NAME :

CLASS :
eco01H_revision_chapter 4
43 Questions DATE :

1. Which of the following does not represent a tradeoff facing a consumer?

choosing to spend more time on leisure

A choosing to purchase more of all goods B
and less time on work

choosing to spend more now and choosing to purchase less of one good in
C D
consume less in the future order to purchase more of another good

2. When a consumer spends less time enjoying leisure and more time working, she has

lower income and therefore cannot afford lower income and therefore can afford
A B
more consumption. more consumption.

higher income and therefore cannot higher income and therefore can afford
C D
afford more consumption. more consumption.

3. A consumer who 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

4. 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.

5. If the price of X is $10, what is the price of Y?

A $15 B $25

C $35 D $70

6. Which of the following could explain the change in the budget line
from A to B?

a simultaneous decrease in the price of X

A B an increase in income
and the price of Y

a decrease in income and a decrease in

C D Both a and b are correct.
the price of Y

7. 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

More than one of the above could explain

C a decrease in the price of Y D
this change.

8. 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

 9. A consumer who doesn't spend all of her income

would be at a point outside of her budget would be at a point inside her budget
A B
constraint. constraint.

must not be consuming positive quantities must be consuming at a point where her
C D
of all goods. budget constraint touches one of the axes.

10. The slope of the budget constraint is all of the following except

the rate at which a consumer can afford to

A the relative price of two goods. B
trade one good for another.

C the marginal rate of substitution. D constant.

11. The slope of the budget constraint is determined by the

relative price of the goods measured on relative price of the goods measured on
A B
the axes. the axes and the consumer’s income.

C endowment of productive resources. D preferences of the consumer.

12. 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

13. An increase in a consumer's income

increases the slope of the consumer's has no effect on the slope of the
A B
budget constraint. consumer's budget constraint.

decreases the slope of the consumer's has no effect on the consumer's budget
C D
budget constraint. constraint.

14. 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.

15. A consumer

is equally satisfied with any indifference prefers indifference curves with positive
A B
curve. slopes.

prefers indifference curves that are

prefers higher indifference curves to lower
C D straight lines to indifference curves that
indifference curves.
are right angles.

16. An indifference curve illustrates the

prices facing a consumer as she chooses income facing a consumer as she chooses
A how much of good X and good Y to B how much of good X and good Y to
consume. consume.

trade-offs facing a consumer as she

C chooses how much of good X and good Y D All of the above are correct.
to consume.

17. What is the consumer’s marginal rate of substitution as she moves

from A to B?

A 12 B 6

C 4 D 1

18. As the consumer moves from point A to B to C to D, the consumer’s

marginal rate of substitution

A remains constant. B increases.

C decreases. D first increases, then decreases.

19. As the consumer moves from point A to B to C to D, the consumer’s
total utility

A remains constant. B increases.

C decreases. D first increases, then decreases.

20. The marginal rate of substitution is equal to the

A slope of the indifference curve. B ratio of the prices of the two goods.

C slope of the budget constraint. D All of the above are correct.

21. ch of the following is a property of typical indifference curves?

A Indifference curves usually intersect. B Indifference curves have positive slopes.

Indifference curves are downward sloping Indifference curves are usually bowed in
C D
and always linear. toward the origin.

22. Assume that a consumer’s indifference curve is a downward-sloping straight line. As the
consumer moves from left to right along the horizontal axis, the consumer’s marginal rate
of substitution

A increases. B decreases.

C remains constant. D increases, then decreases.

23. A consumer’s preferences for right shoes and left shoes can be represented by indifference
curves that are

A bowed out from the origin B bowed in toward the origin

C straight lines D right angles

24. Given the budget constraint depicted in the graph, the consumer’s
optimal choice will be point

A B B C

C D D E
25. It would be possible for the consumer to reach I2 if

A the price of Y decreases. B the price of X decreases.

C income increases. D All of the above would be correct.

26. The goal of the consumer is to

A maximize utility. B be on the highest indifference curve.

All of the above are the goals of the

C maximize satisfaction. D
consumer.

27. A graph of an optimal choice point shows that it occurs

along the highest attainable indifference where the indifference curve is tangent to
A B
curve. the budget constraint.

where the marginal utility per dollar spent

C D All of the above are correct.
is the same for both X and Y.

28. A consumer chooses an optimal consumption point where the

rate at which the consumer is willing to

A marginal rate of substitution is maximized. B trade one good for another equals the
price ratio.

C price ratio is minimized. D All of the above are correct.

