices. b. less than Charlie's income at the new prices. c. more than Charlie's income at the new prices. d. We do not have enough information to answer the question.

c. more than Charlie's income at the new prices.

5. A consumer a. is equally satisfied with any indifference curve. b. prefers indifference curves with positive slopes. c. prefers higher indifference curves to lower indifference curves. d. prefers indifference curves that are straight lines to indifference curves that are right angles.

c. prefers higher indifference curves to lower indifference curves.

95. Suppose a consumer consumes two goods, X and Y. The slope of the budget constraint equals the a. marginal rate of substitution. b. rate at which the consumer will give up X to gain Y while maintaining the same level of utility. c. relative price of the two goods. d. All of the above are correct.

c. relative price of the two goods.

96. Suppose a consumer consumes two goods, X and Y. The relative price of the two goods equals the a. marginal rate of substitution. b. rate at which the consumer will give up X to gain Y while maintaining the same level of utility. c. slope of the budget constraint. d. All of the above are correct.

c. slope of the budget constraint.

57. Each of the following are characteristics of a typical indifference curve map except a. moving northeast to a new indifference curve will increase utility. b. points on the same indifference curve yield equal utility. c. the axes represent levels of utility for each of the goods. d. indifference curves cannot cross.

c. the axes represent levels of utility for each of the goods.

11. The theory of consumer choice is to demand as the theory of a. public goods is to supply. b. oligopoly is to supply. c. the competitive firm is to supply. d. comparative advantage is to supply.

c. the competitive firm is to supply.

43. The slope of an indifference curve is a. the rate of change of consumer's preferences. b. the marginal rate of preference. c. the marginal rate of substitution. d. always equal to the slope of the budget constraint.

c. the marginal rate of substitution.

74. The slope of the budget constraint is all of the following except a. the relative price of two goods. b. the rate at which a consumer can afford to trade one good for another. c. the marginal rate of substitution. d. constant.

c. the marginal rate of substitution.

91. Suppose the only two goods that Lorenzo consumes are wine and cheese. When wine sells for $10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese — spending his entire income of $100. One day the price of wine falls to $5 a bottle, and the price of cheese increases to $20 a pound, while his income does not change. If you illustrate wine on the vertical axis and cheese on the horizontal axis, then a. the slope of Lorenzo's budget has not changed. b. the slope of Lorenzo's budget constraint is flatter at the new prices. c. the slope of Lorenzo's budget constraint is steeper at the new prices. d. Lorenzo's budget constraint has shifted in a parallel fashion to the budget constraint with the old prices.

c. the slope of Lorenzo's budget constraint is steeper at the new prices.

46. The marginal rate of substitution is a. the slope of a budget constraint. b. always constant. c. the slope of an indifference curve. d. the point at which the budget constraint and the indifference curve are tangent.

c. the slope of an indifference curve.

10. The theory of consumer choice illustrates the a. importance of property rights in creating efficient markets. b. ability of a single economic actor to have a substantial influence on market prices. c. the trade-offs that people face in their role as purchasers. d. All of the above are correct.

c. the trade-offs that people face in their role as purchasers.

56. Budget constraints exist for consumers because a. their utility from consuming goods eventually reaches a maximum level. b. even with unlimited incomes they have to pay for each good they consume. c. they have to pay for goods, and they have limited incomes. d. prices and incomes are inversely related.

c. they have to pay for goods, and they have limited incomes.

16. An indifference curve illustrates the a. prices facing a consumer as she chooses how much of good X and good Y to consume. b. income facing a consumer as she chooses how much of good X and good Y to consume. c. trade-offs facing a consumer as she chooses how much of good X and good Y to consume. d. All of the above are correct.

c. trade-offs facing a consumer as she chooses how much of good X and good Y to consume.

81. A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a DVD? a. $4 b. $8 c. $12 d. $20

d. $20

104. Suppose Raul has budgeted $100 of his monthly income towards two good: t-shirts and jeans. If the price of a pair of jeans is $20 and last month he spent his $100 on a bundle containing 2 pairs of jeans and 12 t-shirts, which of the following is another point on Raul's budget line? a. 3 pairs of jeans and 16 t-shirts b. 1 pair of jeans and 15 t-shirts c. 3 pairs of jeans and 6 t-shirts d. 0 pairs of jeans and 20 t-shirts

d. 0 pairs of jeans and 20 t-shirts

77. Suppose a consumer spends her income on two goods: iTunes music downloads and books. The consumer has $100 to allocate to these two goods, the price of a downloaded song is $1, and the price of a book is $20. What is the maximum number of books the consumer can purchase? a. 100 b. 20 c. 10 d. 5

d. 5

100. On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then a. a pineapple costs six times as much as a pencil. b. the opportunity cost of a pineapple is 6 pencils. c. the opportunity cost of a pencil is one-sixth of a pineapple. d. All of the above are correct.

d. All of the above are correct.

