Question 1

Gillian is consuming her optimal consumption bundle of peanuts and raisins. The marginal utility associated with the last peanut she consumes is 4 utils, and the marginal utility associated with the last raisin is 2 utils. What must be the price of peanuts relative to that of raisins?
A) 0.5
B) 1
C) 2
D) The relative price is undefined.

Accepted Answer

The answer of Gillian is consuming her optimal consumption bundle...

Question 2

Luis is consuming his optimal consumption bundle of pizza and tacos. The marginal utility associated with the last pizza he consumes is 1 util, and the marginal utility associated with the last taco is 3 utils. What must be the relative price of pizza in terms of tacos?
A) 0.33
B) 1
C) 3
D) The relative price is undefined.

Accepted Answer

The answer of Luis is consuming his optimal consumption bundle...

Question 3

Use the following to answer questions 
Figure: The Indifference Curve Map II 
-(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib dinners. The figure shows two of her indifference curves for Cubs tickets and baby back rib dinners. Which of the following combinations gives Sara the highest level of utility?
A) 40 baby back rib dinners and 2 Cubs tickets
B) 20 baby back rib dinners and 4 Cubs tickets
C) 12 baby back rib dinners and 10 Cubs tickets
D) All combinations give the same level of utility.

Accepted Answer

The highest level of utility for Sara can be found where her highest attainable indifference curve (IC2) is tangent to her budget constraint. This occurs at point E, where she consumes 10 Cubs tickets and 12 baby back rib dinners. Any combination that falls on or below IC1 would give Sara a lower level of utility, and any combination that falls above IC2 would be unaffordable.

Question 4

Use the following to answer questions 
Figure: Consumer Equilibrium I
The figure shows three of Owen's indifference curves for pizza and soda per week. Owen has $180 per month to spend on the two goods. The price of a pizza is $20, and the price of a soda is $1.50. 
-(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. If Owen consumes 1.5 pizzas and 100 sodas, he:
A) is maximizing his total utility.
B) should consume more pizza and less soda to maximize his total utility.
C) should consume less pizza and more soda to maximize his total utility.
D) should consume more pizza and more soda to maximize his total utility.

Accepted Answer

The answer of Use the following to answer questions 
Figure:...

Question 5

LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1 teaspoon of honey for 2 teaspoons of sugar. If honey is twice as expensive as sugar, LaToya will:
A) use only honey.
B) use only sugar.
C) use a lot of honey and a little sugar.
D) be willing to purchase either sugar or honey.

Accepted Answer

Since LaToya sees honey and sugar as perfect substitutes, she will be willing to purchase either sugar or honey. Additionally, since she is willing to substitute 1 teaspoon of honey for 2 teaspoons of sugar, she can choose whichever option is cheaper at that moment. Therefore, D is the best choice.

Question 6

If Coke and Pepsi are perfect substitutes for Lynn, her indifference curves are:
A) right angles.
B) concave from the origin.
C) downward-sloping straight lines.
D) vertical lines.

Accepted Answer

The answer of If Coke and Pepsi are perfect substitutes...

Question 7

Use the following to answer questions 
Figure: The Indifference Curve Map II 
-(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib dinners. The figure shows two of her indifference curves for Cubs tickets and baby back rib dinners. If she consumes 20 baby back rib dinners and 4 tickets to Cubs games, she would be equally happy to give up 8 dinners for _____ more ticket(s) to Cubs games.
A) 1
B) 0.5
C) 2
D) 4

Accepted Answer

The slope of the indifference curve represents the rate at which Sara is willing to give up one good in exchange for the other while remaining indifferent. The slope of the indifference curve for 20 baby back rib dinners and 4 Cubs tickets is steeper than the slope of the indifference curve for 20 baby back rib dinners and 2 Cubs tickets. This means that Sara is willing to give up more baby back rib dinners in exchange for 1 additional Cubs ticket. Therefore, she would be willing to give up 8 dinners for 2 more tickets (a total of 6 tickets) since the slope of the indifference curve for 20 baby back rib dinners and 2 Cubs tickets is equal to the slope of the line connecting the points (4,20) and (6,12) which represents the exchange rate between tickets and dinners.

