Question 1

According to the assumption of the basic consumer theory,which of the following is true?
A) If April consumes more pizza,her marginal utility of consuming pizza is decreasing.
B) If April consumes more pizza,her marginal utility of consuming pizza is increasing.
C) If April consumes more pizza,her marginal utility of consuming pizza is constant.
D) Eating more pizza does not increase April' utility.

Accepted Answer

The assumption of the basic consumer theory states that as a consumer consumes more of a good, the marginal utility (satisfaction gained from consuming an additional unit) of that good decreases. Therefore, if April consumes more pizza, her marginal utility of consuming pizza is decreasing, making option A the correct choice. Option B is incorrect because it is contradictory to the basic assumption of consumer theory. Option C is also incorrect because marginal utility is expected to decrease as consumption increases. Option D is incorrect because consuming more of a good generally increases a consumer's overall utility.

Question 2

Joshua has income endowment of $1,000,the price of food is $2 per unit and the price of non-food is $4 per unit.Which of the following is his budget constraint?
A) $$2 \mathrm {~F} + 4 \mathrm {~N} \leq 1,000$$
B) $$F \leq 500 - 2 N$$
C) $$N \leq 250 - 1 / 2 F$$
D) All of the above

Accepted Answer

To find the budget constraint, we use the formula:

Total income = Price of food x Quantity of food + Price of non-food x Quantity of non-food

Plugging in the given values, we get:

1000 = 2F + 4N

Simplifying this equation, we get:

F/2 + N <= 250

Multiplying both sides by 2, we get:

F + 2N <= 500

Now we can see that the budget constraint is a combination of A and C options. Therefore, the answer is D. The budget constraint can be represented by either $$2 \mathrm {~F} + 4 \mathrm {~N} \leq 1,000$$ or $$N \leq 250 - 1 / 2 F$$, or by combining the two equations to get $$F + 2N \leq 500$$.

As for the best choice, it depends on Joshua's preferences and the utility he derives from consuming food and non-food items. With the given information, we cannot determine the best choice without more information.

Question 3

Utility is a measure of
A) the satisfaction from consuming goods and services.
B) the amount of money value people are willing to pay for goods and services.
C) the usefulness of goods and services.
D) the prices of goods and services.

Accepted Answer

Utility is the measure of the satisfaction or enjoyment that a consumer derives from the consumption of a particular good or service. It is a subjective measure that varies from person to person and cannot be measured objectively.

Question 4

Joshua has income endowment of $1,000,the price of food is $2 per unit and the price of non-food is $4 per unit.If he spent all of his income on food,how many units of food can he buy?
A) 1,000 units.
B) 250 units.
C) 500 units.
D) 0 unit.

Accepted Answer

Joshua can buy 500 units of food if he spends all of his $1,000 income on food, calculated by dividing the total income by the price per unit of food ($1,000 / $2 = 500 units).

Question 5

Which of the following will increase consumption for a normal good?
A) an increase in income.
B) a decrease in income.
C) an increase in the price of a complement.
D) a decrease in the price of a substitute.

Accepted Answer

An increase in income will result in an increase in purchasing power and therefore an increase in consumption of normal goods.

Answer: D
 A decrease in the price of a substitute will result in consumers shifting away from the substitute towards the normal good, increasing its consumption.

Question 6

If the prices of food and non-food stay constant and consumers income doubles,what will happen to the budget line?
A) The budget line will stay unchanged.
B) The budget line will shift in toward the origin in a parallel fashion.
C) The budget line will shift out from the origin in a parallel fashion.
D) The budget line will change but we need more information to know how.

Accepted Answer

When consumers' income doubles and the prices of food and non-food stay constant, their purchasing power increases. Therefore, the budget line will shift out from the origin in a parallel fashion, indicating that they can now afford to purchase more of both goods.

Question 7

An indifference curve is ________.
A) all the combinations of food and non-food that consumers are able to afford.
B) all the combinations of food and non-food that consumers prefer equally.
C) a straight line.
D) downward sloping and concave (bowed out from the origin).