8. Hannah and Chris each like jewelry and music by the Rolling Stones. If we were to graph an indifference curve with jewelry on the horizontal axis and CDs by the Rolling Stones on the vertical axis, then a. Hannah and Chris would have identical indifference curves. b. Hannah's indifference curve would be higher than Chris's indifference curve. c. Chris's indifference curve would be higher than Hannah's indifference curve. d. Because we do not know the intensity of each woman's preferences, we do not have enough information to compare their indifference curves.

d. Because we do not know the intensity of each woman's preferences, we do not have enough information to compare their indifference curves.

49. The marginal rate of substitution a. varies along an indifference curve if the curve is bowed inward. b. is constant along an indifference curve if the curve is a straight line. c. is greater when a consumer has more of two goods rather than less of two goods. d. Both a and b are correct.

d. Both a and b are correct.

12. Bundle A contains 10 units of good X and 5 units of good Y. Bundle B contains 5 units of good X and 10 units of good Y. Bundle C contains 10 units of good X and 10 units of good Y. The consumer is indifferent between bundle A and bundle B. Assume that the consumer's preferences satisfy the four properties of indifference curves. Which of the following statements is correct? a. The consumer must prefer bundle C to either bundle A or B. b. Bundle A and bundle B lie on the same indifference curve. c. The consumer must prefer bundle B to bundle C. d. Both a) and b) are correct.

d. Both a) and b) are correct.

13. Which of the following statements is not true? a. When consumers purchase more of one good, they are giving up the ability to buy as much of other goods. b. When consumers choose to take more leisure time, they are giving up the ability to consume as much as before. c. Consumers face consumption tradeoffs because they have limited income. d. Consumers face consumption tradeoffs because they have limited preferences for goods.

d. Consumers face consumption tradeoffs because they have limited preferences for goods.

58. Which of the following is a property of typical indifference curves? a. Indifference curves usually intersect. b. Indifference curves have positive slopes. c. Indifference curves are downward sloping and always linear. d. Indifference curves are usually bowed in toward the origin.

d. Indifference curves are usually bowed in toward the origin.

61. Which of the following is a property of a typical indifference curve? a. upward sloping b. bowed away from the origin c. does not intersect another indifference curve d. a higher one is preferred to a lower one

d. a higher one is preferred to a lower one

10. Alicia is a vegetarian, so she does not eat beef. That is, beef provides no additional utility to Alicia. She loves potatoes, however. If we illustrate Alicia's indifference curves by drawing beef on the horizontal axis and potatoes on the vertical axis, her indifference curves will a. slope downward. b. be vertical straight lines. c. slope upward. d. be horizontal straight lines.

d. be horizontal straight lines.

85. If the price of bread is zero and the price of cheese is positive, then the budget constraint between bread (on the horizontal axis) and cheese (on the vertical axis) would a. be vertical. b. coincide with the vertical axis. c. coincide with the horizontal axis. d. be horizontal.

d. be horizontal.

51. If an indifference curve is bowed in toward the origin, the marginal rate of substitution is a. not likely to reflect the relative value of goods. b. likely to be constant for all bundles along the indifference curve. c. likely to be identical to the price ratio for each bundle along the indifference curve. d. different for each bundle along the indifference curve.

d. different for each bundle along the indifference curve.

52. If an indifference curve is bowed out away from the origin, the marginal rate of substitution is a. not likely to reflect the relative value of goods. b. likely to be constant for all bundles along the indifference curve. c. likely to be identical to the price ratio for each bundle along the indifference curve. d. different for each bundle along the indifference curve.

d. different for each bundle along the indifference curve.

87. A decrease in a consumer's income a. increases the slope of the consumer's budget constraint. b. has no effect on the consumer's budget constraint. c. decreases the slope of the consumer's budget constraint. d. has no effect on the slope of the consumer's budget constraint.

d. has no effect on the slope of the consumer's budget constraint.

6. When a consumer spends less time enjoying leisure and more time working, she has a. lower income and therefore cannot afford more consumption. b. lower income and therefore can afford more consumption. c. higher income and therefore cannot afford more consumption. d. higher income and therefore can afford more consumption.

d. higher income and therefore can afford more consumption.

59. All of the following are properties of typical indifference curves except a. higher indifference curves are preferred to lower ones. b. indifference curves are downward sloping. c. indifference curves do not cross. d. indifference curves are bowed outward.

d. indifference curves are bowed outward.

63. Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 5 slices of pizza and 5 paperback novels? a. Jack only b. Diane only c. both Jack and Diane d. neither Jack nor Diane

d. neither Jack nor Diane

58. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 5 gallons of ice cream and 8 paperback novels? a. Karen, Tara, and Chelsea b. Karen only c. Tara and Chelsea but not Karen d. none of the women

d. none of the women

53. As long as a consumer remains on the same indifference curve, a. she is indifferent to all points that lie on any other indifference curve. b. her preferences will not affect the marginal rate of substitution. c. she is unable to decide which bundle of goods to choose. d. she is indifferent among the points on that curve.

d. she is indifferent among the points on that curve.

98. Fiona uses all of her income to purchase popcorn and butter. At any two points A and B on Fiona's budget constraint a. Fiona is equally happy. b. Fiona is spending more money on popcorn than she is spending on butter. c. Fiona's income is different. d. the price of popcorn relative to the price of butter is the same.

d. the price of popcorn relative to the price of butter is the same.