Part 3 Consumer’s Behavior

1. (A) A shows the consumption possibilities of a consumer at a given level of income and prices.
(A) budget line
(B) demand curve
(C) supply curve
(D) indifference curve

2. (C) All points below the budget line are

(A) inferior to every point on the budget line.
(B) preferred to every point on the budget line.
(C) affordable.
(D) Answers A and C are correct.

3. (C) All points above the budget line are

(A) inferior to every point on the budget line.
(B) preferred to every point on the budget line.
(C) unaffordable.
(D) Both answers B and C are correct.

4. (C) Jake plans to spend $100 on fried chicken and Pepsi. The price of a fried chicken is $5 and Pepsi is
$2 per bottle. If Jake buys 10 fried chickens how many bottles of Pepsi can he buy?
(A) 50
(B) 10
(C) 25
(D) 75

5. (C) Suppose that Dave has $200 to spend per week and he buys only magazines and pizza. The price of
a pizza is $10 and the price of a magazine is $5. If Dave buys 15 pizzas each week, what is the
maximum number of magazines can he buy?
(A) 40
(B) 20
(C) 10
(D) 200

6. (D) Suppose the price of chocolate chip cookies is $4.00 per pound and the price of a slice of cake is
$2.00 per slice. The relative price of cookies in terms of cake is
(A) $2.00 per cookie.
(B) $4.00 per cookie.
(C) 1/2 slice of cake per cookie.
(D) 2 slices of cake per cookie.
7. (B) Consider the budget line in the above right. If the
consumer's income is $120, then the price of a book is
per book.
(A) $10
(B) $12
(C) $6
(D) $5

8. (B) If all prices fall by 5 percent and money income

remains constant, the new budget line will have
(A) a positive slope.
(B) the same slope.
(C) a steeper slope.
(D) a flatter slope.

Consumption Video games Baseball cards

possibility (quantity) (quantity)
A 10 0
B 8 1
C 6 2
D 4 3
E 2 4
F 0 5
9. (B) Jordan has two goods that he consumes this week. The price of each video game is $0.5 and each
pack of baseball cards is $1. Jordan will spend all his allowance this week on these two goods. Jordan's
consumption possibilities are listed in the table above. What is the amount of Jordan's allowance?
(A) $10
(B) $5
(C) $15
(D) $50

10. (B) The satisfaction people get from their consumption activities is called .
(A) demand
(B) utility
(C) needs
(D) wants

11. (B) ___ ___ is the additional utility gained from consuming an additional unit of a good.
(A) Total utility
(B) Marginal Utility
(C) Utility
 (D) Utils
12. (A) Law of ___ ___ is the tendency for additional utility gained from consuming an additional unit
of a good to decrease as consumption increases beyond some point.
(A) diminishing marginal utility
(B) demand
(C) supply
(D) cost of benefit

13. (C) Laura's total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her
marginal utility from the 9th bonbon is
(A) 42
(B) 77
(C) 7
(D) 4.67

Quantity Total utility Marginal utility

0 0 -
1 250
2 180
3 580
4 700
5 100

14. (B) In the table above, Tammy's total utility from five videos is
(A) 700
(B) 800
(C) 900
(D) 1000

15. (B) In the table above, Tammy's marginal utility from the third video is
(A) 100
(B) 150
(C) 250
(D) 400

16. (B) The above table gives some of Tammy's total and marginal utilities from comedy videos. Which of
the following statements is true?
(A) Tammy's marginal utility from the third comedy video is equal to 580/3.
(B) Tammy's total utility from five comedy videos is 800.
(C) Tammy's marginal utility from the first comedy video is less than her marginal utility from the
third comedy video.
 (D) None of the above answers are correct.

Quantity of coffee (cups per day) Total utility

1 50
2 80
3 90
4 92

17. (D) In the table above, Betsy's marginal utility from the 3rd cup of coffee per day is
(A) 30
(B) 85
(C) 90
(D) 10

18. (B) In the table above, when Betsy's consumption of coffee increases, her marginal utility from coffee
(A) increases.
(B) decreases.
(C) remains unchanged.
(D) increases first and then decreases.

