bai tap thuc hanh chapter 21 kinh te vi mô

Chapter 21
The Theory of Consumer Choice
Sec 00 - The Theory of Consumer Choice
MULTIPLE CHOICE
1.

Which of the following does not represent a tradeoff facing a consumer?
a. choosing to purchase more of all goods
b. choosing to spend more leisure time and less working time
c. choosing to spend more now and consume less in the future
d. choosing to purchase less of one good in order to purchase more of another good

ANS: A
DIF: 1
LOC: Utility and consumer choice
MSC: Applicative
2.

How are the following three questions related: 1) Do all demand curves slope downward? 2) How
do wages affect labor supply? 3) How do interest rates affect household saving?
a. They all relate to macroeconomics.
b. They all relate to monetary economics.
c. They all relate to the theory of consumer choice.
d. They are not related to each other in any way.

ANS: C
DIF: 1
LOC: Utility and consumer choice
MSC: Applicative
3.

REF: 21-0
NAT: Analytic
TOP: Consumer choice

Just as the theory of the competitive firm provides a more complete understanding of supply, the
theory of consumer choice provides a more complete understanding of
a. demand.
b. profits.
c. production possibility frontiers.
d. wages.

ANS: A
DIF: 1
LOC: Utility and consumer choice
MSC: Interpretive
4.

REF: 21-0
NAT: Analytic
TOP: Consumer choice

REF: 21-0
NAT: Analytic
TOP: Consumer choice

Which of the following statements is correct?
a. The theory of consumer choice provides a more complete understanding of supply, just as
the theory of the competitive firm provides a more complete understanding of demand.
b. The theory of consumer choice provides a more complete understanding of demand, just
as the theory of the competitive firm provides a more complete understanding of supply.

c. Monetary theory provides a more complete understanding of demand, just as the theory of
the competitive firm provides a more complete understanding of supply.
d. The theory of public choice provides a more complete understanding of supply, just as the
theory of the competitive firm provides a more complete understanding of demand.

ANS: B
DIF: 1
LOC: Utility and consumer choice
MSC: Interpretive

REF: 21-0
NAT: Analytic
TOP: Consumer choice


5.

When a consumer spends less time enjoying leisure and more time working, she has
a. lower income and therefore cannot afford more consumption.
b. lower income and therefore can afford more consumption.
c. higher income and therefore cannot afford more consumption.
d. higher income and therefore can afford more consumption.

ANS: D
DIF: 1
LOC: Utility and consumer choice
MSC: Interpretive
6.

The theory of consumer choice provides the foundation for understanding the

a. structure of a firm.
b. profitability of a firm.
c. demand for a firm's product.
d. supply of a firm's product.

ANS: C
DIF: 1
LOC: Utility and consumer choice
MSC: Definitional
7.

REF: 21-0
NAT: Analytic
TOP: Consumer choice

The theory of consumer choice examines
a. the determination of output in competitive markets.
b. the tradeoffs inherent in decisions made by consumers.
c. how consumers select inputs into manufacturing production processes.
d. the determination of prices in competitive markets.

ANS: B
DIF: 1
LOC: Utility and consumer choice
MSC: Definitional
8.

REF: 21-0
NAT: Analytic
TOP: Consumer choice

REF: 21-0
NAT: Analytic
TOP: Consumer choice

The theory of consumer choice most closely examines which of the following Ten Principles of
Economics?
a. People face trade-offs.
b. The cost of something is what you give up to get it.
c. Trade can make everyone better off.
d. Markets are usually a good way to organize economic activity.

ANS: A
DIF: 1
LOC: Utility and consumer choice
MSC: Interpretive

REF: 21-0
NAT: Analytic
TOP: Consumer choice

Sec 01- The Theory of Consumer Choice - The Budget Constraint: What the
Consumer Can Afford
MULTIPLE CHOICE
1.

Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days.
Ice cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara
has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels.
Who can afford to purchase 8 gallons of ice cream and 5 paperback novels?

a. Karen, Tara, and Chelsea
b. Karen only
c. Tara and Chelsea but not Karen
d. none of the women


ANS: B
DIF: 1
LOC: Utility and consumer choice
MSC: Applicative
2.

Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days.
Ice cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara
has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels.
Who can afford to purchase 5 gallons of ice cream and 8 paperback novels?
a. Karen, Tara, and Chelsea
b. Karen only
c. Tara and Chelsea but not Karen
d. none of the women

ANS: D
DIF: 1
LOC: Utility and consumer choice
MSC: Applicative
3.

REF: 21-1
NAT: Analytic
TOP: Budget constraint

Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days.
Ice cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara
has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels.
Which of the following statements is correct?
a. Each woman faces the same budget constraint.
b. The slope of the budget constraint is the same for each woman.
c. The area underneath the budget constraint is larger for Chelsea than for Karen.
d. All of the above are correct.

ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative
5.

REF: 21-1
NAT: Analytic
TOP: Budget constraint

Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days.
Ice cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara
has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels.
Who can afford to purchase 4 gallons of ice cream and 5 paperback novels?
a. Karen, Tara, and Chelsea
b. Karen only
c. Karen and Tara but not Chelsea
d. none of the women

ANS: C

DIF: 1
LOC: Utility and consumer choice
MSC: Applicative
4.

REF: 21-1
NAT: Analytic
TOP: Budget constraint

REF: 21-1
NAT: Analytic
TOP: Budget constraint

Suppose a consumer has an income of $800 per month and that she spends her entire income each
month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4.
Which of the following combinations of beers and bratwursts represents a point that would lie to the
interior of the consumer’s budget constraint?
a. 160 beers and 200 bratwursts
b. 40 beers and 50 bratwursts
c. 80 beers and 100 bratwursts
d. 160 beers and 0 bratwursts

ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

6.

Suppose a consumer has an income of $800 per month and that she spends her entire income each
month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4.
Which of the following combinations of beers and bratwursts represents a point that would lie to the
exterior of the consumer’s budget constraint?
a. 160 beers and 200 bratwursts
b. 40 beers and 50 bratwursts
c. 80 beers and 100 bratwursts
d. 160 beers and 0 bratwursts

ANS: A
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical
7.

Suppose a consumer has an income of $800 per month and that she spends her entire income each
month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4.
Which of the following combinations of beers and bratwursts represents a point that would lie
directly on the consumer’s budget constraint?
a. 160 beers and 200 bratwursts
b. 40 beers and 50 bratwursts
c. 80 beers and 100 bratwursts
d. 80 beers and 0 bratwursts

ANS: C
DIF: 2

LOC: Utility and consumer choice
MSC: Analytical
8.

REF: 21-1
NAT: Analytic
TOP: Budget constraint

Consider two goods, books and hamburgers. The slope of the consumer's budget constraint is
measured by the
a. consumer's income divided by the price of hamburgers.
b. relative price of books and hamburgers.
c. consumer's marginal rate of substitution.
d. number of books purchased divided by the number of hamburgers purchased.

ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Interpretive
9.

REF: 21-1
NAT: Analytic
TOP: Budget constraint

REF: 21-1
NAT: Analytic
TOP: Budget constraint

Suppose a consumer spends his income on CDs and DVDs. If his income decreases, the budget

constraint for CDs and DVDs will
a. shift outward, parallel to the original budget constraint.
b. shift inward, parallel to the original budget constraint.
c. rotate outward along the CD axis because he can afford more CDs.
d. rotate outward along the DVD axis because he can afford more DVDs.

ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

10. When the price of a shirt falls, the
a. quantity of shirts demanded falls.
b. quantity of shirts demanded rises.
c. quantity of shirts supplied rises.
d. demand for shirts falls.
ANS: B
DIF: 1
LOC: Utility and consumer choice

REF: 21-1
TOP: Demand

NAT: Analytic
MSC: Analytical

11. A budget constraint illustrates the
a. prices that a consumer chooses to pay for products he consumes.
b. purchases made by consumers.
c. consumption bundles that a consumer can afford.
d. consumption bundles that give a consumer equal satisfaction.
ANS: C
DIF: 1
LOC: Utility and consumer choice
MSC: Definitional

REF: 21-1
NAT: Analytic
TOP: Budget constraint

12. Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and
the price of a book is $15. If she has $100 of income, she could choose to consume
a. 8 pizzas and 4 books.
b. 4 pizzas and 5 books.
c. 9 pizzas and 3 books.
d. 4 pizzas and 3 books.
ANS: D
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