Question 8

Use the following to answer questions 
Figure: The Indifference Curve Map II 
-(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib dinners. The figure shows two of her indifference curves for Cubs tickets and baby back rib dinners. If she consumes 20 baby back rib dinners and 6 tickets to Cubs games, she would be equally happy to give up 8 dinners for _____ more ticket(s) to Cubs games.
A) 1
B) 0.5
C) 3
D) 4

Accepted Answer

The answer of Use the following to answer questions 
Figure:...

Question 9

LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1 teaspoon of honey for 2 teaspoons of sugar. If honey is three times as expensive as sugar, LaToya will use:
A) only honey.
B) only sugar.
C) some honey and some sugar.
D) a lot of sugar and a little honey.

Accepted Answer

The answer of LaToya sees honey and sugar as perfect...

Question 10

Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $0.25. Joseph:
A) is maximizing total utility.
B) should consume more apples and fewer oranges to maximize total utility.
C) should consume fewer apples and more oranges to maximize total utility.
D) may or may not be maximizing total utility.

Accepted Answer

The answer of Joseph chooses a combination of apples and...

Question 11

Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $0.10. Joseph:
A) is maximizing total utility.
B) should consume more apples and fewer oranges to maximize total utility.
C) should consume fewer apples and more oranges to maximize total utility.
D) may or may not be maximizing total utility.

Accepted Answer

The answer of Joseph chooses a combination of apples and...

Question 12

Use the following to answer questions 
Figure: Consumer Equilibrium I
The figure shows three of Owen's indifference curves for pizza and soda per week. Owen has $180 per month to spend on the two goods. The price of a pizza is $20, and the price of a soda is $1.50. 
-(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. What is Owen's marginal rate of substitution of pizza for soda when he is consuming his optimal consumption bundle?
A) 0.75
B) 1.5
C) 13.3
D) 20

Accepted Answer

The answer of Use the following to answer questions 
Figure:...

Question 13

Use the following to answer questions 
Figure: The Indifference Curve Map II 
-(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib dinners. The figure shows two of her indifference curves for Cubs tickets and baby back rib dinners. If a new health report is released stating that there is a connection between baby back rib dinners and heart attacks and this concerns Sara, each combination of Cubs tickets and baby back ribs will now yield _____ for Sara.
A) less utility
B) more utility
C) the same level of utility
D) It is impossible to determine how Sara's utility will be affected.

Accepted Answer

The new health report will cause a decrease in Sara's utility for baby back rib dinners due to her concerns about the connection to heart attacks. Therefore, each combination of Cubs tickets and baby back ribs will yield less utility for Sara.

Question 14

Margo has a monthly income of $60 to spend on coffee or bagels. Each cup of coffee costs $3 and each bagel costs $4. Margo spends all of her income, and at her consumption bundle, she is willing to forgo 1 bagel to get the next cup of coffee to achieve the same level of utility. To maximize her utility, Margo should:
A) increase coffee consumption and decrease bagel consumption.
B) increase bagel consumption and decrease coffee consumption.
C) do nothing.
D) decrease both coffee and bagel consumption.

Accepted Answer

The answer of Margo has a monthly income of $60...

Question 15

Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $1.50. Joseph:
A) is maximizing total utility.
B) should consume more apples and fewer oranges to maximize total utility.
C) should consume fewer apples and more oranges to maximize total utility.
D) may or may not be maximizing total utility.

Accepted Answer

The answer of Joseph chooses a combination of apples and...

Question 16

Use the following to answer questions 
Figure: Consumer Equilibrium I
The figure shows three of Owen's indifference curves for pizza and soda per week. Owen has $180 per month to spend on the two goods. The price of a pizza is $20, and the price of a soda is $1.50. 
-(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. If in equilibrium Owen receives marginal utility of 10 utils from the last pizza he consumes, his marginal utility from the last soda must be _____ utils.
A) 0.50
B) 0.75
C) 1.5
D) 13.3

Accepted Answer

The answer of Use the following to answer questions 
Figure:...