19. (A) In the table above, if the price of a cup of coffee is $2, Betsy's marginal utility per dollar from the
2nd cup of coffee per day is
(A) 15
(B) 40
(C) 20
(D) 32.5

20. (D) Gunther rents games and videos. The marginal utility from his last game is 10 and that from his last
video is 5. Games rent for $2 each. Gunther's demand curve for videos is shown in the figure above.
How many videos a week does Gunther rent?
(A) 1
 (B) 2
(C) 3
(D) 4
Quantity Marginal utility Quantity Marginal utility
of DVDs from DVDs of pizza from pizza
1 150 1 200
2 120 2 180
3 100 3 150
4 90 4 120
5 60 5 100
6 40 6 60

21. (B) As shown in the above table, Lisa spends all her income on pizzas and DVDs. If the price of a pizza
is $10, the price of a DVD is $5, and Lisa has $40 to spend on the two goods, what combination of
pizza and DVDs will maximize her utility?
(A) 6 DVDs and 1 pizza
(B) 4 DVDs and 2 pizzas
(C) 2 DVDs and 3 pizzas
(D) 5 DVDs and 4 pizzas

22. (A) As shown in the above table, Lisa spends all her income on pizzas and DVDs. If the price of a
pizza is $10 and the price of a DVD is $10 and Lisa has $40 to spend on the two goods, what
combination of pizza and DVDs will maximize her utility?
(A) 1 DVD and 3 pizzas
(B) 2 DVDs and 2 pizzas
(C) 2 DVDs and 4 pizzas
(D) 3 DVDs and 5 pizzas

23. (A) As shown in the above table, Lisa spends all her income on pizzas and DVDs. If the price of a
pizza is $10 and the price of a DVD is $10 and Lisa has $60 to spend on the two goods, what
combination of pizza and DVDs will maximize her utility?
(A) 2 DVDs and 4 pizzas
(B) 3 DVDs and 5 pizzas
(C) 4 DVDs and 2 pizzas
(D) 3 DVDs and 3 pizzas

24. (A) As shown in the above table, Lisa spends all her income on pizzas and DVDs. Suppose the price of
a pizza is $10 and the price of a DVD is $10 and Lisa initially has $40 to spend on the two goods. Lisa
now has $60 to spend on DVDs and pizza. With her increase in income, her consumption of DVDs
________ and hence DVDs are ________ good for Lisa.
(A) rises; a normal
 (B) rises; an inferior
(C) falls; a normal
(D) falls; an inferior

25. (A) Preferences can be described as

(A) what a person likes and dislikes.
(B) the income opportunities of several activities.
(C) feasible consumption combinations.
(D) the relative prices of goods and services.

26. (B) Consumers' preferences are described by

(A) budget lines.
(B) indifference curves.
(C) relative prices.
(D) household income.

27. (C) If two consumption points are not on the same indifference curve, then one point is ___ _____.
(A) a substitute for the other point
(B) unaffordable and the other is affordable
(C) preferred to the other
(D) more expensive than the other

28. (A) Except for perfect complements, an indifference curve has a ____ _ ___ slope and becomes
______ __ moving to the right.
(A) negative; flatter
(B) negative; steeper
(C) positive; flatter
(D) positive; steeper

29. (A) As figures shown right, If X and Y are perfect

substitutes, your indifference curves between
them would look like those in
(A) Figure A.
(B) Figure B.
(C) Figure C.
(D) Figure D.

30. (C) As figures shown right, If X and Y are perfect

complements, your indifference curves between
them would look like those in
(A) Figure A.
(B) Figure B.
 (C) Figure C.
(D) Figure D.

31. (A) Lizzie's preferences are shown in the figure above. Lizzie is just as happy to have ________ as she
is to have ________.
(A) 2 comic books and 12 cookies; 4 comic books and 8 cookies
(B) 2 comic book and 12 cookies; 8 comic books and 8 cookies
(C) 4 comic books and 8 cookies; 6 comic books and 12 cookies
(D) 6 comic books and 6 cookies; 5 comic books and 13 cookies

32. (C) In the above figure, at the best affordable point, the marginal rate of substitution is
(A) 0.5 of a hamburger per magazine.
(B) 1 hamburger per magazine.
(C) 1.33 hamburgers per magazine.
(D) 8 hamburgers per magazine.