13. Assume that a college student spends her income on mac-n-cheese and CDs. The price of one box of
mac-n-cheese is $1, and the price of one CD is $12. If she has $100 of income, she could choose to
consume
a. 15 boxes of mac-n-cheese and 6 CDs.
b. 20 boxes of mac-n-cheese and 7 CDs.
c. 10 boxes of mac-n-cheese and 8 CDs.
d. 30 boxes of mac-n-cheese and 6 CDs.
ANS: A
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

14. A consumer who doesn't spend all of her income
a. would be at a point outside of her budget constraint.
b. would be at a point inside her budget constraint.
c. must not be consuming positive quantities of all goods.
d. must be consuming at a point where her budget constraint touches one of the axes.
ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Interpretive

REF: 21-1
NAT: Analytic
TOP: Budget constraint

15. An increase in income will cause a consumer's budget constraint to
a. shift outward, parallel to its initial position.
b. shift inward, parallel to its initial position.
c. pivot around the horizontal axis.
d. pivot around the vertical axis.
ANS: A
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint


Figure 21-1

16. Refer to Figure 21-1. Which point in the figure showing a consumer’s budget constraint represents
the consumer's income divided by the price of a CD?
a. point A
b. point C
c. point D
d. point E
ANS: C
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic

TOP: Budget constraint

17. Refer to Figure 21-1. A consumer that chooses to spend all of her income could be at which point(s)
on the budget constraint?
a. A only
b. E only
c. B, C, or D only
d. A, B, C, or D only
ANS: C
DIF: 1
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

18. Refer to Figure 21-1. All of the points identified in the figure represent affordable consumption
options with the exception of
a. A.
b. E.
c. A and E.
d. None. All points are affordable.


ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

Figure 21-2
Pepsi

X

Z

V
W

Y
Pizza

19. Refer to Figure 21-2. A consumer that chooses to spend all of her income could be at which point(s)
on the budget constraint?
a. V only
b. Z only
c. V, W, X, or Y only
d. W, X, or Y only
ANS: D
DIF: 1
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic

TOP: Budget constraint

20. Refer to Figure 21-2. Which points are affordable?
a. W, X, and Y only
b. Z only
c. V, W, X, and Y only
d. V, W, X, Y, and Z
ANS: C
DIF: 1
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

21. Refer to Figure 21-2. Which of the following statements is not correct?
a. Points W, X, and Y all cost the consumer the same amount of money.
b. Point Z is unaffordable for the consumer given his budget constraint.
c. Point V costs less than point Z.
d. Points W, X, and Y give the consumer the same level of satisfaction.
ANS: D
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

22. Refer to Figure 21-2. Which of the following statements is correct?
a. Points W, X, and Y all cost the consumer the same amount of money.
b. Point V is unaffordable for the consumer given his budget constraint.
c. Point Z costs less than point V.
d. Points W, X, and Y give the consumer the same level of satisfaction.
ANS: A
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.
y
y

(b)

(a)

BC-2

BC-1

BC-1

BC-2
x

x
y

y

(c)

(d)

BC-1

BC-2

BC-2

BC-1

x

x

23. Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good X
only?
a. graph a
b. graph b
c. graph c
d. graph d

ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

24. Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price of good Y
only?
a. graph a
b. graph b
c. graph c
d. graph d


ANS: C
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

25. Refer to Figure 21-3. Which of the graphs in the figure could reflect a decrease in the prices of both
goods?
a. graph a
b. graph b

c. graph c
d. None of the above is correct.
ANS: D
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

26. The following diagram shows two budget lines: A and B.

Which of the following could explain the change in the budget line from A to B?
a. a decrease in the price of X
b. an increase in the price of Y
c. a decrease in the price of Y
d. More than one of the above could explain this change.
ANS: C
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint


27. The following diagram shows two budget lines: A and B.

Which of the following could explain the change in the budget line from A to B?
a. a simultaneous decrease in the price of X and the price of Y
b. an increase in income
c. an increase in income and a decrease in the price of Y
d. Both a and b are correct.
ANS: D
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

