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Multiple Choice

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Chapter 3

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Multiple Choice

Multiple Choice
This activity contains 20 questions.

Indifference curves cannot intersect because of the assumption that

marginal utility diminishes as more of that good is consumed. indifference curves are negatively sloped. preferences are complete. preferences are transitive.

Fill in the blanks. Along an indifference curve, total utility __________ while the marginal rate of substitution __________.
increases...remains constant decreases...remains constant remains constant...remains constant remains constant...decreases

The amount of a good that a consumer is willing to give up in order to obtain one additional unit of another good is called
an indifference curve. the marginal rate of substitution. a market basket. an indifference map.

Indifference curves between nickels and dimes are

L-shaped. negatively sloped and straight. upward sloping. convex.

Indifference curves between left shoes and right shoes are

convex. L-shaped. Negatively sloped and straight. Upward sloping.

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Multiple Choice

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Suppose Tim enjoys coffee (C) but is sickened by tea (T). Which of the following utility functions would best represent Tim's utility function for coffee and tea?
U=C/T U=T/C U = CT U=C*T

A utility function that describes how much of one market basket is preferred to another is called
an ordinal utility function. a cardinal utility function. a utility-maximizing function. a definitive utility function.

If Leon's marginal rate of substitution of chicken for steak is 2, then we know that
he is willing to give up 2 units of chicken to get the next unit of steak. he is willing to give up 2 units of steak to get the next unit of chicken. Two units of steak are identical to two units of chicken. he prefers to eat 2 units of steak together with every unit of chicken he eats.

When Sally had only one gallon of water in the cupboard, she said she was willing to give up a week's worth of television to get another gallon. Now that she has ten gallons of water in the cupboard, she refuses to part with anything when offered another gallon of water. Sally's behavior demonstrates
intersecting indifference curves. a diminishing marginal rate of substitution. that drinking water and watching television are, for some reason, perfect substitutes for her. irrationality.

The vertical intercept of the budget line represents

the consumer's nominal income. the most money the consumer can spend on the good measured on the vertical axis. the consumer's real income in terms of the price of the good measured on the horizontal axis. the consumer's real income in terms of the price of the good measured on the vertical axis.

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Multiple Choice

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Liz has $10 to spend on soda (S) and pretzels (P). Sodas cost $1 each and pretzels cost $0.50 each. Which of the following represents Liz's budget constraint?
P = 10 0.5S P =10 2S P = 5 0.5S P = 20 2S

Suppose that the quantity of pretzels consumed is measured on the vertical axis and the quantity of soda consumed is measured on the horizontal axis. If the budget line becomes flatter while the vertical intercept is unchanged, then which of the following may have occurred?
The price of soda increased, but income increased by a greater percentage while everything else remained unchanged. The price of soda decreased while other things remained constant. Income and the price of soda increased while other things remained constant. The price of pretzels increased while other things remained constant.

If a consumer's budget line for food (F) and clothing (C) can be written as F = 500 4C, then we know that
clothing costs 4 times as much as food. the consumer's nominal income is 500. the consumer's nominal income is 2000. food costs 4 times as much as clothing.

If both prices and income increase by 5%, then what will happen to the budget line?
The budget line becomes steeper by 5%. Nothing. The budget line shifts inward by 5%. The budget line shifts outward by 5%.

By selecting the combination of goods for which MRS = PX/PY, the consumer is saying
"I get the same marginal utility from the last dollar I spend on X as I do from the last dollar I spend on Y." "I will spend the same amount of money on all goods." "I get the same marginal utility from the last unit of X as I do from the last unit of Y."

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Multiple Choice

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All of the above.

Mary and Sue each consume apples and chocolate. They each pay the same price for each of the two goods, and both women claim to be in equilibrium. It must be true that
Mary and Sue have the same utility functions. Mary and Sue have the same income. Mary and Sue have the same marginal rate of substitution of apples for chocolate. All of the above.

When the marginal rate of substitution between two goods is equal to the ratio of prices,
marginal benefit equals marginal cost. total benefit equals total cost. the consumer has reached the highest indifference curve in her indifference map. the consumer can increase utility by increasing the consumption of either good.

Rocky thinks that a sip of Coke and a sip of Pepsi are perfect substitutes. If Coke sells for $4 per case and Pepsi sells for $2 per case, then
Rocky will buy equal amounts of Coke and Pepsi. Rocky will not buy any Coke. Rocky will spend twice as much on Coke as he does on Pepsi. Rocky will buy twice as much Pepsi as Coke.

In a corner solution, the marginal rate of substitution


equals the slop of the budget line. equals zero. is not the same as the slope of the budget line. is not the same as the slope of the indifference curve.

Revealed preference means that a consumer chooses one market basket over another and
switches her choices the next time she buys. explains to others why she made that choice. the chosen market basket is more expensive than the alternative. the chosen market basket contains only a single good.

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Multiple Choice

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