Deck 6: Appendix: Indifference Curves and Utility Maximization

Question 1

The marginal rate of substitution indicates

A) how much of one good a consumer is willing to give up to get one more unit of another good while remaining equally satisfied
B) how much of a good a consumer can receive for $1 while remaining equally satisfied
C) the tendency of a consumer to substitute lower-priced goods for a good whose price has increased
D) the limits of utility analysis
E) the basis of consumer surplus

Answer 1

A

Question 2

A consumer's indifference map is a depiction of

A) her preferences
B) her income
C) the prices of the two goods under consideration
D) the relative prices of the two goods under consideration
E) the prices of substitute and complement goods

Answer 2

A

Question 3

Exhibit 6-24
Which point in Exhibit 6-24 yields the greatest amount of total satisfaction?

A) point a
B) point b
C) point c
D) point d
E) point e

Answer 3

D

Question 4

The slope of an indifference curve is equal to the

A) marginal rate of substitution
B) price elasticity of demand
C) marginal utility of the good measured on the horizontal axis
D) marginal utility of the good measured on the vertical axis
E) relative price of the good measured on the horizontal axis

Question 5

All combinations of Pepsi and coffee that yield Geraldo the same satisfaction lie along a particular

A) demand curve
B) marginal utility curve
C) budget line
D) income-consumption curve
E) indifference curve

Question 6

Exhibit 6-23
In Exhibit 6-23, the marginal rate of substitution of food for clothing between points a and b equals

A) 1/3
B) 6/5
C) 3
D) 6
E) 100

Question 7

A curve representing combinations of two goods that yield equal total utility is a(n)

A) production possibilities frontier
B) demand curve
C) supply curve
D) marginal utility curve
E) indifference curve

Question 8

According to the law of diminishing marginal rate of substitution,

A) as consumption of good A increases, other things constant, its marginal utility declines
B) as consumption of good A increases, other things constant, one is willing to give up increasing amounts of good B to get another unit of good A
C) as consumption of good A increases, other things constant, the amount of good B one is willing to give up to get another unit of good A falls
D) the indifference curve's slope increases as more of the good on the horizontal axis is consumed
E) indifference curves intersect when marginal utilities fall

Question 9

Along indifference curve I₁ in Exhibit 6-24 which point would an individual prefer?

A) point a
B) point b
C) point e
D) point f
E) prefers all equally

Question 10

All combinations of goods along the same indifference curve have the same cost to a consumer.

Question 11

Which of the following is not a characteristic of indifference curves?

A) They do not intersect.
B) They are bowed out from the origin.
C) They slope downward.
D) Total utility on each curve is constant.
E) Total utility levels are greater on curves that are farther from the origin.

Question 12

All combinations of goods along the same indifference curve represent the same level of utility.

Question 13

Exhibit 6-23
In Exhibit 6-23, the marginal rate of substitution of clothing for food between points b and c is

A) unable to be determined
B) 2
C) 1/3
D) less than 1/3
E) 0

Question 14

An indifference curve shows

A) combinations of goods that provide the same utility
B) combinations of goods that can be purchased with the same budget
C) combinations of goods that yield the same level of profit
D) the relationship between price and utility
E) the relationship between utility and profits

Question 15

__________ utility is constant along a given indifference curve.

A) Marginal
B) Average
C) Total
D) Incremental
E) Mean

Question 16

Exhibit 6-23
In Exhibit 6-23, the marginal rate of substitution of food for clothing between points b and c is

A) unable to be determined
B) 2
C) 3
D) more than 3
E) 0

Question 17

Which point on curve I₁ in Exhibit 6-24 yields the most utility?

A) point a
B) point b
C) point e
D) point f
E) All points on curve I₁ yield the same utility.