28. The following diagram shows two budget lines: A and B.

Which of the following could explain the change in the budget line from A to B?
a. a decrease in income and a decrease in the price of X
b. a decrease in income and an increase in the price of X
c. an increase in income and a decrease in the price of X
d. an increase in income and an increase in the price of X
ANS: D
DIF: 3
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

29. The slope of the budget constraint is determined by the
a. relative price of the goods measured on the axes.
b. relative price of the goods measured on the axes and the consumer’s income.
c. endowment of productive resources.
d. preferences of the consumer.
ANS: A
DIF: 1
LOC: Utility and consumer choice
MSC: Definitional

REF: 21-1
NAT: Analytic
TOP: Budget constraint

30. The slope of the budget constraint is all of the following except
a. the relative price of two goods.
b. the rate at which a consumer can trade one good for another.
c. the marginal rate of substitution.
d. constant.
ANS: C
DIF: 1
LOC: Utility and consumer choice
MSC: Definitional

REF: 21-1
NAT: Analytic
TOP: Budget constraint

Figure 21-4

31. Refer to Figure 21-4. In graph (a), if income is equal to $120, the price of good Y is
a. $1
b. $2
c. $3
d. $4
ANS: C
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

32. Refer to Figure 21-4. In graph (a), what is the price of good Y relative to good X (i.e., P y/Px)?
a. 1/3
b. 1/4
c. 3
d. 4


ANS: B
DIF: 3
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

33. Refer to Figure 21-4. In graph (b), what is the price of good X relative to good Y (i.e., P x/Py)?
a. 2/7
b. 3/6
c. 7/2
d. 7
ANS: A
DIF: 3
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

34. Refer to Figure 21-4. Assume that a consumer faces both budget constraints in graph (a) and graph
(b) on two different occasions. If her income has remained constant, what has happened to prices?
a. The price of X in graph (a) is higher than the price of X in graph (b).
b. The price of Y in graph (a) is higher than the price of Y in graph (b).
c. The prices of both X and Y are lower in graph (a).
d. None of the above is true.
ANS: A
DIF: 3
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

35. Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has
$200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What
is the maximum number of CDs the consumer can purchase?
a. 10
b. 20
c. 40
d. 50
ANS: B
DIF: 1
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

36. Suppose a consumer spends her income on two goods: iTunes music downloads and books. The
consumer has $100 to allocate to these two goods, the price of a downloaded song is $1, and the
price of a book is $20. What is the maximum number of books the consumer can purchase?
a. 100
b. 20
c. 10
d. 5
ANS: D
DIF: 1
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic

TOP: Budget constraint


37. Suppose a consumer spends her income on two goods: music CDs and DVDs. The price of a CD is
$8, and the price of a DVD is $20. If we graph the budget constraint by placing the quantity of CDs
purchased on the horizontal axis, what is the slope of the budget constraint?
a. -5.0
b. -2.5
c. -0.4
d. The slope of the budget constraint cannot be determined without knowing the income the
consumer has available to spend on the two goods.
ANS: C
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

38. Suppose a consumer is currently spending all of her available income on two goods: music CDs and
DVDs. If the price of a CD is $9, the price of a DVD is $18, and she is currently consuming 10 CDs
and 5 DVDs, what is the consumer's income?
a. $90
b. $180
c. $270
d. $360
ANS: B
DIF: 2
LOC: Utility and consumer choice

MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

39. A consumer is currently spending all of her available income on two goods: music CDs and DVDs.
At her current consumption bundle she is spending twice as much on CDs as she is on DVDs. If the
consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?
a. $4
b. $8
c. $12
d. $20
ANS: B
DIF: 3
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint


40. The following diagram shows a budget constraint for a particular consumer.

If the price of X is $10, what is the price of Y?
a. $15
b. $25
c. $35
d. $70

ANS: C
DIF: 3
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

41. The following diagram shows a budget constraint for a particular consumer.
y
40
30
20
10
10

20

30

40

50

60

70

80

90

x

If the price of X is $5, what is the price of Y?
a. $2
b. $10
c. $30
d. $300
ANS: B
DIF: 3
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint


42. The following diagram shows a budget constraint for a particular consumer.
y
40
30
20
10
10

20

30

40

50

60

70

80

90

x

If the price of X is $5, what is the consumer’s income?
a. $2
b. $10
c. $30
d. $300
ANS: D
DIF: 3
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

43. Budget constraints exist for consumers because
a. their utility from consuming goods eventually reaches a maximum level.
b. even with unlimited incomes they have to pay for each good they consume.
c. they have to pay for goods, and they have limited incomes.
d. prices and incomes are inversely related.
ANS: C
DIF: 2
LOC: Utility and consumer choice
MSC: Interpretive

REF: 21-1
NAT: Analytic
TOP: Budget constraint

44. A family on a trip budgets $800 for meals and gasoline. If the price of a meal for the family is $50,
how many meals can the family buy if they do not buy any gasoline?
a. 8
b. 16
c. 24
d. 32
ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

45. A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is

$40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don’t buy any
meals. How many meals could the family afford if they gave up two nights in the hotel?
a. 1
b. 2
c. 5
d. 8
ANS: C
DIF: 3
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint


46. If the price of bread is zero, the budget constraint between bread (on the vertical axis) and cheese
(on the horizontal axis) would
a. be vertical.
b. coincide with the vertical axis.
c. coincide with the horizontal axis.
d. be horizontal.
ANS: A
DIF: 3
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

Scenario 21-1
Suppose the price of hot wings is $10, the price of beer is $1, and the consumer’s income is $50. In
addition, suppose the consumer’s budget constraint illustrates hot wings on the horizontal axis and beer
on the vertical axis.
47. Refer to Scenario 21-1. If the price of beer doubles to $2, then the
a. budget constraint intersects the vertical axis at 25 beers.
b. slope of the budget constraint rises to -2.
c. budget constraint intersects the vertical axis at 100 beers.
d. budget constraint shifts inward in a parallel fashion.
ANS: A
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

48. Refer to Scenario 21-1. If the consumer's income rises to $60, then the budget line for hot wings
and beer would
a. now intersect the horizontal axis at 6 orders of hot wings and the vertical axis at 60 beers.
b. not change.
c. now intersect the horizontal axis at 4 orders of hot wings and the vertical axis at 16 beers.
d. rotate outward along the beer axis.
ANS: A
DIF: 1
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

49. An increase in a consumer's income
a. increases the slope of the consumer's budget constraint.
b. has no effect on the slope of the consumer's budget constraint.
c. decreases the slope of the consumer's budget constraint.
d. has no effect on the consumer's budget constraint.
ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

50. A decrease in a consumer's income
a. increases the slope of the consumer's budget constraint.
b. has no effect on the consumer's budget constraint.
c. decreases the slope of the consumer's budget constraint.
d. has no effect on the slope of the consumer's budget constraint.
ANS: D
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic

TOP: Budget constraint


51. Mark spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to $9
per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Mark's income has stayed
fixed at $46 per week. Since the price changes, Mark has been buying 4 bottles of gin and 2 jars of
cocktail olives per week. At the original prices, 4 bottles of gin and 2 jars of cocktail olives would
have
a. exactly exhausted his income.
b. cost more than his income.
c. cost less than his income.
d. could have maximized his satisfaction given his budget constraint.
ANS: C
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

52. Mark spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to $9
per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Mark's income has stayed
fixed at $46 per week. If you illustrate gin on the vertical axis and cocktail olives on the horizontal
axis, then the budget constraint
a. is steeper after the price changes.
b. is flatter after the price changes.
c. is the same after the price changes.
d. shifts in a parallel fashion to the old budget constraint after the price changes.
ANS: B

DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

53. Suppose the only two goods that Brett consumes are wine and cheese. When wine sells for $10 a
bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese — spending
his entire income of $100. One day the price of wine falls to $5 a bottle and the price of cheese
increases to $20 a pound, while his income does not change. The bundle of wine and cheese that he
purchased at the old prices now costs
a. the same amount at the new prices.
b. less than Brett's income at the new prices.
c. more than Brett's income at the new prices.
d. We do not have enough information to answer the question.
ANS: C
DIF: 1
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint

54. Suppose the only two goods that Brett consumes are wine and cheese. When wine sells for $10 a
bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese — spending
his entire income of $100. One day the price of wine falls to $5 a bottle, and the price of cheese
increases to $20 a pound, while his income does not change. If you illustrate wine on the vertical

axis and cheese on the horizontal axis, then
a. the slope of Brett's budget has not changed.
b. the slope of Brett's budget constraint is flatter at the new prices.
c. the slope of Brett's budget constraint is steeper at the new prices.
d. Brett's budget constraint has shifted in a parallel fashion to the budget constraint with the
old prices.
ANS: C
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-1
NAT: Analytic
TOP: Budget constraint


55. If the relative price of a concert ticket is three times the price of a meal at a good restaurant, then the
opportunity cost of a concert ticket can be measured by the
a. slope of the budget constraint.
b. slope of an indifference curve.
c. marginal rate of substitution.
d. income effect.
ANS: A
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

Figure 21-5
Mt. Dew

B

A

Popcorn

56. Refer to Figure 21-5. Suppose a consumer has $100 in income, the price of popcorn is $2, and the
value of B is 100. What is the price of Mt. Dew?
a. $1
b. $2
c. $5
d. $100
ANS: A
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

57. Refer to Figure 21-5. Suppose a consumer has $200 in income, the price of popcorn is $1, and the
price of Mt. Dew is $2. What is the value of A?
a. 200
b. 100
c. 50

d. 25
ANS: A
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint


58. Refer to Figure 21-5. Suppose the price of popcorn is $2, the price of Mt. Dew is $4, the value of A
is 30, and the value of B is 15. How much income does the consumer have?
a. $120
b. $80
c. $60
d. $30
ANS: C
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

Figure 21-6
DVDs

B

A

Books

59. Refer to Figure 21-6. Suppose a consumer has $500 in income, the price of a book is $10, and the
value of B is 50. What is the price of a DVD?
a. $5
b. $10
c. $50
d. $100
ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

60. Refer to Figure 21-6. Suppose a consumer has $200 in income, the price of a book is $5, and the
price of a DVD is $10. What is the value of A?
a. 40
b. 20
c. 10
d. 2
ANS: A
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint


61. Refer to Figure 21-6. Suppose the price of a book is $15, the price of a DVD is $10, the value of A
is 5, and the value of B is 7.5. How much income does the consumer have?
a. $150
b. $100
c. $75
d. $37.50
ANS: C
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-1
NAT: Analytic
TOP: Budget constraint

Sec 02 - The Theory of Consumer Choice - Preferences: What the Consumer
Wants
MULTIPLE CHOICE
1.

An indifference curve illustrates
a. a firm’s profits.
b. a consumer’s budget.
c. a consumer’s preferences.

d. the prices of two goods.

ANS: C
DIF: 1
LOC: Utility and consumer choice
MSC: Definitional
2.

Economists represent a consumer's preferences using
a. demand curves.
b. budget constraints.
c. indifference curves.
d. supply curves.

ANS: C
DIF: 1
LOC: Utility and consumer choice
MSC: Definitional
3.

REF: 21-2
NAT: Analytic
TOP: Indifference curves

If two bundles of goods give a consumer the same satisfaction, the consumer must be
a. on her budget constraint.
b. in a position of equilibrium.
c. indifferent between the bundles.
d. Both a and c are correct.

ANS: C
DIF: 2
LOC: Utility and consumer choice
MSC: Interpretive
4.

REF: 21-2
NAT: Analytic
TOP: Indifference curves

REF: 21-2
NAT: Analytic
TOP: Indifference curves

Indifference curves graphically represent
a. an income level sufficient to allow an individual to achieve a given level of satisfaction.
b. the constraints faced by individuals.
c. an individual's preferences.
d. the relative price of commodities.

ANS: C
DIF: 1
LOC: Utility and consumer choice
MSC: Definitional

REF: 21-2
NAT: Analytic
TOP: Indifference curves

5.

A consumer
a. is equally satisfied with any indifference curve.
b. prefers indifference curves with positive slopes.
c. prefers higher indifference curves to lower indifference curves.
d. prefers indifference curves that are straight lines to indifference curves that are right
angles..

ANS: C
DIF: 1
LOC: Utility and consumer choice
MSC: Interpretive
6.

A consumer's preferences provide a
a. ranking of the set of bundles that happen to fall on indifference curves.
b. relative ranking of bundles that provide more of all goods.
c. framework for evaluating market equilibriums.
d. complete ranking of all possible consumption bundles.