29. An optimizing consumer will select a consumption bundle in which

income is maximized, and prices are utility is maximized, and prices are
A B
minimized. minimized.

utility is maximized, subject to budget utility is maximized, and indifference

C D
constraints. curves are linear.

30. If the consumer's income and all prices simultaneously decrease by one-half, then the
optimum consumption will

shift outward relative to the original move leftward along the original budget
A B
optimum. constraint.

shift inward relative to the original

C D not change.
optimum.
31. The consumer's optimum choice is represented by

A MUx/MUy = Px/Py. B MUx/Px = MUy/Py.

C MRSxy = Px/Py. D All of the above are correct.

32. When the indifference curve is tangent to the budget constraint,

a consumer cannot be made better off

without an increase in her income or a the consumer is likely to be at a sub-
A B
price decrease in one of the goods she optimal level of consumption.
consumes.

C income is at its optimum for a consumer. D indifference curves are likely to intersect.

33. At the consumer's optimum the

budget constraint will have a slope of slope of the indifference curve is equal to
A B
MUx/Px. the slope of the budget constraint.

indifference curve will intersect the budget

C constraint at the midpoint of the budget D Both b and c are correct.
constraint.

34. Which of the following represents a consumer's optimum?

A MUx/MUy = Py/Px B MUx/Py = MUy/Px

C MUx/Px = MUy/Py D MUy/MUx = Px/Py

35. Angie is maximizing total utility while consuming food and clothing. Her marginal utility from
food is 50, and her marginal utility from clothing is 25. If clothing is priced at $10 per unit,
the price of food per unit must be

A $2 B $2.5

C $5 D $20

36. Which of the following is not correct?

An increase in the price of good X causes a

An increase in income shifts a consumer’s
A B consumer’s budget constraint to rotate
budget constraint outward.
inward along the X axis.

A decrease in the price of good Y causes a Changes in income affect the slope of the
C consumer’s budget constraint to rotate D budget constraint as well as its location on
outward along the Y axis. a graph.
37. What are the two effects of a change in a price that a consumer experiences?

the complement effect and the substitute

A the income effect and the budget effect B
effect

the income effect and the substitution

C the price effect and the preference effect D
effect

38. A consumer consumes two normal goods, coffee and chocolate. The price of coffee rises.
The income effect, by itself, suggests that the consumer will consume

A more coffee and more chocolate. B less coffee and less chocolate.

C more coffee and less chocolate. D less coffee and more chocolate.

39. Energy drinks and granola bars are normal goods. When the price of energy drinks
decreases, the income effect causes

the consumer to feel richer, so the the consumer to feel richer, so the
A B
consumer buys more granola bars. consumer buys fewer granola bars.

granola bars to be relatively more granola bars to be relatively less

C expensive, so the consumer buys more D expensive, so the consumer buys fewer
granola bars. granola bars.

40. The income effect of a price change is depicted by

a parallel shift of the budget constraint at a parallel shift of the budget constraint at
A B
the old set of prices. the new set of prices.

not observable and is therefore neither a

a movement along the budget constraint
C D shift nor a change in the slope of the
holding the level of satisfaction constant.
budget constraint.

41. A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The
substitution effect, by itself, suggests that the consumer will consume

A more popcorn and more Pepsi. B less popcorn and less Pepsi.

C more popcorn and less Pepsi. D less popcorn and more Pepsi.

42. Steak and pasta are normal goods. When the price of pasta falls, the substitution effect by
itself causes

the consumer to feel richer, so the the consumer to feel richer, so the
A B
consumer buys more steak. consumer buys less steak.

steak to be relatively more expensive, so steak to be relatively less expensive, so the

C D
the consumer buys less steak. consumer buys more steak.
43. Pepsi and pizza are normal goods. When the price of pizza falls, the substitution effect by
itself will cause a

shift to a lower indifference curve so that shift to a higher indifference curve so that
A B
the consumer buys less Pepsi. the consumer buys more Pepsi.

movement along the indifference curve so movement along the indifference curve so
C D
that the consumer buys more Pepsi. that the consumer buys less Pepsi.
Answer Key

1.a 2.d 3.c 4.b

5.c 6.d 7.c 8.d

9.b 10.c 11.a 12.b

13.b 14.c 15.c 16.c

17.c 18.c 19.a 20.a

21.d 22.c 23.d 24.b

25.d 26.d 27.d 28.b

29.c 30.d 31.d 32.a

33.b 34.c 35.d 36.d

37.d 38.b 39.a 40.b

41.c 42.c 43.d