Question 18

Exhibit 6-23
In Exhibit 6-23, the marginal rate of substitution of clothing for food between points a and b equals

A) 1
B) 2
C) 1/3
D) 5/6
E) 100

Question 19

Exhibit 6-22
If a consumer moves from point a to point b on the indifference curve shown in Exhibit 6-22,

A) the consumer's total utility from food and books remains unchanged
B) the consumer's total utility from food and books falls
C) the consumer becomes more willing to give up additional units of books in order to consume one more unit of food
D) the consumer's willingness to give up additional units of books in order to consume more units of food does not change
E) the consumer's total utility from food and books rises

Question 20

Exhibit 6-22
If a consumer moves from point a to point b on the indifference curve shown in Exhibit 6-22,

A) the marginal rate of substitution between books and movies falls
B) the marginal rate of substitution between books and movies stays the same
C) the marginal rate of substitution between books and movies increases
D) the marginal rate of substitution between books and movies becomes negative
E) the marginal rate of substitution between books and movies becomes zero

Question 21

Deep Check
Which of the following is true of Exhibit 6-25?

A) Points a, c, and e would all cost the same amount to purchase.
B)
B)
B) Points a, b, and c all represent the same level of utility, which is higher than that represented by points d, e, and
C) Points a, c, and e all represent the same level of utility, which is lower than that represented by point

Question 22

A curve that shows the combination of goods that a consumer is able to purchase by spending all of her income is called a(n)

A) income-consumption curve
B) income-allocation curve
C) budget line
D) indifference curve
E) budget-indifference curve

Question 23

Suppose Norm really loves coffee and Diane really loves books. If we drew their indifference curves on a graph with books on the horizontal axis and coffee on the vertical axis, Diane's indifference curves would be

A) the same as Norm's
B) upward sloping, and Norm's would be downward sloping
C) downward sloping, and Norm's would be upward sloping
D) steeper than Norm's
E) flatter than Norm's

Question 24

Which of the following represents a correct preference ordering for the indifference map represented in Exhibit 6-24?

A) point a, b, e
B) point b, c, d
C) point d, c, a
D) point d, a, b
E) point c, a, f

Question 25

Which of the combinations of Good A and Good B in Exhibit 6-24 would an individual prefer?

A) point a
B) point b
C) point d
D) point e
E) point f

Question 26

If a consumer purchases only one good, she must be on either the vertical or the horizontal intercept of her budget line.

Question 27

At point b in Exhibit 6-25, the consumer's utility is

A) higher than at points a and c, but the total cost of the goods is the same
B) the same as at points a and c, but the total cost of the goods is lower
C) the same as at points a and c, but the total cost of the goods is higher
D) lower than at points a and c, and so is the total cost of the goods
E) higher than at points a and c, and so is the total cost of the goods

Question 28

A consumer can afford to move between any two points on his current budget line.

Question 29

Point e in Exhibit 6-25 is better than which other point?

A) Point a because e represents the same utility at a lower level of expenditure.
B) Point a because e represents higher utility at the same level of expenditure.
C) Point b because e represents the same utility at a lower level of expenditure.
D) Point b because e represents higher utility at the same level of expenditure.
E) Point a because e represents higher utility at a lower level of expenditure.

Question 30

Which of the following points in Exhibit 6-25 represent combinations of goods that cost the consumer the same amount of money to purchase?

A) points a, b, and c
B) points d, e, and f
C) points a, e, and c
D) points d, b, and f
E) points b and e

Question 31

Which of the following illustrates the concept of "more is better"?

A) An increase in income shifts the budget line to the right.
B) Consumers moving along an indifference curve.
C) Higher indifference curves yield higher utility.
D) Budget lines closer to the origin represent lower income.
E) Sam's indifference curves are steeper than Frazier's.

Question 32

The slope of the budget line is measured in units of income.

Question 33

An indifference curve slopes downward to the right because

A) more goods are preferable to less
B) goods are substitutes for each other
C) the consumer has a limited income
D) the opportunity costs of goods differ
E) of the budget constraint

Question 34

An increase in income is represented by a shift of the budget line outward to a parallel position.

Question 35

Point b in Exhibit 6-25 is better than which other point(s)?

A) Points a and c because b represents the same utility at a lower level of expenditure.
B) Points a and c because b represents higher utility at the same level of expenditure.
C) Points a and c because b represents higher utility at a lower level of expenditure.
D) Point e only because b represents a lower level of expenditure.
E) All other points on the graph.