Question 17

Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $0.50. Joseph:
A) is maximizing total utility.
B) should consume more apples and fewer oranges to maximize total utility.
C) should consume fewer apples and more oranges to maximize total utility.
D) may or may not be maximizing total utility.

Accepted Answer

The marginal rate of substitution (MRS) of apples for oranges is 2, which means Joseph is willing to give up 2 oranges for 1 more apple. Since the prices of apples and oranges are the same, the MRS should be equal to the ratio of their prices. Therefore, Joseph is currently getting more satisfaction from consuming apples than oranges, and should consume more apples and fewer oranges to maximize total utility.

Question 18

LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1 teaspoon of honey for 2 teaspoons of sugar. If the price of honey is half that of sugar, LaToya will use:
A) only honey.
B) only sugar.
C) a lot of honey and a little sugar.
D) a lot of sugar and a little honey.

Accepted Answer

The answer of LaToya sees honey and sugar as perfect...

Question 19

Use the following to answer questions 
Figure: Consumer Equilibrium I
The figure shows three of Owen's indifference curves for pizza and soda per week. Owen has $180 per month to spend on the two goods. The price of a pizza is $20, and the price of a soda is $1.50. 
-(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. If Owen consumes 1.5 pizzas and 100 sodas, which of the following describes the relationship between his marginal rate of substitution of pizza for soda and the price of pizza in terms of soda?
A) The marginal rate of substitution equals the relative price.
B) The marginal rate of substitution is greater than the relative price.
C) The marginal rate of substitution is less than the relative price.
D) It is impossible to determine, given the information available.

Accepted Answer

In order to determine the relationship between Owen's marginal rate of substitution (MRS) of pizza for soda and the price of pizza in terms of soda, we need to look at the slope of the indifference curve at the point where Owen is consuming 1.5 pizzas and 100 sodas.

At this point, the slope of the indifference curve is steeper (i.e. the MRS is higher) than the slope of the budget constraint. This means that Owen is willing to give up more sodas for an additional pizza than the exchange rate determined by the relative prices.

In other words, Owen's MRS is greater than the relative price of pizza in terms of soda. Therefore, answer choice B is correct.

Question 20

Use the following to answer questions 
Figure: Consumer Equilibrium I
The figure shows three of Owen's indifference curves for pizza and soda per week. Owen has $180 per month to spend on the two goods. The price of a pizza is $20, and the price of a soda is $1.50. 
-(Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. What is Owen's optimal consumption bundle?
A) 4 pizzas and 150 sodas
B) 8 pizzas and 40 sodas
C) 6 pizzas and 40 sodas
D) 14 pizzas and 20 sodas

Accepted Answer

Owen's optimal consumption bundle is where the budget constraint is tangent to the highest indifference curve possible. In this case, it occurs at a point where Owen consumes 6 pizzas and 40 sodas per week. This point is labeled as point A on the graph.

Quiz 34: Consumer Preferences and Consumer Choice

Gillian is consuming her optimal consumption bundle of peanuts and raisins. The marginal utility associated with the last peanut she consumes is 4 utils, and the marginal utility associated with the last raisin is 2 utils. What must be the price of peanuts relative to that of raisins?

Luis is consuming his optimal consumption bundle of pizza and tacos. The marginal utility associated with the last pizza he consumes is 1 util, and the marginal utility associated with the last taco is 3 utils. What must be the relative price of pizza in terms of tacos?

LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1 teaspoon of honey for 2 teaspoons of sugar. If honey is twice as expensive as sugar, LaToya will:

If Coke and Pepsi are perfect substitutes for Lynn, her indifference curves are:

LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1 teaspoon of honey for 2 teaspoons of sugar. If honey is three times as expensive as sugar, LaToya will use:

Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $0.25. Joseph:

Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $0.10. Joseph:

Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $1.50. Joseph:

Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $0.50. Joseph:

LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1 teaspoon of honey for 2 teaspoons of sugar. If the price of honey is half that of sugar, LaToya will use: