chapter 6: theory of consumer behavior · chapter 5: theory of consumer behavior multiple choice...

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Chapter 5: THEORY OF CONSUMER BEHAVIOR Multiple Choice

5-1 If Mary prefers bananas to plums and plums to peaches, but is indifferent between bananas and

oranges, she

a. prefers oranges to peaches.

b. prefers plums to oranges.

c. is indifferent between oranges and plums.

d. is indifferent between oranges and peaches.

Answer: a

Difficulty: 01 Easy

Topic: Basic Assumptions of Consumer Theory

AACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 05-01

5-2 A typical indifference curve

a. shows all combinations of goods that give a consumer the same level of utility.

b. shows that as a consumer has more of a good he is less willing to exchange it for one unit

of another good.

c. shifts out if income increases.

d. both a and b

e. all of the above

Answer: a

Difficulty: 01 Easy

Topic: Indifference Curves


Blooms: Understand


5-3 The rate at which a consumer is ABLE to substitute one good for another is determined by

a. the indifference map.

b. the marginal rate of substitution.

c. the consumer's income.

d. the budget line

Answer: d

Difficulty: 01 Easy

Topic: The Consumer’s Budget Constraint


Blooms: Remember


5-4 A utility function

a. shows the relation between prices and a consumer's utility.

b. shows the relation between income and a consumer's utility.

c. shows the relation between the amount of goods consumed and a consumer's utility.

d. all of the above

e. none of the above

Answer: c



Difficulty: 01 Easy



Blooms: Understand


5-5 Along an indifference curve

a. the MRS is constant.

b. the ratio of the marginal utilities is constant.

c. the price ratio is constant.

d. all of the above


Answer: e

Difficulty: 02 Medium



Blooms: Understand


5-6 The slope of an indifference curve

a. shows the change in utility from an additional unit of the good.

b. shows the rate at which the consumer is able to substitute goods in the market.

c. is equal to the price ratio at all points.

d. is the rate at which the consumer is willing to exchange one good for another, utility held

constant.

e. all of the above

Answer: d

Difficulty: 01 Easy



Blooms: Understand


5-7 Which of the following assumptions is(are) NOT made in consumer behavior theory?

a. Consumers can rank all bundles of goods.

b. Consumers can measure the utility they get from all bundles of goods.

c. Consumers have complete information.

d. both a and b

e. None of the above are assumptions made in consumer behavior theory.

Answer: b




Blooms: Remember


5-8 Suppose that 2 units of X and 8 units of Y give a consumer the same satisfaction as 4 units of X

and 2 units of Y. Then

a. the consumer is willing to give up 3 units of Y to obtain 1 more unit of X.

b. the consumer is willing to give up 1 unit of Y to obtain 3 more units of X.

c. the marginal rate of substitution of Y for X is 3.



d. both a and c

e. both b and c

Answer: d



AACSB: Analytic

Blooms: Analyze


5-9 Alexandra consumes only caviar and champagne, but she does have a limited income of $400.

Her current consumption choice is 5 ounces of caviar, at a price of $50 per ounce, and 6 bottles of

champagne, at $25 each. The last ounce of caviar added 100 units to Alexandra's total utility,

while the last bottle of champagne added 75 units. If Alexandra chooses 4 ounces of caviar and 8

bottles of champagne instead her total utility will:

a. increase by 150 units

b. decrease by 150 units

c. increase by 100 units

d. decrease by 100 units

e. increase by 50 units

Answer: e

Difficulty: Hard

Topic: Utility Maximization

AACSB: Analytic

Blooms: Analyze


5-10 According to the following figure, what could have caused a consumer's budget line to shift from

ML to MN?



a. an increase in the price of X

b. a decrease in the price of X

c. an increase in the price of Y

d. a decrease in the price of Y

e. cannot determine without more information

Answer: b

Difficulty: 01 Easy



Blooms: Understand


5-11 According to the following figure, at point A,

a. the marginal rate of substitution of X for Y is greater than it is at point B.

b. the ratio of the price of X to the price of Y is greater than it is at point B.

c. the consumer's utility is less than it is at point B.

d. both a and c

e. all of the above

Answer: e

Difficulty: 03 Hard


AACSB: Analytic

Blooms: Analyze


5-12 Marginal utility is

a. the utility obtained from the consumption of all but the last unit of a good.

b. the relative value of two goods when a utility−maximizing decision has been made.



c. the change in utility that results from increasing the amount of a good consumed by one

unit.

d. the change in the amount of a good consumed that increases total utility by one unit.

Answer: c

Difficulty: 01 Easy



Blooms: Remember


5-13 If the marginal rate of substitution of X for Y is 2, the price of X is $3, and the price of Y is $1, a

utility−maximizing consumer should

a. be indifferent between 1X and 2Y.

b. prefer 3Y to 1X.

c. choose less X and more Y.

d. choose more X and less Y.

Answer: c



AACSB: Analytic

Blooms: Analyze


5-14 If a consumer is choosing the bundle of goods that maximizes utility subject to a budget

constraint, then

a. the rate at which income affects the utility−maximizing choice is equal for all goods.

b. the rate at which the consumer is willing to substitute between goods is equal to the

market rate of exchange.

c. the ratio of marginal utility to price is equal for all goods.

d. both b and c

e. all of the above

Answer: d

Difficulty: 03 Hard


AACSB: Analytic

Blooms: Analyze


5-15 Ronald, who consumes only hamburgers and hot dogs, has a weekly income of $50. He is

currently consuming 20 hamburgers, at a price of $2 each, and 10 hot dogs, at a price of $1 each.

If the last hamburger and the last hot dog both added 50 units to Ronald's total utility, he

a. is making the utility−maximizing choice.

b. should buy more hamburgers and fewer hot dogs.

c. should buy more hot dogs and fewer hamburgers.

d. obtains more additional utility per dollar from hot dogs than from hamburgers.

e. both c and d

Answer: e



AACSB: Analytic

Blooms: Analyze




The price of Y is $10.

5-16 According to the above figure, if the price of X is $5, what combination of X and Y will a utility-

maximizing consumer choose?

a. 80X, 20Y

b. 120X, 620Y

c. 120X, 250Y

d. 200X, 620Y


Answer: a

Difficulty: 03 Hard


AACSB: Analytic

Blooms: Analyze





5-17 According to the above figure, the marginal rate of substitution of X for Y at point C is:

a. 5

b. 2

c. 0.5

d. 0.3


Answer: e

Difficulty: 03 Hard


AACSB: Analytic

Blooms: Analyze





5-18 According to the above figure, which of the following are points on the consumer's demand curve

for X?

a. $2, 300 units

b. $3, 120 units

c. $5, 120 units

d. both a and b

e. both c and d

Answer: b

Difficulty: 03 Hard

Topic: Individual Demand and Market Demand Curves


Blooms: Understand




The consumer's income is $800.

5-19 According to the above figure, what are the prices of goods X and Y?

a. XP = $10,

YP = $8

b. XP = $8,

YP = $10

c. XP = $100,

YP = $80

d. XP = $20,

YP = $60

e. XP = $60,

YP = $20

Answer: b




Blooms: Understand





5-20 According to the above figure, what is the consumer's marginal rate of substitution in equilibrium?

a. 1.5

b. 2

c. 2.5

d. 0.8

e. unable to tell from information given

Answer: d




Blooms: Understand



5-21 According to the above figure, why doesn't the consumer choose the combination of 30X and 56Y

at point A?

a. MRS is less than X XP P .

b. MRS is greater than X YP P .

c. XMU is greater than

YMU .

d. X XMU P is less than

Y YMU P .

Answer: b




Blooms: Understand





5-22 According to the above figure, why doesn't the consumer choose the combination at point B?

a. The consumer is willing to give up more X for additional units of Y than the rate in the

market.

b. The marginal utility of Y exceeds the marginal utility of X.

c. The marginal utility per dollar spent on Y exceeds the marginal utility per dollar spent on

X.

d. both a and c

e. both b and c

Answer: d

Difficulty: 03 Hard


AACSB: Analytic

Blooms: Analyze


5-23 An individual's demand curve for X

a. shows how the utility−maximizing choice of X changes as the price of X changes.

b. shows how the individual's preferences change as the price of X changes.

c. shows how the individual's preferences change as the consumer income changes.