Question 36

All combinations of goods along the same budget line represent the same level of utility.

Question 37

All combinations of goods along a budget line are affordable with a given level of income.

Question 38

The slope of a budget line is positive.

Question 39

Deep Check
Which of the following is true of Exhibit 6-25?

A) Points a, b, and c all represent the same level of utility, which is lower than that represented by points d, e, and
B)
B)
B) Points a, b, and c all represent the same level of utility, which is higher than that represented by points d, e, and
C) Points a, c, and e all represent the same level of utility, which is lower than that represented by point

Question 40

A line that shows the combinations of two goods that can be purchased with a given income is called a(n)

A) indifference curve
B) budget line
C) demand curve
D) supply curve
E) price floor

Question 41

If a candy bar sells for 50 cents and video games are 25 cents each, the horizontal (candy) intercept of Ann's budget line is 12 and the vertical (video game) intercept of Ann's budget line is 24. Giving up one video game makes it possible for Ann to afford

A) 2 fewer candy bars
B) half of an additional candy bar
C) 2 more candy bars
D) 12 more candy bars
E) 24 more candy bars

Question 42

A candy bar sells for 50 cents, video games are 25 cents each, the horizontal (candy) intercept of Ann's budget line is 12, and the vertical (video game) intercept of Ann's budget line is 24. If Ann's income increased to $20, the vertical intercept would be

A) $4
B) $2
C) 20
D) 40
E) 80

Question 43

A candy bar sells for 50 cents, video games are 25 cents each, the horizontal (candy) intercept of Ann's budget line is 12, and the vertical (video game) intercept of Ann's budget line is 24. Which of the following best describes what would happen to the budget line if Ann's income increased?

A) It would shift rightward to a parallel position.
B) It would shift rightward to a nonparallel position.
C) It would shift leftward to a parallel position.
D) It would shift leftward to a nonparallel position.
E) Nothing.

Question 44

The slope of a budget line equals minus the ratio of the

A) marginal utilities of the goods indicated on the two axes
B) total utilities of the goods indicated on the two axes
C) lowest possible consumption levels for each of the goods indicated on the two axes
D) prices of the goods indicated on the two axes
E) sum of the prices of the goods indicated on the two axes and the budget

Question 45

A candy bar sells for 50 cents, video games are 25 cents each, the horizontal (candy) intercept of Ann's budget line is 12, and the vertical (video game) intercept of Ann's budget line is 24. If Ann's income increased to $20, the horizontal intercept would be

A) $4
B) $2
C) 20
D) 40
E) 80

Question 46

A family on a trip budgets $800 for restaurant meals and fast food. The family can buy 16 restaurant meals if they buy no fast-food meals. What is the price of a restaurant meal for the family?

A) $5
B) $16
C) $20
D) $50
E) it is impossible to tell from the information given

Question 47

Which of the following can be thought of as the consumer's consumption possibilities frontier?

A) the consumer's marginal utility
B) the consumer's total utility
C) the consumer's budget line
D) the consumer's indifference curve
E) the consumer's demand curve

Question 48

A family on a trip budgets $200 for restaurant meals and fast food. The family can buy 20 restaurant meals if they don't buy any fast-food meals. What is the vertical intercept of the budget line when fast food is measured on the horizontal axis?

A) 1/20
B) 200
C) 10
D) 20
E) $400

Question 49

If a candy bar sells for 50 cents and video games are 25 cents each, the horizontal (candy) intercept of Ann's budget line is 12 and the vertical (video game) intercept of Ann's budget line is 24. Giving up one candy bar makes it possible for Ann to afford

A) 2 fewer video games
B) half an additional video game
C) 2 more video games
D) 12 more video games
E) 24 more video games

Question 50

A family on a trip budgets $200 for restaurant meals and fast food. If the price of a fast-food meal for the whole family is $20, what is the vertical intercept of the budget line when fast food is measured on the horizontal axis?

