Budget Constraints and Indifference Curves Quiz
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Questions and Answers

What is the maximum number of cases of soda that Lisa can afford if she buys no movies?

  • 8
  • 6
  • 10 (correct)
  • 5
  • What does any point on the budget constraint line represent?

  • The minimum quantity of goods purchased.
  • The maximum utility achievable by the consumer.
  • A consumer's combination of two goods. (correct)
  • The total amount of money spent by the consumer.
  • If Lisa buys 2 movies, how many cases of soda can she afford according to the budget constraint?

  • 6 (correct)
  • 10
  • 4
  • 2
  • What is the intercept of the budget constraint on the axis Y?

    <p>10</p> Signup and view all the answers

    At which point can Lisa afford 5 movies if she buys no soda?

    <p>Point F</p> Signup and view all the answers

    What happens to Lisa's options if her budget increases to $60?

    <p>She will be able to buy more of both goods.</p> Signup and view all the answers

    If Lisa buys 10 cases of soda, how many movies can she afford?

    <p>0</p> Signup and view all the answers

    Which of the following statements about Lisa's budget constraint is correct?

    <p>The budget constraint is a straight line connecting points A and F.</p> Signup and view all the answers

    What does the downward slope of indifference curves indicate?

    <p>There is a trade-off between two goods.</p> Signup and view all the answers

    Which statement about indifference curves is true?

    <p>Higher indifference curves are preferred to lower ones.</p> Signup and view all the answers

    What is the implication of two indifference curves intersecting?

    <p>It violates the transitivity of preferences.</p> Signup and view all the answers

    Which characteristic is NOT true about indifference curves?

    <p>Higher indifference curves contain the same quantities.</p> Signup and view all the answers

    Why are higher indifference curves preferred?

    <p>They indicate higher quantities of goods.</p> Signup and view all the answers

    Which of the following best describes the shape of indifference curves?

    <p>Bowed inward.</p> Signup and view all the answers

    If point C is preferred to point A, what can be inferred about their positions on the indifference curves?

    <p>C lies above A on a higher indifference curve.</p> Signup and view all the answers

    What do consumer preferences for more of a good signify in ordinal utility theory?

    <p>Preference for larger quantities.</p> Signup and view all the answers

    What does it imply if two indifference curves intersect?

    <p>It contradicts the properties of indifference curves.</p> Signup and view all the answers

    Why do indifference curves bow inward?

    <p>Consumers are less willing to trade away abundant goods.</p> Signup and view all the answers

    What determines a consumer's optimal choice of goods?

    <p>The highest possible indifference curve while on or below the budget constraint.</p> Signup and view all the answers

    Which statement about indifference curves is incorrect?

    <p>They can intersect at more than one point.</p> Signup and view all the answers

    If point A has less of both goods compared to point C, what can be inferred?

    <p>Point C provides more utility than point A.</p> Signup and view all the answers

    What happens if a consumer's budget constraint shifts outward?

    <p>The consumer can access a higher combination of goods.</p> Signup and view all the answers

    How does a consumer's marginal rate of substitution (MRS) affect indifference curves?

    <p>It causes indifference curves to slope downward.</p> Signup and view all the answers

    Which property of indifference curves ensures that consumers prefer more to less?

    <p>Higher indifference curves represent greater utility.</p> Signup and view all the answers

    At which point does consumer optimum occur?

    <p>Where the highest indifference curve is tangent to the budget constraint</p> Signup and view all the answers

    Which point represents the highest level of utility that Lisa can achieve given her budget constraints?

    <p>Point C</p> Signup and view all the answers

    What relationship does the marginal rate of substitution (MRS) have with the relative price at point C?

    <p>MRS is equal to relative price</p> Signup and view all the answers

    What happens to Lisa's consumption bundle at point F?

    <p>She consumes more soda and fewer movies</p> Signup and view all the answers

    Why might Lisa prefer to think about moving from an indifference curve I1 to I2?

    <p>I2 represents a higher level of utility</p> Signup and view all the answers

    What characterizes the state at point H in relation to relative price?

    <p>MRS is less than the relative price</p> Signup and view all the answers

    In ordinal utility theory, which of the following describes Lisa's preferences?

    <p>Her likes and dislikes dictate her consumption decisions</p> Signup and view all the answers

    What does the slope of the indifference curve indicate at the point of consumer equilibrium?

    <p>It is equal to the slope of the budget constraint</p> Signup and view all the answers

    What happens to the marginal utility from movies as the number of movies seen in a month increases?

    <p>Marginal utility decreases.</p> Signup and view all the answers

    What does the total utility curve represent in relation to soda consumption?

    <p>The total enjoyment from soda as consumption increases.</p> Signup and view all the answers

    At which unit of apple consumption does total utility start to decline?

    <p>5th unit of apples.</p> Signup and view all the answers

    What is the marginal utility at the 6th unit of apple consumption?

    <p>-5.</p> Signup and view all the answers

    When total utility is increasing, what can be said about marginal utility?

    <p>Marginal utility is positive.</p> Signup and view all the answers

    What characterizes diminishing marginal utility?

    <p>Satisfaction from additional units of consumption decreases.</p> Signup and view all the answers

    What happens to total utility after reaching the 5th unit of apple consumption?

    <p>It begins to decrease.</p> Signup and view all the answers

    What is the marginal utility of the 8th unit of apples consumed?

    <p>-15.</p> Signup and view all the answers

    What does it mean when MUS/PS < MUM/PM for Lisa?

    <p>Lisa spends too much on soda and too little on movies.</p> Signup and view all the answers

    In which scenario is Lisa maximizing her utility?

    <p>When MUS/PS = MUM/PM.</p> Signup and view all the answers

    What occurs when the price of a movie falls?

    <p>MUM/PM increases prompting Lisa to buy more movies.</p> Signup and view all the answers

    If Lisa is in row D of the budget constraint, what is her spending behavior?

    <p>She spends too little on soda and needs to increase it.</p> Signup and view all the answers

    What is the result of Lisa decreasing her quantity of soda consumed when MUM/PM > MUS/PS?

    <p>MUS increases and MUM decreases.</p> Signup and view all the answers

    What likely happens to Lisa's consumption if the price of soda decreases?

    <p>Lisa will decrease her consumption of movies.</p> Signup and view all the answers

    If Lisa is at consumer equilibrium, which of the following statements is true?

    <p>MUS/PS equals MUM/PM.</p> Signup and view all the answers

    How does a fall in the price of soda affect Lisa's utility?

    <p>It allows her to buy more soda, increasing her utility.</p> Signup and view all the answers

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