d. both a and b

e. both a and c

Answer: a

Difficulty: 01 Easy



Blooms: Understand




5-24 Suppose a consumer who purchases only two goods is making a utility−maximizing choice and

then the price of one of the goods decreases. What will happen?

a. The consumer's purchasing power will increase.

b. The consumer's total utility will increase.

c. The consumer's money income will increase.

d. both a and b

e. all of the above

Answer: d

Difficulty: 03 Hard



Blooms: Understand


5-25 If Ferdinand prefers a Big Mac to a Whopper and a Whopper to a hotdog, but is indifferent

between a Big Mac and a Quarter Pounder he must

a. prefer a Quarter Pounder to a hotdog.

b. prefer a Whopper to a Quarter Pounder.

c. be indifferent between a Quarter Pounder and a Whopper.

d. be indifferent between a Whopper and a hotdog.

Answer: a




Blooms: Understand


5-26 Which of the following is NOT a characteristic of a typical indifference curve?

a. The curve shows all combinations of goods that give the consumer the same level of

utility.

b. As a consumer has less of a good, he is less willing to exchange less of it for one more

unit of another good.

c. The marginal rate of substitution is measured by the slope of the tangent to the curve.

d. The curve will shift out if income increases.

Answer: d

Difficulty: 01 Easy



Blooms: Understand


5-27 According to the Rolling Stones, "You can't always get what you want." Which does this mean in

the context of utility maximization?

a. A bundle of goods between the budget line and the origin

b. Vertical indifference curves

c. A bundle of goods above the budget line

d. Horizontal indifference curves

Answer: c

Difficulty: 01 Easy





Blooms: Understand


5-28 The consumer chooses the bundle of goods that maximizes his utility and spends all his income.

Which of the following statements is correct?

a. The marginal utilities of all goods are equal.

b. Expenditures on all goods are equal.

c. The addition to utility of the last unit of the good is equal across all goods.

d. The addition to utility of the last unit of the good per dollar is equal across all goods.

Answer: d

Difficulty: 01 Easy



Blooms: Understand


5-29 An indifference curve is drawn on a graph with good X on the horizontal axis and good Y on the

vertical axis. One point on the curve is X = 5, Y = 5. Which of the following points CANNOT

also be on the curve?

a. X = 6, Y = 6

b. X = 6, Y = 4

c. X = 9, Y = 4

d. X = 2, Y = 11

Answer: a

Difficulty: 01 Easy



Blooms: Understand


5-30 Ms. Birnbaum is buying bottles of beer and bags of pretzels. The marginal utility of the last bottle

of beer is 60 and the marginal utility of the last bag of pretzels is 30. The price of beer is $0.30

per bottle and the price of pretzels is $0.20 per bag. Ms. Birnbaum

a. is buying beer and pretzels in the utility-maximizing amounts.

b. should buy more beer and fewer pretzels.

c. should buy more pretzels and less beer.

d. is not spending all her income.

Answer: b



AACSB: Analytic

Blooms: Analyze


5-31 The rate at which a consumer is WILLING to substitute one good for another is measured by

a. the corner solution on the Y axis.

b. the slope of the budget line.

c. the consumer's real income.

d. the slope of the tangent to the indifference curve.

Answer: d






Blooms: Understand


5-32 Based on the following graph, what is the price of Y?


a. $0.25

b. $4

c. $8

d. $6


Answer: d

Difficulty: 01 Easy



Blooms: Understand


5-33 Based on the following graph, if the price of X is $7.50 per unit, how many units of X will a

utility-maximizing consumer choose?




a. 25

b. 30

c. 35

d. 50


Answer: c




Blooms: Understand


5-34 Based on the following graph, at point C,




a. MRS is greater than 1.25.

b. MRS is less than 0.4.

c. MRS is greater than 2.

d. MRS is less than 2.5.

Answer: a




Blooms: Understand


5-35 Based on the following graph, one point on the consumer's demand curve for X is




a. 60 units at a price of $10.

b. 35 units at a price of $10.

c. 35 units at a price of $6.

d. 25 units at a price of $10.

e. 25 units at a price of $7.50.