A) 10
B) 20
C) 200
D) 400
E) it is impossible to tell from the information given

Question 51

The slope of a budget line with x on the vertical axis and y on the horizontal axis equals

A) (-income/P_x) / (income/P_y)
B) (income - P_x) / (income - P_y)
C) (income + P_x) / (income + P_y)
D) (P_x - P_y) / (P_x + P_y)
E) (P_x + P_y) / (P_y - P_x)

Question 52

Chris budgets $30 this week for spending on his two favorite things, pizza and movies. The price of a movie is $5. Moreover, he could buy 3 pizzas if he doesn't go to the movies. If pizza is on the horizontal axis, what is the slope of the budget line?

A) 2
B) -1/2
C) -1/3
D) 1/3
E) -2

Question 53

A family on a trip budgets $800 for restaurant meals and fast food. If the price of a fast-food meal for the whole family is $20, how many meals can the family buy if they don't eat at restaurants?

A) 8
B) 15
C) 20
D) 40
E) 160

Question 54

A candy bar sells for 50 cents, video games are 25 cents each, the horizontal (candy) intercept of Ann's budget line is 12, and the vertical (video game) intercept of Ann's budget line is 24. Which of the following best describes what would happen to the budget line if Ann's income decreased?

A) It would shift rightward to a parallel position.
B) It would shift rightward to a nonparallel position.
C) It would shift leftward to a parallel position.
D) It would shift leftward to a nonparallel position.
E) Nothing.

Question 55

Within the framework of indifference curve analysis, what prevents the individual from purchasing more of all goods?

A) Legal prohibitions
B) Budget constraint
C) The slope of the indifference curve
D) Psychological considerations
E) Diminishing marginal utility

Question 56

A candy bar sells for 50 cents, video games are 25 cents each, the horizontal (candy) intercept of Ann's budget line is 12, and the vertical (video game) intercept of Ann's budget line is 24. The slope of the budget line is

A) -50
B) -25
C) -1/2
D) -2
E) -$120

Question 57

A family on a trip budgets $200 for restaurant meals and fast food. If the price of a fast-food meal for the whole family is $20, what is the horizontal intercept of the budget line when fast food is measured on the horizontal axis?

A) 100
B) 10
C) 20
D) 400
E) it is impossible to tell from the information given

Question 58

A candy bar sells for 50 cents, video games are 25 cents each, the horizontal (candy) intercept of Ann's budget line is 12, and the vertical (video game) intercept of Ann's budget line is 24. Ann's income must be

A) $3
B) $6
C) $12
D) $24
E) $36

Question 59

If a consumer's income rises,

A) her indifference curves shift inward
B) her indifference curves shift outward
C) her budget line shifts outward
D) her budget line shifts inward
E) the slope of her budget line increases

Question 60

Assume that you divide your food budget between fish and chicken. Which of the following would not alter the position of a budget line drawn with fish on the horizontal axis and chicken on the vertical axis?

A) an increase in the price of fish
B) a decrease in the price of chicken
C) a change in your preference for fish
D) an increase in your food budget
E) an increase in the price of fish combined with an increase in your food budget

Question 61

If a good is offered to a rational individual for free, she will

A) accept unlimited quantities of the good each time period
B) stop consuming it when its marginal utility begins to increase
C) stop consuming it when its marginal utility begins to diminish
D) stop consuming it when its marginal utility equals zero
E) stop consuming it when its total utility equals zero

Question 62

Exhibit 6-26
Consider Exhibit 6-26. Three budget lines are shown. Which of the following statements is true about the budget lines?

A) Budget line B₂ reflects the same income and price for DVDs as budget line B₁ but a higher price for books.
B) Budget line B₃ reflects a higher income but the same price for both books and DVDs as budget line B₂.
C) Budget line B₃ reflects higher income and the same prices for both books and DVDs as budget line B₁.
D) Budget line B₁ reflects lower income than budget line B₂.
E) Budget line B3 reflects a lower price ration than budget line B₃.