Accepted Answer

An indifference curve represents all the combinations of two goods that give the consumer equal satisfaction or utility. Therefore, all the combinations on the indifference curve are preferred equally by the consumer.

Question 8

Which of the following statements is true?
A) As we consume more of a good,utility will increase even if the good is subject to diminishing marginal utility.
B) As we consume more of a good,utility will increase unless the good is subject to diminishing marginal utility.
C) Marginal utility is just another name for utility.
D) We cannot rank utility from two different consumption bundles.

Accepted Answer

The answer of Which of the following statements is true?
A)...

Question 9

Consumers' preference are described by
A) indifference curves.
B) budget lines.
C) their wealth.
D) price level in the economy.

Accepted Answer

Indifference curves show the different combinations of two goods that yield the same level of satisfaction to a consumer. This helps to describe the consumer's preferences. The budget line shows the different combinations of two goods that can be purchased with a given income and prices, but it does not directly describe preferences. Wealth and price level in the economy may influence consumer behavior, but they do not directly describe preferences.

Question 10

The substitution effect can be measured by holding ________constant.
A) income
B) price of food
C) price of non-food
D) utility

Accepted Answer

The substitution effect is measured by holding utility constant while changing the price of a good, to see how consumption adjusts when a consumer substitutes one good for another while maintaining the same level of overall satisfaction.

Question 11

When consumers receive distributions of free rise,the quantities of rise they consume are likely to ________ and by ________ the quantity of rice received in the distribution.
A) rise; more than
B) rise; the same amount as
C) rise,less than
D) the quantities of rise they consume are not going to change

Accepted Answer

When consumers receive distributions of free rice, they are likely to value it less than if they had paid for it, leading to a decrease in the quantity of rice they consume. This is known as the endowment effect, which suggests that people place more value on things they own (or paid for) compared to the same things they do not own. Therefore, the quantities of rice they consume are likely to decrease, and they will consume less than the quantity of rice received in the distribution.

Question 12

Suppose there is a reduction in the price of food while consumers' income and the price of non-food stay the same,which of the following statement is true?
A) spending on food consumption will always increase.
B) budget line will rotate out from the endpoint on the axis of food.
C) budget line will rotate out from the endpoint on the axis of non-food.
D) the slope of the budget line will stay the same.

Accepted Answer

The answer of Suppose there is a reduction in the...

Question 13

All of the following statements are true except:
A) People can make choices that help determine development outcomes.
B) Decision makers possess accurate and complete information.
C) Information is costly and difficult to obtain,especially in developing countries.
D) People cannot take advantage of new investment opportunities

Accepted Answer

Decision makers often do not possess accurate and complete information, especially in complex and dynamic environments, which can affect the quality of their decisions.

Question 14

When labor suppliers choose how much time to allocate to wage labor and to other activities seeking to maximize utility ,their utility is often assumed to be a function of ________.
A) consumption of goods and services
B) time spent in non-labor activities.
C) both consumption of goods and services and time spent in non-labor activities.
D) neither consumption of goods and services nor time spent in non-labor activities.

Accepted Answer

Labor suppliers' utility is likely to be influenced by both their consumption of goods and services as well as the amount of time they spend on non-labor activities. For example, they may choose to work more and earn higher wages in order to afford more goods and services or to take more leisure time for personal enjoyment. Therefore, both consumption and leisure time are important factors that affect labor supply decisions.

Question 15

The price of home time is ________.
A) not measurable
B) the opportunity cost of time
C) increasing with higher income
D) depends on how many hours the labor supplier works

Accepted Answer

The price of home time is the opportunity cost of time, meaning the value of what someone could have earned or done with their time instead of spending it on home activities. It is not a fixed measurable price and can vary based on a person's income and the number of hours they choose to work.