Answer: d




Blooms: Understand


5-36 A market demand curve

a. is the horizontal summation of the demand curves of all consumers in the market.

b. is the sum of the prices consumers are willing to pay at each quantity.

c. shows that consumers demand more at higher prices.

d. both a and b

e. all of the above

Answer: a

Difficulty: 01 Easy



Blooms: Understand




5-37 The ratio of the prices of two goods measures

a. the rate at which a consumer is willing to substitute one good for another in the market.

b. the rate at which a consumer is able to substitute one good for another in the market.

c. the marginal rate of substitution of X for Y.

d. both a and c

e. both b and c

Answer: b

Difficulty: 01 Easy



Blooms: Understand


The price of X is $20 and the price of Y is $40.

5-38 Based on the above graph, if U1 is the highest level of utility the consumer can achieve, what is

the consumer's income?

a. $ 480

b. $ 600

c. $ 800

d. $1,200


Answer: c

Difficulty: 01 Easy



Blooms: Understand





5-39 Based on the above graph, how many units of X will the consumer choose if point B is the utility-

maximizing choice?

a. 28

b. 30

c. 32

d. 60


Answer: c




Blooms: Understand





5-40 Based on the above graph, at point B,

a. if the consumer obtains one more unit of Y, ½ unit of X must be foregone in order to keep

utility unchanged.

b. if the consumer obtains one more unit of X, two units of Y must be foregone in order to

keep utility unchanged.

c. the marginal rate of substitution is ½.

d. both a and c

e. all of the above

Answer: c



AACSB: Analytic

Blooms: Analyze





5-41 Based on the above graph, if income is $800, how many units of Y will the consumer choose?

a. 6

b. 7

c. 8

d. 9

e. 10

Answer: c



AACSB: Analytic

Blooms: Analyze


5-42 According to the following graph, what is Y1?



The consumer's income is $1,200.

a. 30

b. 80

c. 110

d. 120


Answer: d




Blooms: Understand


5-43 According to the following graph, at what price of Y are Y2 units demanded?




a. $ 8

b. $10

c. $15

d. $16

e. $12

Answer: e

Difficulty: 02Medium


AACSB: Analytic

Blooms: Analyze




5-44 According to the following graph, at point B,


a. the rate at which the consumer is willing to substitute X for Y is greater than it is at point

A.

b. the consumer is willing to give up more Y in order to gain an extra unit of X than at point

A.

c. the consumer will receive more Y for each unit of X exchanged in the market than at point

A.

d. both a and b

e. all of the above

Answer: e



AACSB: Analytic

Blooms: Analyze




5-45 Lord Greystroke uses his limited income to purchase fruits and nuts; he is currently buying 10

pounds of fruits at a price of $2 per pound and 5 pounds of nuts at a price of $6 per pound. The

last pound of fruits added 10 units to Lord Greystroke's total utility, while the last pound of nuts

added 30 units. Lord Greystroke

a. is making the utility-maximizing choice.

b. should buy more fruits and less nuts because the last pound of fruits cost less than the last

pound of nuts.

c. should buy more fruits and less nuts because the last dollar spent on fruits added more to

total utility than the last dollar spent on nuts.

d. should buy more nuts and less fruits because the last pound of nuts added more to total

utility than the last pound of fruits.

e. should buy more nuts and less fruits because the last dollar spent on nuts added more to

total utility than the last dollar spent on fruits.

Answer: a



AACSB: Analytic

Blooms: Apply


5-47 According to the following graph, if U2 is the maximum attainable utility, the price of X is


a. $10.

b. $15.

c. $20.

d. $25.


Answer: b




Blooms: Understand




5-48 According to the following graph, at point A,


a. the consumer can exchange two units of X for one unit of Y and keep utility unchanged.

b. the consumer can exchange two units of X for one unit of Y and keep income unchanged.

c. the consumer receives twice as much marginal utility from X as from Y.

d. both a and b

e. all of the above

Answer: d



AACSB: Analytic

Blooms: Analyze


5-49 According to the following graphs, the consumer's demand curve for X is


a. D1.



b. D2.

c. D3.

d. D4.