33. (C) The effect of a change in price on the quantity bought, keeping the consumer on the same
indifference curve, is called the
(A) price effect.
(B) income effect.
 (C) substitution effect.
(D) real effect.
34. (B) The effect of changes in price affect the buyers' purchasing power, is called the
(A) price effect.
(B) income effect.
(C) substitution effect.
(D) real effect.

35. (A) Assume that Dusty has $30 in income, the price of apple is $1.50, and the price of an orange is $3.
Dusty can buy a maximum of _____ apples or a maximum of _____ oranges.
(A) 20; 10
(B) 15; 15
(C) 10; 20
(D) 10; 5

36. (D) Assume that Dusty has $30 in income, the price of apple is $1.50, and the price of an orange is $3.
If Dusty’s income rises to $45, Dusty can now buy a maximum of _____ apples or a maximum of
_____ oranges.
(A) 5; 25
(B) 10; 40
(C) 15; 30
(D) 30; 15

37. (B) You can no longer afford your desired lunch, and so you purchase less of the good. This is best
described as a(n):
(A) substitution effect.
(B) income effect.
(C) buyer's reservation price effect.
(D) seller's reservation price effect.

38. (C) As coffee becomes more expensive, Joe starts drinking tea, and therefore quantity demanded for
coffee decreases. This is called:
(A) the income effect.
(B) the change in equilibrium.
(C) the substitution effect.
(D) a shift in the demand curve.
39. (A) Consider the change in the price of a book depicted in the above figure. The original budget line is
BC. The new budget line is BD. As a result of this price change, the substitution effect can be
represented by a movement from
(A) point A to point E.
(B) point A to point G.
(C) point F to point G.
(D) point A to point F.

40. (A) Consider the change in the price of a book depicted in the above figure. The original budget line is
BC. The new budget line is BD. As a result of this price change, the income effect can be represented
by a movement from
(A) point E to point F.
(B) point G to point A.
(C) point G to point F.
(D) point A to point F.

41. (B) Suppose Jill's consumption bundle is made up of 2 goods, apples and bottles of juice. If the price of
an apple increases, then Jill's budget line would
(A) not change.
(B) shift towards the origin on the apples axis only.
(C) shift towards the origin on both the apples and bottles of juice axes.
(D) shift away from the origin on the bottles of juice axis only.

42. (A) Tom's consumption possibilities are defined by

(A) his income and the prices of the goods that he consumes.
(B) his preferences for consumption of the goods that he consumes.
(C) the prices of the goods that he consumes only.
(D) his income only.
43. (C) Utility is best defined as
(A) the amount one is willing to pay for a good.
(B) the price of a good.
(C) the satisfaction from consuming a good.
(D) the practical usefulness of a good.

44. (B) Marginal utility is the

(A) total satisfaction that a person gets from the consumption of all of the units of a good consumed.
(B) change in satisfaction that results from a one-unit increase in the quantity of a good consumed.
(C) maximum price that a consumer is willing to pay for an additional unit of a good.
(D) additional cost to a consumer when an additional unit of a good is consumed.

45. (A) Diminishing marginal utility means that

(A) Ralph will enjoy his second hamburger less than the first.
(B) the total utility from one hamburger exceeds the total utility from two hamburgers.
(C) the price of two hamburgers is twice the price of one.
(D) beyond a certain point, total utility decreases as income rises.

46. (B) When Ramona is in consumer equilibrium,

(A) her total utilities of all goods are equal.
(B) she is maximizing her utility, given her income and the prices of goods and services.
(C) her total utility per dollar spent is equal for all goods.
(D) any change in prices would make her worse off.