Question 63

Economists assume that, within a given budget, consumers will

A) maximize average utility
B) minimize average utility
C) maximize total utility
D) face diminishing total utility after consuming the first unit of a good
E) continue to consume a good until its utility is negative

Question 64

At consumer equilibrium between goods F and C, all of the following statements is true except one. Which is the exception?

A) MU_F/MU_C = P_F/P_C
B) MRS = -P_F/P_C
C) MRS = the absolute value of the slope of the budget line
D) utility is maximized subject to the budget constraint
E) P_F/P_C = TU_F/TU_C

Question 65

Exhibit 6-29
Which graph in Exhibit 6-29 shows the effect of a decrease in the price of clothing, other things constant?

A) Graph a
B) Graph b
C) Graph c
D) Graph d
E) Graph e

Question 66

A consumer maximizes utility where the

A) budget line intersects an indifference curve
B) budget line is tangent to an indifference curve
C) distance between the budget line and an indifference curve is greatest
D) indifference curve farthest from the origin intersects the budget line twice
E) area between the indifference curve and the budget line is the greatest

Question 67

Imagine a budget line between two goods, A and B. If both prices triple while income doubles,

A) the budget line stays the same
B) the budget line rotates clockwise
C) the budget line rotates counterclockwise
D) the budget line shifts outward
E) the budget line shifts toward the origin

Question 68

Exhibit 6-29
Which graph in Exhibit 6-29 shows the effect of an increase in the price of clothing, other things constant?

A) Graph a
B) Graph b
C) Graph c
D) Graph d
E) Graph e

Question 69

Which of the following statements about indifference curves is not true?

A) The consumer is indifferent among the combinations illustrated along a given curve.
B) Every indifference curve intersects the consumer's budget line at least once.
C) Indifference curves slope downward.
D) Indifference curves are concave (bowed in toward the origin).
E) Indifference curves do not intersect.

Question 70

If the price of apples falls, the substitution effect will cause a consumer to reduce her consumption of apples.

Question 71

If two goods have the same price, a consumer will buy equal quantities of those two goods.

Question 72

Exhibit 6-27
Consider Exhibit 6-27. The rotation of the budget line from AB to AC represents a(n)

A) increase in the price of clams
B) increase in the price of mussels
C) decrease in the price of clams
D) decrease in the price of mussels
E) increase in the amount the consumer can spend

Question 73

A rotation of the budget line indicates a change in the price of one of the goods under consideration.

Question 74

Which of the following would not cause the budget line between books and food to shift?

A) A fall in the price of books.
B) A fall in the price of food.
C) A change in the consumer's preferences.
D) A fall in income.
E) A fall in income coupled with a rise in the price of food.

Question 75

Only a change in income can affect a consumer's budget line.

Question 76

If the marginal utilities per dollar are not equal among the final set of goods Joe is planning to consume, he can increase his total utility by changing the amounts of what he intends to purchase.

Question 77

Exhibit 6-28
The rotation of the budget line in Exhibit 6-28 from AC to AB represents a(n)

A) increase in the price of clams
B) increase in the price of mussels
C) decrease in the price of clams
D) decrease in the price of mussels
E) increase in the amount the consumer can spend

Question 78

Exhibit 6-27
The rotation of the budget line in Exhibit 6-27 from AC to AB represents a(n)

A) increase in the price of clams
B) increase in the price of mussels
C) decrease in the price of clams
D) decrease in the price of mussels
E) increase in the amount the consumer can spend

Question 79

If a consumer allocates income between goods x and y, consumer equilibrium occurs when

A) the indifference curve farthest from the origin is reached
B) MU_x/P_x = MU_y/P_y and the budget is exhausted
C) marginal utility is maximized
D) MU_x = MU_y for the last unit consumed of each good
E) consumer surplus equals 0

Question 80

Exhibit 6-28
The rotation of the budget line in Exhibit 6-28 from AB to AC represents

A) an increase in the price of clams
B) an increase in the price of mussels
C) a decrease in the price of clams
D) a decrease in the price of mussels
E) an increase in the amount the consumer can spend