Answer: d




Blooms: Understand


5-50 Suppose that 25 units of X and 16 units of Y give a consumer the same satisfaction as 15 units of

X and 18 units of Y. Then

a. the consumer can exchange five units of X for one unit of Y and keep utility unchanged.

b. the consumer can exchange one unit of X for 1/5 unit of Y and keep utility unchanged.

c. the market rate of exchange of X for Y is 1/5.

d. both a and b

e. all of the above

Answer: d




Blooms: Understand


5-51 Lulu consumes only candy and cookies; she is currently buying more cookies than candy with her

limited income. The last bag of candy gave Lulu the same additional utility as the last bag of

cookies, and the prices of candy and cookies are the same. Lulu

a. is maximizing utility given a limited income because the prices of candy and cookies are

the same.

b. is maximizing satisfaction given a limited income because the marginal utility per dollar

is the same for candy and cookies.

c. could get more satisfaction from the same income by buying more candy and less cookies.

d. could get more satisfaction from the same income by buying more cookies and less candy.

Answer: b

Difficulty: 01 Easy


AACSB: Analytic

Blooms: Analyze




5-52 According to the following graphs, what is1Y ?

The price of Y is $15 per unit.

a. 12

b. 15

c. 20

d. 25


Answer: b

Difficulty: 03 Hard


AACSB: Analytic

Blooms: Analyze


5-53 According to the following graphs, what is1X ?




a. 10

b. 12

c. 18

d. 20


Answer: e

Difficulty: 03 Hard


AACSB: Analytic

Blooms: Analyze


5-54 According to the following graphs, at point B,




a. the consumer can exchange one unit of X for one unit of Y and keep income unchanged.

b. the marginal rate of substitution of X for Y is greater than it is at point A.

c. the consumer's utility is greater than it is at point A.

d. both a and b

e. all of the above

Answer: b




Blooms: Understand


5-55 According to the following graphs, what does the curve in the lower graph show?




a. how a consumer's utility-maximizing choices of X and Y change when the budget

constraint changes

b. how a consumer's preferences change when income changes

c. how a consumer's utility-maximizing choices of X changes when the price of X changes

d. how a consumer's utility-maximizing choices of Y changes when the price of Y changes

e. both c and d

Answer: c

Difficulty: 03 Hard



Blooms: Understand


5-56 Suppose that utility-maximizing consumers in San Francisco pay three times as much for apples

as for peaches. What is the ratio of the marginal utility of apples to the marginal utility of peaches?

a. 1/3



b. 2/3

c. 3

d. none of the above

e. cannot determine without further information

Answer: c

Difficulty: 01 Easy



Blooms: Remember


5-57 Assume that an individual consumes two goods, X and Y. The total utility (assumed measurable)

of each good is independent of the rate of consumption of other goods. The prices of X and Y are,

respectively, $5 and $10.

Units of the Good Total Utility of X Total Utility of Y

1

2

3

4

5

6

7

8

50

95

135

170

200

225

245

260

400

750

950

1100

1220

1320

1400

1450

Given the above, if the consumer buys the third unit of Y,

a. the marginal utility of the third unit is 950 units of satisfaction.

b. the marginal utility per dollar spent on Y is 200.

c. the marginal utility per dollar spent on Y is 20.

d. both a and b.

Answer: c



AACSB: Analytic

Blooms: Apply






1

2

3

4

5

6

7

8

50

95

135

170

200

225

245

260

400

750

950

1100

1220

1320

1400

1450

Given the above, if the consumer has $65 to spend on X and Y, the utility-maximizing bundle is

a. 3X and 5Y.



b. 4X and 4Y.

c. 5X and 2Y.

d. 1X and 6Y.

e. 2X and 7Y.

Answer: d



AACSB: Analytic

Blooms: Analyze






1

2

3

4

5

6

7

8

50

95

135

170

200

225

245

260

400

750

950

1100

1220

1320

1400

1450

Given the above, if the consumer has $110 to spend on X and Y, which combination will the

consumer choose?

a. 5X and 4Y

b. 6X and 8Y

c. 7X and 6Y

d. 8X and 7Y

e. 7X and 7Y

Answer: b



AACSB: Analytic

Blooms: Analyze




5-60 What is the equation for budget line LM, given the above graph?

