Question 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

Accepted Answer

Choosing to purchase more of all goods is not a tradeoff because it does not involve giving up one option for another. Tradeoffs involve making choices between different options, and in this case, there is no alternative option being considered.

Question 2

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.

Accepted Answer

The budget constraint represents all the possible combinations of popcorn and butter that Fiona can afford with her income, given the prices of popcorn and butter. The slope of the budget constraint (i.e. the price of popcorn relative to the price of butter) is constant, which means that the relative prices of popcorn and butter are the same at any point on the budget constraint. Therefore, D is the best choice.

Question 3

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.

Accepted Answer

This is because the budget constraint represents all the combinations of books and games that Andi can purchase with her income. Therefore, at any point on the budget constraint, Andi is spending all of her income on books and games. Option B is incorrect because it assumes that books and games are equally priced, which may not necessarily be the case. Option C is also incorrect because the budget constraint does not provide information on the relative prices of books and games; it only shows how much of each Andi can buy at different price combinations.

Question 4

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.

Accepted Answer

The answer of On a graph we draw a consumer's...

Question 5

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.

Accepted Answer

The relative price of the two goods can be represented by the slope of the budget constraint, which shows the rate at which the consumer can trade one good for the other while maintaining the same level of total expenditure. The marginal rate of substitution, on the other hand, represents the rate at which the consumer is willing to trade one good for the other while maintaining the same level of utility. While the relative price and the marginal rate of substitution are related concepts, they are not equivalent. The rate at which the consumer is willing to trade goods to maintain utility depends on preferences, while the relative price depends on market conditions. Choice B is similar to the marginal rate of substitution and not to the relative price. Therefore, the correct answer is C.

Question 6

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

Accepted Answer

We can start by using the budget constraint equation: 
2(200) + 8x = 1000, where x is the number of servings of spaghetti.
Simplifying this equation, we get: 
400 + 8x = 1000 
8x = 600 
x = 75 
Therefore, Bill purchases 75 servings of spaghetti. Option B is the correct answer.

Question 7

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.

Accepted Answer

The answer of On a graph we draw a consumer's...

Question 8

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

Accepted Answer

The answer of Grace consumes two goods: iced tea and...

Question 9

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.

Accepted Answer

The answer of Suppose the only two goods that Charlie...

Question 10

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.

Accepted Answer

The answer of Which of the following statements is necessarily...

Question 11

​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

Accepted Answer

The answer of ​Suppose Raul has budgeted $100 of his...

Question 12

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.

Accepted Answer

Lorenzo's original budget constraint can be found by multiplying the quantity of wine (6 bottles) by its price ($10) and adding it to the product of cheese quantity (4 pounds) and its price ($10). Therefore, his original budget constraint equation is:
6($10) + 4($10) = $100
Simplifying it gives the equation for the original budget constraint:
6w + 4c = 100
where w is the quantity of wine and c is the quantity of cheese. Therefore, the slope of his original budget constraint can be found by solving for c in terms of w:
4c = 100 - 6w
c = 25 - 1.5w
This gives a slope of -1.5.

After the price change, the budget constraint equation becomes:
6($5) + 4($20) = $100
Simplifying it gives the equation for the new budget constraint:
6w + 4c = 120
where w is the quantity of wine and c is the quantity of cheese. Solving for c in terms of w gives:
4c = 120 - 6w
c = 30 - 1.5w
This gives a slope of -1.5, which is the same as the slope of the original budget constraint. However, since the price of cheese has increased and the price of wine has decreased, the budget constraint rotates inward around the cheese axis, making the budget constraint steeper (i.e., the absolute value of the slope increases). Therefore, the correct answer is (C).

Question 13

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.

Accepted Answer

The theory of consumer choice helps us understand demand by examining how consumers make choices about the products they purchase based on their preferences and budget constraints. It allows us to analyze how changes in price or income may affect the quantity demanded for a good or service.

Question 14

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.

Accepted Answer

The answer of Suppose a consumer consumes two goods, X...

Question 15

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.

Accepted Answer

At the original prices, 4 bottles of gin would have cost 4 x $7 = $28, and 2 jars of cocktail olives would have cost 2 x $6 = $12, for a total cost of $28 + $12 = $40.

After the price changes, 4 bottles of gin cost 4 x $9 = $36, and 2 jars of cocktail olives cost 2 x $5 = $10, for a total cost of $36 + $10 = $46.

Since Gerald's income is fixed at $46, he can no longer afford to buy 4 bottles of gin and 2 jars of cocktail olives at the new prices. However, at the original prices, this combination of purchases would have cost less than his income, therefore, the best choice is option C - cost less than his income, since this means that he could still afford to buy other goods or save some money.

Question 16

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.

Accepted Answer

The slope of the budget line represents the rate at which the consumer can trade one good for the other. A slope of -2 means that the consumer gives up two units of good Y for each unit of good X she purchases. This means that good Y is twice as expensive as good X (choice A) and the opportunity cost of good X is two units of good Y (not one half, as stated in choice C).

Question 17

Suppose an individual is choosing between Netflix and Redbox movies. He has $16 a month to spend on movies. The price of a Redbox movie is $1 while Netflix offers unlimited movies for a monthly fee of $8. Which of the following represents this individual's budget line?
A)​ 
B)​ 
C)​ 
D)​

Accepted Answer

The answer of Suppose an individual is choosing between Netflix...

Question 18

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.

Accepted Answer

All three questions relate to microeconomic theory. The first question is about the law of demand, which states that as the price of a good or service increases, the quantity demanded decreases. The second question is about labor supply decisions, which are influenced by wage rates. The third question is about the relationship between interest rates and the decision to save money, which is a key aspect of consumer choice theory.

Question 19

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.

Accepted Answer

The answer of If the relative price of a concert...

Question 20

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.

Accepted Answer

The slope of the budget constraint is determined by the ratio of the two prices. Before the price changes, the slope was -7/6, which means it costs 7/6 dollars of gin to buy one jar of olives. After the price changes, the slope becomes -9/5, which means it now costs 9/5 dollars of gin to buy one jar of olives. Since the absolute value of 9/5 is less than the absolute value of 7/6, the budget constraint becomes flatter after the price changes.

Quiz 21: The Theory of Consumer Choice

Which of the following does not represent a tradeoff facing a consumer?

Fiona uses all of her income to purchase popcorn and butter. At any two points A and B on Fiona's budget constraint,

Andi uses all of her income to purchase books and games. At any two points A and B on Andi's budget constraint,

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

Suppose a consumer consumes two goods, X and Y. The relative price of the two goods equals the

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?

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

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?

Which of the following statements is necessarily true regarding a point along a budget line?​

​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?

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

Suppose a consumer consumes two goods, X and Y. The slope of the budget constraint equals the

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?​

Suppose an individual is choosing between Netflix and Redbox movies. He has $16 a month to spend on movies. The price of a Redbox movie is $1 while Netflix offers unlimited movies for a monthly fee of $8. Which of the following represents this individual's budget line?

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?

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

Which of the following statements is necessarily true regarding a point along a budget line?

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?

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?