Question 16

When labor suppliers choose how much time to allocate to wage labor and to other activities seeking to maximize utility ,their constraint is given by
A) the time constraint S + H ≤ T
B) the cash constraint that C ≤ wS + M.
C) C + wH ≤ wT + M.
D) all of the above.

Accepted Answer

The correct answer is D) all of the above. Each of the constraints represents a different aspect of the decision-making process for labor suppliers. A) represents the time constraint, where S is leisure time, H is hours worked, and T is the total available time. B) represents the cash constraint, where C is consumption, w is the wage rate, S is leisure time, and M is non-labor income. C) is a combination of the wage rate, total time, and non-labor income constraints, showing how consumption and hours worked are limited by these factors.

Question 17

The income elasticity of demand is________.
A) always positive.
B) always negative.
C) positive for a normal good and negative for an inferior good.
D) negative for a normal good and positive for an inferior good.

Accepted Answer

The income elasticity of demand is positive for normal goods because as consumers' income increases, they are willing to purchase more of the good. In contrast, the income elasticity of demand is negative for inferior goods because as consumers' income increases, they are likely to switch to higher quality substitutes, resulting in a decrease in demand for the inferior good. Therefore, option C is the correct choice.

Question 18

If consumers' income increases by one dollar and consumers consume both food and non-food,________.
A) spending on food consumption will always increase.
B) spending on food consumption will increase but by less than one dollar if both food and non-food are normal goods.
C) spending on food consumption will increase only if non-food is inferior good.
D) spending on food consumption will increase only if non-food is normal good.

Accepted Answer

If both food and non-food items are normal goods, then an increase in income will lead to an increase in spending on both goods. However, the increase in spending on food consumption will be less than one dollar since consumers will allocate some of the additional income towards non-food items as well.

Question 19

A reduction in the price of good A reduces the consumption of good B,then ________.
A) A and B are substitutes.
B) A and B are complements.
C) A is a normal good.
D) A is an inferior good.

Accepted Answer

When the price of a substitute good (such as good A) decreases, consumers tend to buy more of it, and less of the other substitute good (such as good B). This is because consumers will switch to the cheaper substitute good, rather than paying more for the other one. Therefore, A and B are substitutes.

Question 20

If consumers' income increases and the consumption for food decreases,then we can conclude:
A) food is a normal good.
B) food is an inferior good.
C) consumers are not rational.
D) this situation does not happen in developing countries.

Accepted Answer

When the income of consumers increases, they tend to shift towards superior or luxury goods, therefore if consumption of food decreases its an indication that food is an inferior good.

Quiz 6: Consumption, Time Allocation and Production Choices

According to the assumption of the basic consumer theory,which of the following is true?

Joshua has income endowment of $1,000,the price of food is $2 per unit and the price of non-food is $4 per unit.Which of the following is his budget constraint?

Utility is a measure of

Joshua has income endowment of $1,000,the price of food is $2 per unit and the price of non-food is $4 per unit.If he spent all of his income on food,how many units of food can he buy?

Which of the following will increase consumption for a normal good?

If the prices of food and non-food stay constant and consumers income doubles,what will happen to the budget line?

An indifference curve is ________.

Which of the following statements is true?

Consumers' preference are described by

The substitution effect can be measured by holding ________constant.

When consumers receive distributions of free rise,the quantities of rise they consume are likely to and by the quantity of rice received in the distribution.

Suppose there is a reduction in the price of food while consumers' income and the price of non-food stay the same,which of the following statement is true?

All of the following statements are true except:

When labor suppliers choose how much time to allocate to wage labor and to other activities seeking to maximize utility ,their utility is often assumed to be a function of ________.

The price of home time is ________.

When labor suppliers choose how much time to allocate to wage labor and to other activities seeking to maximize utility ,their constraint is given by

The income elasticity of demand is________.

If consumers' income increases by one dollar and consumers consume both food and non-food,________.

A reduction in the price of good A reduces the consumption of good B,then ________.

If consumers' income increases and the consumption for food decreases,then we can conclude: