Deck 4: Principles and Preferences

Question 1

Refer to Table 4.1.If Mike starts with 3 CDs and 2 economics books,would he be willing to trade one CD for an economics book?

A) Yes, because the bundle with 2 CDs and 3 economics books is ranked higher than the bundle with 3 CDs and 2 economics books
B) No, because the bundle with 2 CDs and 3 economics books is ranked higher than the bundle with 3 CDs and 2 economics books
C) Yes, because the bundle with 3 CDs and 2 economics books is ranked higher than the bundle with 2 CDs and 3 economics books
D) No, because the bundle with 3 CDs and 2 economics books is ranked higher than the bundle with 2 CDs and 3 economics books

Answer 1

No, because the bundle with 3 CDs and 2 economics books is ranked higher than the bundle with 2 CDs and 3 economics books

Question 2

If the more-is-better principle holds,two consumption bundles can't be equally attractive unless

A) They contain the same amounts of each good
B) The consumer is unable to rank both bundles
C) In giving up some of one good, the consumer is given more of another good
D) They each cost the same amount to purchase

Answer 2

In giving up some of one good, the consumer is given more of another good

Question 3

The idea that all potentially available alternatives can be ordered according to a consumer's preferences is called

A) The consumption principle
B) The ranking principle
C) The choice principle
D) The more-is-better principle

Answer 3

The ranking principle

Question 4

If two consumption bundles lie on the same indifference curve,then

A) The consumer prefers the bundle that is farthest from the origin
B) The consumer does not prefer one bundle over the other
C) The consumer prefers the bundle that is farthest to the right on the indifference curve
D) The consumer prefers the bundle that is farthest to the left on the indifference curve

Question 5

The decisions consumers make about which goods to consume are interrelated because

A) The enjoyment of one good often depends on the consumption of other goods
B) Consumers have perfect information regarding all possible consumption bundles
C) Consumers can't always distinguish between goods
D) Consumers are often indifferent between different goods

Question 6

Teresa consumes both steak and lobster.Suppose the formula for her indifference curves is S = U - 1.5L,where S stands for the number of steaks,L stands for the number of lobsters and U represents utility.Which of the following bundles would Teresa prefer?

A) 10 steaks and 4 lobsters
B) 9 steaks and 5 lobsters
C) 12 steaks and 2 lobsters
D) There is not enough information to answer the question

Question 7

According to the more-is-better principle,

A) A consumer will always select the bundle that is ranked highest among all alternative bundles
B) A consumer will prefer a bundle that has the largest amount of the good they prefer most
C) Consumers always try to achieve the highest possible level of well-being
D) When comparing two consumption bundles, a consumer prefers the bundle that has more of every good

Question 8

According to Figure 4.1,which of the following statements is true?

A) Bundle A would be preferred to bundle C
B) Bundle A would be preferred to bundle B
C) Bundle C would be preferred to bundle D
D) Bundle B would be preferred to bundle A

Question 9

Refer to Table 4.1.If Mike starts with 4 CDs and 1 economics book,would he be willing to trade one CD for two economics books?

A) Yes, because the bundle with 3 CDs and 2 economics books is ranked higher than the bundle with 4 CDs and 1 economics book
B) No, because the bundle with 2 CDs and 3 economics books is ranked higher than the bundle with 4 CDs and 1 economics book
C) Yes, because the bundle with 4 CDs and 1 economics book is ranked higher than the bundle with 3 CDs and 2 economics books
D) No, because the bundle with 4 CDs and 1 economics book is ranked higher than the bundle with 3 CDs and 2 economics books

Question 10

Netflix.ca asks its customers to rate the videos they have watched.This information is then used to rank videos for other Netflix.ca subscribers.These subscribers can then use the video rankings to help them decide on a video to rent.Through this process,Netflix.ca is applying the

A) Ranking principle
B) Choice principle
C) More-is-better principle
D) The indifference principle

Question 11

When faced with all available alternatives,the consumer will select the one that is ranked the highest.This principle is called

A) The choice principle
B) The ranking principle
C) The consumption principle
D) The more-is-better principle

Question 12

Assume that if an individual prefers X to Y and prefers Y to Z.Then the consumer must also prefer X to Z.This property is called

A) Transitivity
B) Completeness
C) The ranking principle
D) The choice principle

Question 13

Assume that,when comparing two alternatives X and Y,the consumer either prefers X to Y,prefers Y to X or is indifferent between them.This property is called

A) Transitivity
B) Completeness
C) The ranking principle
D) The choice principle

Question 14

Which of the following is NOT a property of indifference curves?

