Question 1

Which of the following best describes the property of 'completeness' in consumer preferences?

Accepted Answer

A consumer can always rank any two bundles of goods, preferring one, the other, or being indifferent.

Question 2

Suppose Lisa's utility function is $$U(Z, B) = Z 	imes B. If $$she consumes 4 pizzas and 5 burritos, what is her utility?

Accepted Answer

$$U = 20$$

Question 3

Which of the following statements about indifference curves is FALSE?

Accepted Answer

Indifference curves can cross if the consumer is indifferent between the crossing bundles.

Question 4

If the marginal utility of pizza is $$MU_Z = 10$$ and the marginal utility of burritos is $$MU_B = 5$$, what is the marginal rate of substitution (MRS) of pizza for burritos?

Accepted Answer

$$MRS = -2$$

Question 5

A consumer faces the budget constraint $$p_B B + p_Z Z = Y. If$$ $$p_B = 2$$, $$p_Z = 1$$, and $$Y = 50$$, how many burritos can the consumer buy if she spends all her income on burritos?

Accepted Answer

$$25$$

Question 6

Which of the following is an example of perfect substitutes?

Accepted Answer

A consumer is willing to trade one can of Coke for one can of Pepsi at any time.

Question 7

If a government rations water so that a consumer can buy no more than 10,000 gallons per month, but her budget would allow her to buy 12,000 gallons, what happens to her opportunity set?

Accepted Answer

Her opportunity set shrinks, as she cannot buy bundles with more than 10,000 gallons of water.

Question 8

Which of the following best describes the 'endowment effect' in behavioral economics?

Accepted Answer

People value goods more highly when they own them than when they do not.

Question 9

If the price of pizza doubles from $$p_Z = 1 to$$ $$p_Z = 2$$ while income and the price of burritos remain constant, what happens to the slope of the budget line?

Accepted Answer

The slope becomes steeper (in absolute value increases).

Question 10

A consumer's optimal bundle is found where:

Accepted Answer

The highest indifference curve is tangent to the budget constraint.

Question 11

If a consumer's indifference curves are L-shaped, what does this imply about the goods?

Accepted Answer

The goods are perfect complements.

Question 12

Which of the following is NOT a property of indifference curves?

Accepted Answer

They can be thick.

Question 13

If the marginal utility of good Z is $$MU_Z = 8$$ and the marginal utility of good B is $$MU_B = 4$$, and the price of Z is $$p_Z = 2$$ and the price of B is $$p_B = 1$$, is the consumer maximizing utility? If not, what should she do?

Accepted Answer

No, she should buy more of good Z and less of good B.

Question 14

Which of the following best describes 'bounded rationality'?

Accepted Answer

People have limited capacity to process information and solve complex problems.

Question 15

If a consumer's utility function is $$U(Z, B) = Z 	imes B$$, what is the marginal utility of Z when $$Z = 3$$ and $$B = 4$$?

Accepted Answer

$$MU_Z = 4$$

Question 16

Which of the following is an example of a real-world application of the budget constraint?

Accepted Answer

A family deciding how much to spend on food and clothing given their monthly income.

Question 17

If a consumer receives food stamps that can only be used for food, how does this affect her budget constraint compared to receiving an equivalent cash subsidy?

Accepted Answer

The budget constraint with food stamps is kinked and does not allow as much flexibility as cash.

Question 18

Which of the following is a consequence of the 'salience' effect in behavioral economics?

Accepted Answer

Consumers may ignore taxes if they are not included in posted prices.

Question 19

If a consumer's preferences are transitive, which of the following must be true?

Accepted Answer

If the consumer prefers bundle A to B and B to C, then the consumer prefers A to C.

Consumer Choice: Preferences, Utility, and Budget Constraints

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