Econ 12

The optimal consumption combination: A) All other choices. B) Maximizes total utility subject to a budget constraint. C) Occurs when the marginal rate of substitution equals the ratio of the prices of the two goods. D) Is the point of tangency between the budget constraint and an indifference curve.

A) All other choices.

The slope of the budget constraint, when a consumer has reached optimal consumption of two goods, is equal to the: A) All other choices. B) Ratio of the prices of the two goods. C) Ratio of the marginal utilities of the two goods. D) Marginal rate of substitution.

A) All other choices.

Which of the following statements is true? A) If a consumer is in equilibrium, it necessarily follows that he or she is also achieving the greatest total utility. B) If a consumer is in equilibrium, it does not necessarily follow that he or she is also achieving the greatest total utility. C) If a consumer is attaining the greatest total utility, then it necessarily follows that he or she is also achieving the greatest marginal utility. D) If a consumer is attaining the greatest marginal utility, then it necessarily follows that he or she is also achieving the greatest total utility.

A) If a consumer is in equilibrium, it necessarily follows that he or she is also achieving the greatest total utility.

Which of the following will result in a decrease in a consumer's purchasing power? A) all other choices B) An increase in the price of the good on the vertical axis C) A decrease in the consumer's income D) An increase in the price of the good on the horizontal axis

A) all other choices

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 slope of the budget line will not change. B) the budget line will become flatter. C) the slope of the budget line will change, but in an indeterminate way. D) the budget line will become steeper.

A) the slope of the budget line will not change.

Suppose a consumer only purchases food and clothing, and food is plotted along the horizontal axis of the consumer's indifference map. If the price of clothing increases and the price of food and income do not change, then the budget line changes by rotating: A) clockwise about the fixed vertical axis intercept. B) counter-clockwise about the fixed horizontal axis intercept. C) counter-clockwise about the fixed vertical axis intercept. D) clockwise about the fixed horizontal axis intercept.

B) counter-clockwise about the fixed horizontal axis intercept.

A consumer is in equilibrium if he or she derives the same A) total utility per dollar spent on each good consumed. B) marginal utility per dollar spent on each good consumed. C) total utility from each good consumed. D) marginal utility from each good consumed.

B) marginal utility per dollar spent on each good consumed.

If income rises, the budget constraint A) does not move. B) moves outward away from the origin. C) moves inward toward the origin. D) moves farther down the vertical axis.

B) moves outward away from the origin.

The endpoints (horizontal and vertical intercepts) of the budget line: A) measure its slope. B) represent the quantity of each good that could be purchased if all of the budget were allocated to that good. C) measure the rate at which a consumer is willing to trade one good for another. D) measure the rate at which one good can be substituted for another. E) indicate the highest level of satisfaction the consumer can achieve.

B) represent the quantity of each good that could be purchased if all of the budget were allocated to that good.

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) 24 B) 0 C) 120 D) 48 E) 12

C) 120

A consumer has $100 per day to spend on product A, which has a unit price of $7, and product B, which has a unit price of $15. What is the absolute value of the slope of the budget line if good A is on the horizontal axis and good B is on the vertical axis? A) 100/15 B) 100/7 C) 7/15 D) 15/7

C) 7/15

The point where the budget line and an indifference curve are tangent: A) Indicates that the relative marginal utilities of the goods equal their relative prices. B) Represents an optimal consumption point. C) All other choices. D) Indicates the quantity and price that would appear on a demand curve

C) All other choices.

A budget line represents: A) The demand curve. B) The amount of income that is required to purchase a given amount of a good. C) Combinations of two goods which can be purchased with a given budget. D) The combinations of goods giving equal utility to a consumer.

C) Combinations of two goods which can be purchased with a given budget.

Suppose U.S. consumers only purchase food and a good called "all other goods". Food is plotted along the horizontal axis of the indifference map. If the income of consumers increases, what would happen? A) none of the above B) Makes the budget line steeper C) Parallel outward (rightward) shift D) Parallel inward (leftward) shift E) Makes the budget line flatter

C) Parallel outward (rightward) shift

A person is said to be in consumer equilibrium if she A) has an incentive to redirect her purchases. B) has diminishing marginal utility of money. C) equates marginal utilities per dollar spent. D) purchases only normal goo

C) equates marginal utilities per dollar spent.

Consumer equilibrium exists when an individual A) none of the other choices B) can be made better off by buying more of a normal good and less of an inferior good. C) has the same MU/P ratio for each of the goods he or she purchases. D) is receiving the same marginal utility from each of the goods he or she purchases. E) is receiving the same total utility from each of the goods he or she purchases.

C) has the same MU/P ratio for each of the goods he or she purchases.

If a person's income falls, his or her budget constraint moves A) outward away from the origin, and its slope remains the same. B) outward away from the origin, and its slope changes. C) inward toward the origin, and its slope remains the same. D) inward toward the origin, and its slope changes. E) none of the other choices

C) inward toward the origin, and its slope remains the same.

If a person is receiving greater utility per dollar from consuming one good than another, it follows that he or she is A) There is not enough information to answer the question. B) maximizing utility. C) not maximizing utility. D) maximizing disutility.

C) not maximizing utility.

The price of coffee is always equal to one-half the price of tea. When we plot the budget line for coffee and tea, coffee is plotted on the horizontal axis. What is the absolute value of the slope of this budget line? A) 2 B) We do not have enough information. C) -2 D) 1/2

D) 1/2

The slope of the budget constraint is always equal to the: A) Marginal rate of substitution. B) Income of the consumer. C) Reciprocal of the marginal utility of one good. D) Ratio of the price of one good to the price of the other good.

D) Ratio of the price of one good to the price of the other good.

Suppose for a consumer the marginal utility (MU) of bread is 20 utils and the MU of milk is 10 utils; the price of bread is $3 and the price of milk is $1. Given this, A) the consumer is in consumer equilibrium. B) the same amount of utility per dollar is gained from consuming milk as bread. C) more utility per dollar is gained from consuming bread than milk. D) more utility per dollar is gained from consuming milk than bread.

D) more utility per dollar is gained from consuming milk than bread.

Given two goods, X and Y, and their prices, PX and PY a consumer will maximize utility by allocating expenditures such that A) MUX = PX = MUY = PY = MU$. B) PY/MUX = PX/MUY. C) MUX = MUY = PX = PY = MU$. D) MUX/PY = MUY/PX. E) MUX/PX = MUY /PY.

E) MUX/PX = MUY /PY.