a. Y = 10 + 1.5X

b. Y = 10 − (2/3)X

c. Y = 1.5 + 1.5X

d. Y = 1.5 − 10X

e. Y = 0.667 + 1.5X

Answer: b

Difficulty: 01 Easy



Blooms: Understand




5-61 What is the equation for budget line RS, given the above graph?

a. Y = 10 + 18X

b. Y = 10 − 1.8X

c. Y = 15 + (9/5)X

d. Y = 1.8 + (9/5)X

e. Y = 18 − (18/10)X

Answer: e

Difficulty: 01 Easy



Blooms: Understand


5-62 The market demand curve

a. shows how much all consumers demand at various prices.

b. is the vertical summation of the demand curves of all the consumers in the market.

c. is quite complex to construct, given the demand curves of the individual consumers.

d. all of the above

Answer: a

Difficulty: 01 Easy



Blooms: Understand


5-63 Market demand

a. is the horizontal summation of the individual demand curves.

b. slopes downward.

c. shows how market purchases vary with price.

d. both a and b

e. all of the above

Answer: e



Difficulty: 01 Easy



Blooms: Understand


5-64 Assume James purchases only two goods, steak and chicken, with his weekly income of $60. The

price of steak is $10 and the price of chicken is $5. The following table shows the marginal utility

James gets from each additional pound of steak and chicken:

Quantity

Marginal utility of

steak

Marginal utility of

chicken

1

70 50

2

60 40

3

50 30

4

40 20

5

32 10

6

16 5

Given the above information, what quantities of steak and chicken should James purchase to

maximize his utility?

a. 3 steak, 2 chicken

b. 5 steak, 2 chicken

c. 4 steak, 4 chicken

d. 2 steak, 5 chicken


Answer: c



AACSB: Analytic

Blooms: Apply


5-65 Assume James purchases only two goods, steak and chicken, with his weekly income of $60. The

price of steak is $10 and the price of chicken is $5. The following table shows the marginal utility

James gets from each additional pound of steak and chicken:

Quantity

Marginal utility of

steak

Marginal utility of

chicken

1

70 50

2

60 40



3

50 30

4

40 20

5

32 10

6

16 5

Given the above information, if the price of steak falls to $8, what quantities of steak and chicken

should James purchase to maximize his utility?

a. 6 steak, 2 chicken

b. 5 steak, 3 chicken

c. 4 steak, 4 chicken

d. 5 steak, 4 chicken

e. 3 steak, 6 chicken

Answer: d



AACSB: Analytic

Blooms: Apply


5-66 Refer to the following indifference map for a consumer who has an income of $48 to spend on

goods X and Y and the market prices of X and Y are both $4:



In order to maximize utility subject to her budget constraint, this consumer should buy how many

units of good X?

a. 0

b. 4

c. 6

d. 8

e. 12

Answer: b




Blooms: Understand




Now suppose the price of good X increases to $12 while the price of good Y remains $4. Utility

will be maximized on which indifference curve?

a. I

b. II

c. III

d. On an indifference curve below I

Answer: b

Difficulty: 01 Easy



Blooms: Understand






After the price of good X increases to $12 while the price of good Y remains $4, how many units

of good X would be purchased?

a. 0

b. 2

c. 4

d. 8

e. 12

Answer: a



AACSB: Analytic

Blooms: Apply


5-69 The consumer faces a budget constraint because the market price of X is $3, the market price of Y

is $3, and the consumer’s budget is $90.How many units of X and Y would be purchased?

a. 0 units of X, 0 units of Y.

b. 10 units of X, 20 units of Y.

c. 20 units of X, 20 units of Y.

d. 30 units of X, 30 units of Y.

Answer: b

Difficulty: 01 Easy


AACSB: Analytic

Blooms: Apply


5-70 The consumer faces a budget constraint because the market price of X is $3, the market price of Y

is $3, and the consumer’s budget is $90. In order for this consumer to choose the corner solution

at point E, which of the following must occur?



a. price of X must rise to $6.

b. price of Y must rise to $6.

c. price of X must rise to $9.

d. price of Y must rise to $9.

Answer: c


Topic: Corner Solutions

AACSB: Analytic

Blooms: Analyze


chapter 6: theory of consumer behavior · chapter 5: theory of consumer behavior multiple choice...

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