Consumer Choice Part 1
If Toby buys two goods and the prices of both goods increase by 50%, the aslope of the budget constraint stay the same. bbudget constraint will be unchanged. cslope of the budget constraint will decrease. dbudget constraint will shift outward in a parallel fashion.
A
If a consumer prefers Apples to Bananas and prefers Bananas to Citrus Fruit, in order to satisfy assumptions about preferences she has to prefer aApples to Citrus Fruit. bBananas to Apples. cCitrus Fruit to Apples. dCitrus Fruit to Bananas.
A
If orange prices increase, consumers maximizing satisfaction will change their consumption patterns in such a way that the marginal utility of oranges ______________ and the marginal utility of all other goods ______________. aincreases; decreases bincreases; increases cdecreases; decreases ddecreases; increases
A
If Fred's marginal utility of pizza equals 10 and his marginal utility of salad equals 2, then ahe would give up 5 salads to get the next pizza. bhe will eat five times as much pizza as salad. che will eat five times as much salad as pizza. dhe would give up 5 pizzas to get the next salad.
A
This figure shows the level of happiness that Sam receives when consuming pineapples and oranges. Sam's grandmother, who is visiting from Florida, gives Sam 10 oranges and 1 pineapple. According to his levels of happiness in consuming pineapples and oranges, Sam will be willing to: atrade away more than one orange for an additional pineapple. btrade lots of pineapples for an additional orange. ctrade his only pineapple for one more orange. dgive up all of his oranges for four more pineapples.
A
Which of the following occur when a person maximizes utility?I. the marginal utility of each good bought is equalII. the highest level of utility is attainedIII. all of a person's budget is spent aII and III b I and II c I and III d I, II and III
A
Mika's marginal rate of substitution of apples (A) for oranges (O) is 5 (). This information implies that: aMika is willing to trade away five oranges for one more apple, holding her utility constant. bMika will move to a higher indifference curve if she trades away five apples for one more orange. cMika should own five times as many apples as oranges. dThe slope of the indifference curve is five and thus upward sloping.
A MRS of X for Y (MRS)xy is the amount of Y that you are willing to give up to obtain 1 additional unit of X. Let X be apples and Y be oranges. MRSxy is the amount of oranges Mika is willing to give up to get 1 more apple.
rational individual
A decision maker who chooses the available option that leads to the outcome they most prefer
budget line
A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products' prices.
Utility
Ability or capacity of a good or service to be useful and give satisfaction to someone.
Dimminishing Marginal Utility
As a consumer purchases more of a good in a specific time period, the additional satisfaction enjoyed from the additional unit of the good will diminish
Diminishing marginal rate of substitution can be seen when indifference curves aare downward sloping. bbecome flatter as we move down and to the right. ccross dare convcave.
B
If Lilly is at her best affordable point, then _______. aher marginal rate of substitution is maximized b the relative price of the goods she buys equals the marginal rate of substitution cshe is indifferent among other points on her budget line dher marginal rate of substitution equals 1
B
Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in the figure at right . Which bundle will Max choose? aa bb cc dd
B
Which of the following statements is true? aAs Jane consumes more of a good she likes, her total utility increases, unless the good is subject to diminishing marginal utility. bAs Jane consumes more of a good she likes, her total utility increases, even if the good is subject to diminishing marginal utility. cAs Jane consumes more of a good she likes, her total utility decreases, whether the good is subject to diminishing marginal utility or not. dNone of the statements is correct
B
Jim has $60 to spend on chips and guac, where the price of a bag of chips is $2 and the price of a guac container is $4. Suppose that chips and guac are perfect complements for Jim, as he always buys exactly 1 guac container with each bag of chips. Given this information and keeping everything else the same, what bundle will he consume? a20 bags of chips and 5 guac containers b10 bags of chips and 10 guac containers c15 bags of chips and 15 guac containers d 12 bags of chips and 9 guac containers
B Let G be the number of guac containers and C be the number of bags of chips. 1 bag of chips is a perfect complement for guac container, so G = C. We know that the budget line can be written as 2C + 4G = 60. With these two equations we can solve for the value of C and G. Thus, 2C + 4C = 60 or C = 10 and G = 10. Jim will consume 10 bags of chips and 10 guac containers given this information.
Figure 9 shows her budget line when her income II is $200 per month, the price of books Px is $20 per book, and the price of movie tickets Py is $10 per ticket. What is Lilly's utility-maximizing choice?
Bundle E is Lilly's optimal consumption bundle: it lies on the highest indifference curve she can reach given her income. Any other point on or inside the budget line will leave her with a lower level of utility.
An indifference curve represents bundles of goods that a consumer arefers to any other bundle of goods. branks from most preferred to least preferred. cviews as equally desirable. dAll of the above.
C
A consumer's willingness to trade one good for another can be expressed by the consumer's aindifference curve. bmarginal rate of substitution. cBoth A and B above. dNone of the above.
C
Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal utility from an additional soft drink is $ 50 and his marginal utility from an additional slice of pizza is $ 30. If the price of a soft drink is $3 and the price of a slice of pizza is $2, is Charley maximizing his utility? aNo, he should increase his consumption of both goods. bNo, he should shift consumption toward pizza and away from soft drinks to maximize utility cNo, he should shift consumption toward soft drinks and away from pizza to maximize utility dYes, there is no other consumption choice that will make his total benefits greater.