A) Indifference curves are thin
B) Indifference curves may slope upward or downward
C) Indifference curves from the same family never cross
D) A consumer prefers to be on the indifference curve that is farthest from the origin

Question 15

A curve that shows all of the alternative consumption bundles that the consumer likes equally well is called

A) A budget constraint
B) An indifference curve
C) An individual demand curve
D) A consumption bundle curve

Question 16

A "bad" would be associated with

A) Zero marginal utility
B) A very small amount of marginal utility
C) Negative marginal utility
D) Positive marginal utility

Question 17

If the more-is-better principle holds,then indifference curves must

A) Be positively-sloped
B) Be negatively-sloped
C) Be thin
D) Be concave

Question 18

Suppose Addison is a big fan of jazz music and dislikes opera music.What would his family of indifference curves look like?

A) Negatively sloped, with higher levels of utility represented by indifference curves that are closer to the origin
B) Positively sloped, with higher levels of utility represented by indifference curves that are closer to the origin
C) Negatively sloped, with higher levels of utility represented by indifference curves that are farther from the origin
D) Positively sloped, with higher levels of utility represented by indifference curves that are farther from the origin

Question 19

Dane consumes both hamburgers and pizza.Suppose the formula for his indifference curves is H = U - 2P where H stands for the number of hamburgers,P stands for the number of pizzas and U represents utility.Which of the following statements is true?

A) Dane prefers a consumption bundle with 5 hamburgers and 4 pizzas to a consumption bundle with 10 hamburgers and 2 pizzas
B) Dane prefers a consumption bundle with 8 hamburgers and 3 pizza to a consumption bundle with 14 hamburgers and 1 pizzas
C) Dane is indifferent between a consumption bundle with 10 hamburgers and 2 pizzas and a consumption bundle with 8 hamburgers and 3 pizzas
D) Dane is indifferent between a consumption bundle with 5 hamburgers and 4 pizzas and a consumption bundle with 8 hamburgers and 3 pizzas

Question 20

Which of the following is NOT a reason why economists are interested in understanding consumer behavior?

A) Economists are often called upon to evaluate public policies that impact the well-being of consumers
B) It is important for businesses to be able to accurately predict consumers' choices
C) To understand the conditions under which trade will take place
D) To predict the value of a company's stock

Question 21

Refer to Figure 4.4.Which diagram most likely represents the indifference map for Sony PlayStation and Nintendo GameCube?

A) A
B) B
C) C
D) D

Question 22

As we move down and to the right along an indifference curve,the marginal rate of substitution

A) Increases
B) Decreases
C) Remains constant
D) Increases, then decreases

Question 23

Refer to Figure 4.2.The marginal rate of substitution for economics books with CDs is highest at point

A) A
B) B
C) C
D) D

Question 24

Suppose Joe's MRS for cookies with crackers is 6 crackers per cookie.Also assume that Mary's MRS for cookies with crackers is 3 crackers per cookie.Assuming that these rates of substitution don't depend on the amounts consumed,which of the following trades would make Joe and Mary better off?

A) Joe gives Mary 5 crackers in exchange for a cookie
B) Joe gives Mary 2 crackers in exchange for a cookie
C) Joe gives Mary 6 crackers in exchange for a cookie
D) There is not enough information to answer the question

Question 25

Suppose Bart's MRS for sodas with chips is 6 bags of chips per soda.Also assume that Lisa's MRS for sodas with chips is 8 bags of chips per soda.Assuming that these rates of substitution don't depend on the amounts consumed,which of the following trades would make Bart and Lisa better off?

