Question 1

Which of the following statements about indifference curves is TRUE according to the basic assumptions of consumer preferences?

Accepted Answer

Indifference curves are downward sloping and cannot cross each other.

Question 2

Suppose a consumer's marginal utility of food is $MU_F = 4$ and the marginal utility of clothing is $MU_C = 2$. If the price of food is $P_F = 2$ and the price of clothing is $P_C = 1$, which of the following is TRUE at the consumer's current consumption bundle?

Accepted Answer

The consumer should buy more food and less clothing to increase utility.

Question 3

If a consumer's indifference curves are straight lines with a constant negative slope, this implies that the two goods are:

Accepted Answer

Perfect substitutes.

Question 4

A consumer faces the budget constraint $P_A A + P_B B = I$, where $A$ is apples and $B$ is bananas. If apples are on the horizontal axis, what is the slope of the budget line?

Accepted Answer

$-\frac{P_B}{P_A}$

Question 5

Which of the following best describes the marginal rate of substitution (MRS) between two goods, $X$ and $Y$?

Accepted Answer

The rate at which the consumer is willing to give up $Y$ for one more unit of $X$, holding utility constant.

Question 6

Suppose a consumer's utility function is $U(F, C) = F 	imes C$, where $F$ is food and $C$ is clothing. If the consumer has $I = 100$, $P_F = 2$, and $P_C = 4$, what is the equation for the consumer's budget constraint?

Accepted Answer

$2F + 4C = 100$

Question 7

If a consumer's indifference curves are L-shaped, which of the following is most likely TRUE about the goods?

Accepted Answer

They are perfect complements.

Question 8

A consumer is always indifferent between an additional apple or two additional oranges. If oranges are on the horizontal axis, what is the slope of the indifference curve?

Accepted Answer

$-1/2$

Question 9

If the price of food falls while the price of clothing and income remain unchanged, what happens to the consumer's budget line?

Accepted Answer

It rotates outward, becoming flatter.

Question 10

Suppose a consumer's utility function is $U(X, Y) = \min(X, Y)$, with $I = 1000$, $P_X = 50$, and $P_Y = 200$. What is the optimal consumption bundle?

Accepted Answer

$X^* = 4, Y^* = 4$

Question 11

Which of the following is a violation of the 'more is better than less' assumption in consumer theory?

Accepted Answer

A consumer prefers less of a good because it is a 'bad'.

Question 12

If a consumer's indifference curves are concave to the origin, which assumption about preferences is violated?

Accepted Answer

Diminishing marginal rate of substitution.

Question 13

A consumer's budget line for food ($F$) and clothing ($C$) is $F + 2C = 80$. What is the slope of the budget line?

Accepted Answer

$-1/2$

Question 14

Suppose the price of a pair of jeans is $25$ and the price of a T-shirt is $15$. If the marginal utility of a pair of jeans is $100$ and the marginal utility of a T-shirt is $75$, what should the consumer do to maximize utility?

Accepted Answer

Buy more T-shirts and fewer jeans.

Question 15

If a consumer's preferences are such that averages are preferred to extremes, which property does this illustrate?

Accepted Answer

Convexity of indifference curves.

Question 16

A consumer chooses basket $A$ on budget line $L_1$ and basket $B$ on budget line $L_2$. If $A$ is more expensive than $B$, what can we infer from revealed preference theory?

Accepted Answer

The consumer prefers $A$ to $B$.

Question 17

If a consumer's utility function is $U = 3 - XY^2$, the price of $X$ is $10$, the price of $Y$ is $5$, and income is $500$, what is the equation for the budget constraint?

Accepted Answer

$10X + 5Y = 500$

Question 18

Which of the following is an example of a corner solution in consumer choice?

Accepted Answer

The consumer spends all income on one good and none on the other.

Question 19

If the marginal utility per dollar spent on food is greater than the marginal utility per dollar spent on clothing, what should the consumer do to maximize utility?

Accepted Answer

Buy more food and less clothing.

Question 20

Which of the following best describes the difference between ordinal and cardinal utility?

Accepted Answer

Ordinal utility ranks preferences, while cardinal utility measures the magnitude of satisfaction.

Consumer Behavior: Preferences, Indifference Curves, and Choice

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