47. (C) Which of the following occur when a person maximizes utility?
I. the marginal utility of each good bought is equal
II. the highest level of utility is attained
III. all of a person's budget is spent
(A) I and II
(B) I and III
(C) II and III
(D) I, II and III

48. (D) Katie has a choice of spending $6.00 for another hamburger, which has a marginal utility of 30, or
$9.00 for another pizza. For her to choose the pizza, it would have to have a marginal utility of at least
(A) 9.
(B) 30.
(C) 31.
(D) 46.
49. (B) Tom spends all his income on comics and cola and maximizes his total utility. If the price of a
comic is $4 and the price of a can of cola is $1, then the ratio of the ________ is 4.
(A) marginal utility from cola to the marginal utility from comics
(B) marginal utility from comics to the marginal utility from cola
(C) number of comics Tom buys to the number of cola Tom buys
(D) total utility from comics to the total utility from cola

50. (A) Marginal utility theory is used in the derivation of the

(A) negative slope of demand curves.
(B) negative slope of supply curves.
(C) positive slope of demand curves.
(D) positive slope of supply curves.

51. (D) When economists speak of normal goods they mean goods for which
(A) the demand curve slopes downward.
(B) marginal utility is positive.
(C) marginal utility decreases as consumption increases.
(D) demand decreases when incomes fall.

52. (C) The only goods you consume are pizza and soda. Both are normal goods. For you, pizza and soda
are substitutes. Which of the following leads you to buy more of both goods?
(A) The price of a pizza falls.
(B) The price of a soda falls.
(C) Your income increases.
(D) Both answers (A) and (B) are correct.

53. (A) Marginal utility theory predicts that if a consumer's income decreases, the consumer
(A) buys fewer normal goods.
(B) buys fewer inferior goods.
(C) buys more of all goods.
(D) might either increase or decrease purchases of normal goods.

54. (A) The paradox of value is illustrated by the fact that

(A) a pound of bread is cheaper than a pound of gold.
(B) teens buy designer jeans.
(C) if diamonds were free they would no longer be useful for engagement rings.
(D) gold and diamonds occupy little space.
55. (D) The paradox of value can be resolved by distinguishing between
(A) quantity demanded and quantity supplied.
(B) supply and quantity supplied.
(C) normative and positive statements.
(D) total utility and marginal utility.

56. (B) Which of the following statements is true?

(A) Marginal utility theory predicts that an increase in a consumer's income increases consumption of
all goods.
(B) It is possible to derive the law of demand – that a higher price decreases the quantity demanded –
using marginal utility theory.
(C) Marginal utility theory makes no prediction about a consumer's responses to hikes in the prices of
the goods and services he or she consumes.
(D) Marginal utility theory predicts that all goods are normal goods and that all goods are substitutes
for each other.

57. (A) A budget line shows the

(A) consumption possibilities of a consumer at a given level of income and prices.
(B) complete set of preferences for a household at various incomes.
(C) consumption possibilities for several sets of relative prices at a level of income.
(D) rate at which consumers wish to substitute one good for another.

58. (C) Lily is a college student who likes to buy only two goods: Cheetos and Pepsi. To determine Lily's
budget line, you need to know
I. Lily's preferences for Cheetos and Pepsi. II. The prices of Cheetos and Pepsi.
III. Lily's income.
(A) II only
(B) I and II
(C) II and III
(D) I, II and III

59. (B) Suppose Sam plans to buy only popcorn and soda. He has $40 to spend per week. A change in
which of the following variables will change Sam's consumption possibilities?
I. price of popcorn
II. income
III. preferences
IV. utility
(A) II only
(B) I and II
(C) I, II and III
(D) III and IV
60. (D) The rate at which Sam is willing to give up a gallon of gasoline to get one more pound of coffee,
and remain on the same indifference curve is called his
(A) opportunity cost of coffee.
(B) opportunity cost of gasoline.
(C) personal price of coffee.
(D) marginal rate of substitution.

61. (A) As Sam moves rightward along his indifference curve, his marginal rate of substitution
(A) is diminishing.
(B) is increasing.
(C) remains constant.
(D) shows the change in his income.

62. (B) The more closely substitutable are two goods, the
(A) more normal looking is the indifference curve for the two items.
(B) more closely the indifference curve for these two items approximates a straight line.
(C) more tightly curved is the indifference curve for these items.
(D) None of the above answers is correct.

63. (A) In the right figure, which of the following statements is TRUE?
I. The consumer maximizes utility by consuming at
point A.
II. The marginal rate of substitution at point B and
point A are equal because they are on the same
budget line.
(A) only I
(B) only II
(C) both I and II
(D) neither I nor II