Microeconomics Chapter 3

Refer to the graph below. When the price of good X falls, the new point for the most optimal choice of combinations is point

b.

Refer to the graph below. Which point cannot be reached by the consumer?

d

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

false

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

Examine the graph below. If the price of good X is $1, and the consumer is using budget constraint 1, the price of good Y must be $2.

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

If the price of good X falls, the consumer's new budget constraint will pivot inward on the y-axis as shown in the constraint below.

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

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.

Examine the graph below. The budget for this consumer is

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.

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

point a.

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

points A and D.

Refer to the graph below. If the consumer is initially at point b, she should

purchase more soda and less ice cream.

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

Examine the budget constraint below. If the consumer has a budget of $12, the price of good X must be

$1 each.

Examine this consumer's budget constraint. If this consumer has a budget of $12, the price of good Y must be

$1.50 each.

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.

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.

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

shifts inward.

Examine the graph below. If the price of good X is $10, the price of good Y must be

$8.

Refer to the graph below. If the price of good Y increases, the budget constraint moves from

1 to either 2 or 3.

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.

Refer to the graph below. If the price of good X increases from $1 to $2, the consumer is able to purchase a maximum of

2 units of good X.

Examine this budget constraint for a consumer who has an income of $12. The slope of this constraint is

2/3.

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.

Examine this consumer's budget constraint. A possible combination of goods X and Y that the consumer could choose is

All the above combinations are possible.

What does the demand curve in graph the lower graph represent?

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

Refer to the graph below. The movement from budget constraint 1 to budget constraint 2 is caused by

An increase in the price of good X and a decrease in the price of good Y

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. (The consumer substitutes the relatively lower priced apples for candy bars, according to the law of demand. In the process, the consumer is maximizing utility by reallocating spending to apples.)

Examine a consumer's indifference map for goods X and Y. This consumer would select combination

C.

Examine the consumer's indifference map and budget constraint. Assume that the consumer is choosing combination C. If the consumer's income falls, she will choose combination

F.

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.

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

a and b

Refer to the graph below. A movement from budget constraint 3 to budget constraint 1 is caused by

a decrease in the price of good Y.

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 together.

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.)

The slope of the budget constraint tells us

both B and C.

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.

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

c.

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.

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

shifts outward away from the origin.

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

is different for each bundle.

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.

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

less than

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.

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.