A) Bart gives Lisa 9 bags of chips in exchange for a soda
B) Bart gives Lisa 7 bags of chips in exchange for a soda
C) Bart gives Lisa 6 bags of chips in exchange for a soda
D) No mutually beneficial trade can occur here

Question 26

Two products are perfect substitutes if

A) A consumer is willing to swap one for another at a fixed rate
B) They are valuable only when used together in fixed proportions
C) Their indifference curves are "L-shaped"
D) An increase in the price of one good causes a decrease in the demand for the other good

Question 27

Refer to Figure 4.3,which relates to two consumers shopping for a new car.Which of the following statements is true?

A) Fuel efficiency is more important to Gina than it is to Greg
B) Horsepower is just as important to Gina as it is to Greg
C) Fuel efficiency is more important to Greg than it is to Gina
D) Indifference curves cannot be used to compare consumers' tastes

Question 28

The marginal rate of substitution between two goods is given by

A) The inverse of the slope of an indifference curve
B) The slope of a line tangent to an indifference curve
C) Negative one times the inverse of the slope of an indifference curve
D) Negative one times the slope of a line tangent to an indifference curve

Question 29

A marginal rate of substitution formula tells us

A) The rate at which the consumer is willing to exchange one good for another, given the level of utility
B) The rate at which the consumer is willing to exchange one good for another, given the amounts consumed
C) The rate at which the consumer is willing to exchange one good for another, given the consumer's income
D) The rate at which the consumer is willing to exchange one good for another, given the prices of the goods

Question 30

For any given family of indifference curves,a consumer would prefer to be at a point

A) On the indifference curve that is closest to the origin
B) That is far to the right on an indifference curve
C) That is far to the left on an indifference curve
D) On the indifference curve that is farthest from the origin

Question 31

Refer to Figure 4.4.Which diagram most likely represents the indifference map for left shoes and right shoes?

A) A
B) B
C) C
D) D

Question 32

Suppose Frank is completely indifferent between drinking Coke and drinking Pepsi.Then Frank's indifference curves for Coke and Pepsi would be

A) Linear
B) L-shaped
C) Convex
D) Positively sloped

Question 33

Higher rates of substitution are indicated by _______ _______ values of the marginal rate of substitution.

A) Small negative
B) Large negative
C) Small positive
D) Large positive

Question 34

Suppose a consumer's MRS is given by the formula MRS_PT = T/P,where P stands for the number of pieces of pizza and T stands for the number of tacos.Starting at 12 tacos and 4 pizzas,the consumer must receive

A) 3 tacos to compensate them for the loss of one piece of pizza
B) 3 pieces of pizza to compensate them for the loss of one taco
C) 1/3 taco to compensate them for the loss of one piece of pizza
D) 1/3 piece of pizza to compensate them for the loss of one taco

Question 35

The slope of an indifference curve tells us

A) The marginal utility the consumer receives from consuming an additional unit of a good
B) How much of one good is required to compensate the consumer for giving up some of another good
C) The amount of utility a consumer receives from consuming a bundle of goods
D) The rate at which utility changes as more of one good is consumed

Question 36

The rate at which a consumer will exchange one good for another is called

A) Marginal utility
B) The marginal rate of transformation
C) The rate of substitutability
D) The marginal rate of substitution

Question 37

Rates of substitution are determined by

A) The consumer's income
B) The consumer's preferences
C) The number of available consumption bundles
D) The prices of different goods

Question 38

Intuitively,the marginal rate of substitution for X with Y does not tell us

A) How much Y a consumer needs to compensate them for a little less X
B) How much X must be taken away from a consumer to compensate them for an increase in Y
C) How much X a consumer needs to compensate them for a little less Y
D) How much more Y the consumer will buy if the price of Y increases

Question 39

Two products are perfect complements if

A) A consumer is willing to swap one for another at a fixed rate
B) They are valuable only when used together in fixed proportions
C) Their indifference curves are "straight lines."
D) They lie on the same indifference curve

Question 40

Refer to Figure 4.4.Which diagram most likely represents the indifference map for a good and a "bad"?