C
Ria has an income of $1,200. She consumes two types of goods, shoes and handbags. Suppose the price of a pair of shoes is $400, and the price of a handbag is $200. What is the opportunity cost of each good in terms of the other? aThe opportunity cost of a pair of shoes is 2 handbags, and the opportunity cost of a handbag is 1 pair of shoes. bThe opportunity cost of a pair of shoes is 4 handbags, and the opportunity cost of a handbag is 2 pair of shoes. cThe opportunity cost of a pair of shoes is 2 handbags, and the opportunity cost of a handbag is 1/2 pair of shoes. dThe opportunity cost of a pair of shoes is 4 handbags, and the opportunity cost of a handbag is 1 pair of shoes.
C
Ryan, a fourth grade student, receives an allowance of $14 each week. Ryan uses this money to buy candy for himself at a store next to his house. Note that the store only sells boxes of jelly beans and pieces of hazelnut chocolate. Using the graph below, which of the following bundles of candy should Ryan buy, assuming that he does not save his money? a12 boxes of jelly beans and 6 pieces of hazelnut chocolate b12 boxes of jelly beans and 0 pieces of hazelnut chocolate c12 boxes of jelly beans and 3 pieces of hazelnut chocolate d12 boxes of jelly beans and 9 pieces of hazelnut chocolate
C
Some people view alcohol and marijuana as perfect substitutes. This means that aThey are indifferent between alcohol and marijuana bTheir indifference curves for alcohol and marijuana are downward sloping and convex cTheir marginal rate of substitution between alcohol and marijuana is constant. dBoth A and C.
C
Suppose the price of X is $48, the price of Y is $40, and a consumer has income of $480. Which of the following combinations of X and Y will be represented by a point on the consumer's budget line? a6 units of X and 5 units of Y b7 units of X and 4 units of Y c5 units of X and 6 units of Y
C
What type of good is good , assuming a person increases the level of happiness when consuming more of good ? aperfect substitute bperfect complement cbad dneutral good
C indifference curves are upward sloping: if we move up and right on the same indifference curve, the consumer remains equally happy. What does "move up and right" on the indifference curve? It means the consumer gets more of good X and more of good Y. In other words, if the consumer is given more of good X, they need to also get more of good Y (which we know the consumer likes) in order to remain equally happy. So the consumer must dislike good X: to the consumer, good X is a bad. For example, if you don't like vanilla ice cream (good X) but like chocolate ice cream (good Y), your preferences would be represented by upward sloping indifference curves. On the graph, U_1U1 gives the consumer a higher level of utility than U_2U2: the consumer is better off having less of good
Consider the following figure where the dark blue line is the original budget line for a consumer and the light blue line is the new one. The change shown was caused by ________. aA decrease in the consumer's income. bA change in the consumer's tastes away from good Y. cA decrease in the price of good Y. dAn increase in the price of good Y.
D
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 acquire more "x" only if they do not have to give up any "y". c settle for less of both "x" and "y". dgive up more "y" to get an extra "x" the less "x" they have.
D
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? a500 = 2F + 100S bS = 5 - 0.02F cF = 250 - 50S dAll of the above.
D
The indifference curves for left shoes and right shoes would most likely be adownward sloping and convex to the origin. bdownward sloping and straight lines. cupward sloping and concave to the origin. dL-shaped.
D
______ on an indifference curve that is farther from the origin _______ on an indifference curve that is closer to the origin. aSome combinations; are preferred to some combinations bCombinations; are not as affordable as combinations cMost combinations; are preferred to all combinations dAny combination; is preferred to any combination
D
Keith is indifferent between canned soup and fresh soup. In the figure to the right, Keith's indifference curves are represented by I1, I2, I3, and I4 curves. Which of the following is Keith's optimal consumption choice? a0 canned soup and 2 fresh soups b2 canned soups and 1 fresh soup c3 canned soups and 2 fresh soups d4 canned soups and 0 fresh soup
D We must find the point on the budget line that is on the highest possible indifference curve -- that's the y-intercept of the budget line.
difference between marginal utility and marginal benefit
Marginal benefit is a cardinal measure (usually in monetary terms, like dollars): it is the amount that a consumer is willing to pay for one additional unit of a good. So it could depend, among other things, on the consumer's wealth. However, marginal utility is the satisfaction, or happiness you get from consuming one more unit, but has no cardinal (monetary) measure.
Which of these two indifference curves corresponds to a higher utility?
her level of utility increases when she gets more of one good, as long as she has at least as much of the other good. At point E, Lilly has as many books and more movie tickets than at point B, so her utility is higher at E than at B. Similarly, at point E, she has as many movie tickets but more books than at point A, so her utility is higher at E than at A.
indifference curve graph
it is downward sloping, and convex to the origin (it bends toward the origin in the middle)
marginal utility
satisfaction or usefulness obtained from acquiring one more unit of a product
indifference curve
shows all combinations of goods that provide the consumer with the same satisfaction, or the same utility (the consumer finds all combinations on a curve equally preferred)
consumption bundle
the collection of all the goods and services consumed by that individual
budget constraint
the limited amount of income available to consumers to spend on goods and services
marginal rate of substitution (MRSxy)
the rate at which a consumer is willing to trade one good for another (without any change in utility)