ANS: D
DIF: 1
LOC: Utility and consumer choice
MSC: Definitional
7.

REF: 21-2
NAT: Analytic
TOP: Indifference curves

If Walter has one hour of leisure time in which to watch a sporting event on television, his
preferences are as follows: Walter prefers watching football to watching baseball, but he prefers
watching baseball to watching basketball. He is indifferent between watching baseball and watching
hockey. Bundle A contains one hour of football and zero hours of all other sports. Bundle B
contains one hour of baseball and zero hours of all other sports. Bundle C contains one hour of
basketball and zero hours of all other sports. Bundle D contains one hour of hockey and zero hours
of all other sports. If we were to graph Walter’s preferences using indifference curves, which of the
following bundles would be on the same indifference curve?
a. A, B, and C only
b. B and D only
c. A and D only
d. There is no combination of the sports that could be drawn on the same indifference curve.

ANS: B
DIF: 1
LOC: Utility and consumer choice
MSC: Definitional
8.

REF: 21-2
NAT: Analytic
TOP: Indifference curves

REF: 21-2
NAT: Analytic
TOP: Indifference curves

Diana and Sarah each like jewelry and music by the Rolling Stones. If we were to graph an
indifference curve with jewelry on the horizontal axis and cd’s by the Rolling Stones on the vertical

axis, then
a. Diana and Sarah would have identical indifference curves.
b. Diana’s indifference curve would be higher than Sarah’s indifference curve.
c. Sarah’s indifference curve would be higher than Diana’s indifference curve.
d. Because we do not know the intensity of each woman’s preferences, we do not have
enough information to compare their indifference curves.

ANS: D
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic
TOP: Indifference curves


9.

Both Diana and Sarah like jazz music and music by the Beatles. Diana likes music by the Beatles
much better than jazz music, whereas Sarah prefers jazz music to music by the Beatles. If we were
to graph an indifference curve with cd’s by the Beatles on the horizontal axis and jazz cd’s on the
vertical axis, then
a. Diana and Sarah would have identical indifference curves.
b. Diana’s indifference curve would be steeper than Sarah’s indifference curve.
c. Sarah’s indifference curve would be steeper than Diana’s indifference curve.
d. We do not have enough information to compare their indifference curves.

ANS: B
DIF: 2

LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic
TOP: Indifference curves

10. Alicia is a vegetarian, so she does not eat beef. That is, beef provides no additional utility to Alicia.
She loves potatoes, however. If we illustrate Alicia’s indifference curves by drawing beef on the
horizontal axis and potatoes on the vertical axis, her indifference curves will
a. slope downward.
b. be vertical straight lines.
c. slope upward.
d. be horizontal straight lines.
ANS: D
DIF: 3
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic
TOP: Indifference curves

11. Irene is a vegetarian, so she does not eat pork. That is, pork provides no additional utility to Irene.
She loves broccoli, however. If we illustrate Irene’s indifference curves by drawing broccoli on the
horizontal axis and pork on the vertical axis, her indifference curves will
a. slope downward.
b. be vertical straight lines.
c. slope upward.
d. be horizontal straight lines.

ANS: B
DIF: 3
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic
TOP: Indifference curves


Figure 21-7
Donuts

A

E

B
D

C

Indifference Curve 3
Indifference Curve 2
Indifference Curve 1
Cake

12. Refer to Figure 21-7. When comparing bundle A to bundle E, the consumer
a. prefers bundle A because it contains more donuts.
b. prefers bundle E because it lies on a higher indifference curve.

c. prefers bundle E because it contains more donuts.
d. is indifferent between the two bundles.
ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic
TOP: Indifference curves

13. Refer to Figure 21-7. When comparing bundle B to bundle C, the consumer
a. prefers bundle B because it contains more donuts.
b. is indifferent between the two bundles.
c. prefers bundle C because it contains more cake.
d. In order to compare bundle B to bundle C, we must know the prices of cake and donuts.
ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic
TOP: Indifference curves

14. Refer to Figure 21-7. A person that chooses to consume bundle C is likely to
a. receive higher total satisfaction at bundle C than at bundle A.
b. spend more on bundle C than bundle A.
c. receive higher marginal utility from cake than from donuts.
d. receive higher marginal utility from donuts than from cake.