A) A
B) B
C) C
D) D

Question 41

Felix always consumes exactly four cookies with a glass of milk.Felix's indifference curves for cookies and milk would be

A) Linear
B) L-shaped
C) Convex
D) Positively sloped

Question 42

Information about preferences is ordinal if

A) The information tells us something about the intensity of the consumer's preferences
B) The information allows us to make comparisons between the preferences of different consumers
C) The information allows us to determine only whether one alternative is better or worse than another
D) The information allows us to make comparisons between the preferences of the same consumer at different points in time

Question 43

When there is a high degree of complimentarily between two products,then their indifference curves will

A) Be reasonably close to straight lines
B) Be perfectly straight lines
C) Bend sharply
D) Be positively sloped

Question 44

Ultimately,the opportunity for mutually beneficial trade between two individuals is based on

A) The marginal utilities each consumer derives from each good
B) The price each consumer is will to pay for each good
C) The degree of substitutability of each good
D) A comparison of the individuals' utility function

Question 45

If Anne receives more satisfaction as she consumes more shoes,then

A) The marginal utility of shoes is positive
B) The marginal utility of shoes is negative
C) The marginal utility of shoes is constant
D) The marginal utility of shoes is zero

Question 46

By itself,the marginal utility of a particular good

A) Provides important information about a consumer's preferences
B) Tells us how much a consumer would pay for the good
C) Tells us how much the consumer values the good
D) Is completely meaningless

Question 47

Which of the following statements regarding preferences and indifference curves is true?

A) When choosing between two consumption bundles, a consumer will always prefer the consumption bundle on the lower indifference curve
B) A consumer is indifferent between two consumption bundles that are on the same indifference curve
C) When choosing between two consumption bundles, a consumer will always prefer the consumption bundle that is farthest to the right on an indifference curve
D) When choosing between two consumption bundles, a consumer will always prefer the consumption bundle that is farthest to the left on an indifference curve

Question 48

Stewie enjoys watching DVDs and listening to his iPod.Suppose his utility function is given by U(D,I)= 3D + 4(D x I),where D is the number of hours he spends watching DVDs and I is the number of hours he spends listening to his iPod.Which of the following combination will provide Stewie with the greatest amount of satisfaction?

A) 4 hours of watching DVDs and 8 hours of listening to his iPod
B) 6 hours of watching DVDs and 6 hours of listening to his iPod
C) 2 hours of watching DVDs and 10 hours of listening to his iPod
D) 8 hours of watching DVDs and 6 hours of listening to his iPod

Question 49

If consuming more of a good doesn't affect a consumer's well-being,then

A) The marginal utility of the good is positive
B) The marginal utility the good is negative
C) The marginal utility the good is constant
D) The marginal utility the good is zero

Question 50

From the modern "ordinalist" perspective,the scale used to measure utility

A) Provides an absolute measure of human well-being
B) Is completely arbitrary
C) Summarizes information about the intensity of preferences
D) Is the same for each consumer

Question 51

When there is a low degree of complimentarily between two products,then their indifference curves will

A) Be reasonably close to straight lines
B) Be perfectly straight lines
C) Bend sharply
D) Be positively sloped

Question 52

Frieda enjoys cooking and baking.Her utility function is U(C,B)= 6C + 3B,where C is the number of hours she spends cooking and B is the hours she spends baking.What is Frieda's MRS of cooking with baking?

A) 1/6
B) 2
C) 6
D) Cannot be determined from the given information

Question 53

A utility function is a mathematical formula that assigns to each consumption bundle a numeric value that represents the

A) Opportunity cost of consuming the bundle
B) Consumer's relative well-being from consuming the bundle
C) Price the consumer would pay for the bundle
D) Rates of substitution of the goods in the bundle

Question 54

Marginal utility

A) Is the change in a consumer's utility resulting from the addition of a very small amount of some good
B) Is the total utility a resulting from consuming some good, divided by the amount consumed
C) Is the change in a consumer's utility resulting from the addition of a very small amount of some good, divided by the amount added
D) Is the change in a consumer's utility resulting from the addition of a very small amount of some good, divided by the total amount being consumed

Question 55

When the more-is-better principle holds,we assign higher utility values to indifference curves

A) That are closer to the origin
B) That are farther from the origin
C) That are concave
D) That are L-shaped

Question 56

According to influential moral philosopher Jeremy Bentham,

A) Utility functions should provide cardinal information about preferences
B) The aim of public policy should maximize an individual's utility
C) Utility functions should provide ordinal information about preferences
D) Public policy decisions should be based on ordinal utility

Question 57

Frieda enjoys cooking and baking.Her utility function is U(C,B)= 6C + 3B,where C is the number of hours she spends cooking and B is the hours she spends baking.What is Frieda's MU of cooking?

A) 1/6
B) 2
C) 6
D) Cannot be determined from the given information

Question 58

Which of the following correctly expresses the relationship between the marginal utilities of two goods and marginal rate of substitution between the goods?

A) MRS_XY = (MU_Y/MU_X)
B) MRS_XY = (MU_X/MU_Y)
C) MRS_XY = (U/∆X)
D) MRS_XY = (U/∆Y)

Question 59

In modern microeconomic theory,utility functions summarize

A) Cardinal information about preferences
B) Ordinal information about preferences
C) Absolute information about preferences
D) Both cardinal and ordinal information about preferences

Question 60

From the modern "ordinalist" perspective,when we change the scale used to measure utility,

A) The consumer's indifference curves remain unchanged
B) The consumer's indifference curves will shift in the same direction as the change in the scale used to measure utility
C) The consumer's indifference curves will shift in the opposite direction as the change in the scale used to measure utility
D) Consumers will "move along" their indifference curves

Question 61

Using a carefully-labeled graph,explain the concept of declining marginal rate of substitution.Why would we expect indifference curves to exhibit this characteristic?

Question 62

Compare and contrast cardinal utility and ordinal utility.Which concept is sufficient for ranking consumers' preferences? Why?

Question 63

Suppose that Frank is considering giving Mike eight paper back books in exchange for 2 CDs.Explain the conditions under which this trade would be mutually beneficial.Also explain the conditions under which Frank and Mike won't make the trade.

Question 64

Consider two activities: Attending economics class and reading an economics textbook.Zack thinks he can learn economics by either attending class or reading the textbook.Zoe knows she learns best by both attending class and reading the textbook.Use indifference curves to illustrate each person's preferences for attending class and reading the text.

Question 65

Refer to carefully-labeled diagrams to explain each of the following:
a)Indifference curves are thin.
A. Thus, crossing indifference curves lead to a contradiction.
B. The consumer is also indifferent between bundles B and
C. But bundle C contains more of both goods and is therefore preferred to bundle
C. This implies that the consumer should be indifferent between bundles A and

Question 66

Homer and Marge both enjoy lasagna and wine.Homer's utility function is given by U(L.W)= 12L + 4W.Marge's utility function is given by U(L,W)= 2L + 2W.In each function,L stands for plates of lasagna and W stands for glasses of wine.Would Homer and Marge agree to a trade in which Homer gives Marge a plate of lasagna in exchange for two glasses of wine?

Question 67

Harriet enjoys watching both American Idol and Desperate Housewives on television.Her preferences correspond to the utility function U(A,D)= 2A + 4ÖD,where A stands for the number of hours she watches American Idol and D is the number of hours she watches Desperate Housewives.
a)How would Harriet rank the following alternatives: 4 hours of American Idol and 2 hours of Desperate Housewives,2 hours of American Idol and 4 hours of Desperate Housewives and 3 hours of American Idol and 3 hours of Desperate Housewives?
b)Suppose that one week,Desperate Housewives is not shown,but there is a two-hour American Idol special (instead of the usual one-hour program).Is Harriet better off or worse off? Explain.
c)Would Harriet's preferences change if her utility function was expressed as U(A,D)= 2A + 4ÖD + 6? Why or why not?