Question 1

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

Accepted Answer

The answer of If a good is offered to a...

Question 2

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.

Accepted Answer

Budget line B₃ reflects higher income and the same prices for both books and DVDs as budget line B₁, indicating a parallel shift outward due to increased income.

Question 3

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

Accepted Answer

Economists assume that consumers will try to maximize their total utility, or the total satisfaction they receive from consuming all units of a good. This is because consumers seek to maximize their overall well-being and enjoyment from their limited budget.

Question 4

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

Accepted Answer

This statement is not true at consumer equilibrium between goods F and C. The correct statement is P_F/P_C = MU_F/MU_C, which is the condition for maximizing utility subject to the budget constraint. The other statements are all true at consumer equilibrium between goods F and C.

Question 5

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

Accepted Answer

Graph b shows a downward shift in the demand curve due to a decrease in price, leading to an increase in quantity demanded. This is because a lower price for clothing makes it more affordable, increasing the willingness and ability of people to buy more of it.

Question 6

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

Accepted Answer

A consumer maximizes utility where the budget line is tangent to an indifference curve. This is because at that point, the consumer is consuming the combination of goods that gives them the highest level of utility, while still staying within their budget constraint. If the consumer were to move away from the tangent point, either the utility level or the total expenditure would decrease, so the tangent point represents the optimal consumption choice.

Question 7

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

Accepted Answer

When both prices triple and income only doubles, the consumer's purchasing power decreases, causing the budget line to shift inward toward the origin.

Question 8

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

Accepted Answer

Graph a shows a decrease in the quantity demanded of clothing in response to an increase in price, indicating an inverse relationship between price and quantity demanded, which is consistent with the law of demand. The other graphs do not show this relationship.

Question 9

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.

Accepted Answer

The answer of Which of the following statements about indifference...

Question 10

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

Accepted Answer

The law of demand states that as the price of a good falls, the quantity demanded of that good increases, all else being equal. The substitution effect occurs when the price of a good changes relative to the price of other goods, causing consumers to switch to the cheaper option. Thus, if the price of apples falls, consumers are likely to buy more apples and less of other goods, which is the opposite of reducing their consumption of apples.

Question 11

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

Accepted Answer

A consumer's purchasing decision is not solely based on price but also factors like personal preference, availability, and quality. Additionally, the concept of marginal utility suggests that as a consumer continues to consume a good, their satisfaction decreases and they become less willing to pay the same price for more units of the same good. Therefore, a consumer may not necessarily buy equal quantities of two goods at the same price.

Question 12

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

Accepted Answer

The rotation of the budget line from AB to AC indicates that the price of clams has decreased because the consumer can now purchase more clams for the same amount of money.

Question 13

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

Accepted Answer

A rotation of the budget line is caused by a change in the relative price ratio between the two goods. This change can be due to a change in the price of one of the goods, or a change in the price of both goods.

Question 14

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.

Accepted Answer

A change in the consumer's preferences would not directly affect the prices of books and food, or the consumer's income, and thus it would not cause the budget line to shift. Choices A, B, D, and E would all cause a shift in the budget line.

Question 15

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

Accepted Answer

The answer of Only a change in income can affect...

Question 16

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.

Accepted Answer

If the marginal utilities per dollar are not equal among the final set of goods, Joe can increase his total utility by changing the amounts of what he intends to purchase. This is because he can allocate his spending towards the goods that provide him with the highest marginal utility per dollar, resulting in a higher total utility.

Question 17

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

Accepted Answer

The rotation of the budget line from AC to AB indicates a change in the price of one of the goods while the consumer's income and the price of the other good remain constant. Since the line rotates inward, it suggests an increase in the price of mussels, reducing the quantity of mussels that can be purchased for the same amount of money.

Question 18

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

Accepted Answer

The rotation of the budget line from AC to AB represents an increase in the price of clams. This is because the slope of the budget line has become steeper, indicating that it now takes more mussels to purchase the same number of clams.

Question 19

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

Accepted Answer

Consumer equilibrium occurs when the marginal utility per dollar spent is equal for both goods, which is represented by the equation MU_x/P_x = MU_y/P_y, and the consumer has exhausted their budget. Option A is incorrect because reaching the farthest indifference curve does not necessarily ensure equilibrium. Option C is incorrect because maximizing marginal utility does not guarantee that the budget is being used efficiently or that the marginal utility per dollar is equal for both goods. Option D is incorrect because equilibrium is not determined by the last unit consumed, but by the marginal utility per dollar spent. Option E is incorrect because consumer surplus may exist even in equilibrium, depending on the prices of the goods and the consumer's willingness to pay.

Question 20

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

Accepted Answer

The answer of Exhibit 6-28 
-The rotation of the budget...

Quiz 6: Appendix: Indifference Curves and Utility Maximization

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

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

Economists assume that, within a given budget, consumers will

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

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

A consumer maximizes utility where the

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

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

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

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

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

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

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

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

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

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.

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

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

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

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