ANS: D
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic
TOP: Indifference curves


15. Refer to Figure 21-7. Which of the following statements is correct?
a. Bundle A is preferred equally to bundle E.
b. Bundle A is preferred equally to bundle C.
c. Bundle B contains more cake than bundle C.
d. The bundles along indifference curve Indifference Curve 2 are preferred to those along
indifference curve Indifference Curve 3.
ANS: B
DIF: 1
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic
TOP: Indifference curves

16. Refer to Figure 21-7. Which of the following statements is correct?
a. If a consumer moves from bundle C to bundle A, her loss of cake cannot be compensated
for by an increase in donuts.
b. Bundle E is preferred to all other points identified in the figure.
c. Since more is preferred to less, bundle C may be preferred to bundle E in some

circumstances for this consumer.
d. Even though bundle E has more of both goods than bundle B, we could draw a different
set of indifference curves in which bundle B is preferred to bundle E.
ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic
TOP: Indifference curves

17. Refer to Figure 21-7. Which of the following statements is not true for a consumer who moves
from bundle B to bundle C?
a. At bundle C the consumer would be willing to give up a larger amount of cake in
exchange for a donut than at bundle B.
b. The marginal rate of substitution at bundles B and C are the same since the points lie on
the same indifference curve.
c. The consumer is willing to sacrifice donuts to obtain cake.
d. The consumer receives the same level of satisfaction at bundles B and C.
ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic
TOP: Indifference curves

18. Refer to Figure 21-7. Which of the following statements is not correct?

a. Bundles on Indifference Curve 3 are preferred to bundles on Indifference Curve 1.
b. The consumer is indifferent between bundles A and E because they contain the same
number of donuts.
c. The consumer is indifference between bundles B and C.
d. The consumer prefers bundle C to bundle D.
ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic
TOP: Indifference curves

19. Refer to Figure 21-7. Which of the following comparisons is correct regarding the marginal rate of
substitution (MRS) of donuts for cake?
a. The MRS is greater between bundles A and B than between bundles B and C.
b. The MRS is greater between bundles B and C than between bundles A and B.
c. The MRS is the same between bundles A and B and bundles B and C because all three
bundles lie on the same indifference curve.
d. The MRS is greater between bundles E and B than between bundles B and D.


ANS: A
DIF: 3
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic

TOP: Marginal rate of substitution

20. Each of the following are characteristics of an indifference curve map except
a. moving northeast to a new indifference curve will increase utility.
b. points on the same indifference curve yield equal utility.
c. the axes represent levels of utility for each of the goods.
d. indifference curves cannot cross.
ANS: C
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-2
NAT: Analytic
TOP: Indifference curves

21. Bundle A contains 10 units of good X and 5 units of good Y. Bundle B contains 5 units of good X
and 10 units of good Y. Bundle C contains 10 units of good X and 10 units of good Y. The
consumer is indifferent between bundle A and bundle B. Assume that the consumer’s preferences
satisfy the four properties of indifference curves. Which of the following statements is correct?
a. The consumer must prefer bundle C to either bundle A or B.
b. Bundle A and bundle B lie on the same indifference curve.
c. The consumer must prefer bundle B to bundle C.
d. Both a) and b) are correct.
ANS: D
DIF: 2
LOC: Utility and consumer choice
MSC: Applicative

REF: 21-2

NAT: Analytic
TOP: Indifference curves

22. A consumer has preferences over two goods: books and movies. The two bundles shown in the table
below lie on the same indifference curve for the consumer.
Bundle
A
B

Books
2
3

Movies
3
2

Which of the following bundles could not lie on the same indifference curve with A and B and satisfy the
four properties of indifference curves?
a. 1 movie and 5 books
b. 3 movies and 3 books
c. 5 movies and 1 book
d. 1 movie and 7 books
ANS: B
DIF: 2
LOC: Utility and consumer choice
MSC: Analytical

REF: 21-2
NAT: Analytic

TOP: Indifference curves

23. A consumer has preferences over two goods: books and movies. The three bundles shown in the
table below lie on the same indifference curve for the consumer.
Bundle
A
B
C

Books
2
4
3

Movies
4
2
3