1. Which of the following is NOT an assumption regarding people's preferences in the theory of consumer behavior? A) Preferences are complete. B) Preferences are transitive. C) Consumers prefer more...

1. Which of the following is NOT an assumption regarding people's preferences in the theory of consumer behavior?
A) Preferences are complete.
B) Preferences are transitive.
C) Consumers prefer more of a good to less.
D) All of the above are basic assumptions about consumer preferences.
2. If a market basket is changed by adding more of at least one good, then rational consumers will:
A) rank the market basket more highly after the change.
B) more likely prefer a different market basket.
C) rank the market basket as being just as desirable as before.
D) be unable to decide whether the first market basket is prefe
ed to the second or vice versa.
E) have indifference curves that cross.
3. The assumption that preferences are complete:
A) means that a consumer will spend her entire income.
B) is unnecessary, as long as transitivity is assumed.
C) recognizes that there may be pairs of market baskets that cannot be compared.
D) means that the consumer can compare any two market baskets of goods and determine that either one is prefe
ed to the other or that she is indifferent between them.
4. Which of the following will NOT cause a shift in the supply of gasoline?
A) An increase in the wage rate of refinery workers
B) A decrease in the price of gasoline
C) An improvement in oil refining technology
D) A decrease in the price of crude oil
5. The slope of an indifference curve reveals:
A) that preferences are complete.
B) the marginal rate of substitution of one good for another good.
C) the ratio of market prices.
D) that preferences are transitive.
E) none of the above
Alvin's preferences for good X and good Y are shown in the diagram below.
6. Based on the above figure, it can be infe
ed that:
A) Alvin does not consider good X as "good."
B) Alvin will never purchase any of good Y.
C) Alvin regards good X and good Y as perfect substitutes.
D) Alvin regards good X and good Y as perfect complements.
E) none of the above
7. Which of the following is true about the indifference curve where one commodity (such as pollution) is "bad"?
A) It has a negative slope.
B) It has a positive slope.
C) It is horizontal.
D) It is vertical.
8. Envision a graph with meat on the horizontal axis and vegetables on the vertical axis. A strict vegetarian, someone who would not consider consuming meat, would have indifference curves that are:
A) vertical lines.
B) horizontal lines.
C) diagonal straight lines.
D) right angles.
E) upward sloping.
9. Suppose your utility function for food (F) and clothing (C) is U(F,C) = F + 4C. If you reduce your clothing consumption by 2 units, how much do you have to increase your food consumption in order to maintain the same utility level?
A) 2 units
B) 4 units
C) 6 units
D) 8 units
10. If indifference curves are concave to the origin, which assumption on preferences is violated?
A) Diminishing marginal rates of substitution
B) Transitivity of preferences
C) More is prefe
ed to less
D) Completeness
11. Which of the following is NOT an assumption regarding people's preferences in the theory of consumer behavior?
A) Preferences are complete.
B) Preferences are transitive.
C) Consumers prefer more of a good to less.
D) All of the above are basic assumptions about consumer preferences.
12. An upward sloping indifference curve defined over two goods violates which of the following assumptions from the theory of consumer behavior?
A) transitivity.
B) preferences are complete.
C) more is prefe
ed to less.
D) all of the above
E) none of the above
13. Kublai loves Chinese food including American Chinese dishes. Two popular Chinese dishes are General Tso’ Chicken (GTC) and spicy Sichuan wontons (SW). If Kublai’s utility function looks like
U = (GTC)(SSW), what kind of preferences does Kublai have over the two dishes, GTC and SSW?
A) The dishes are perfect substitutes for Kublai.
B) The dishes are perfect complements for him.
C) Kublai loves GTC but is neutral towards SSW.
D) Kublai has Co
Douglas preferences over GTC and SSW.
14. A curve that represents all combinations of market baskets that provide the same level of utility to a consumer is called:
A) a budget line.
B) an isoquant.
C) an indifference curve.
D) a demand curve.
E) none of the above
15. What is the relationship between the two goods, X and Y?
A) The two goods are substitutes
B) The two goods are complements
C) The two goods can be either substitute or complement
D) We don’t have sufficient information to answer this question.
16. Which of the following claims is true at each point along a price-consumption curve?
A) Utility is maximized but income is not all spent.
B) All income is spent, but utility is not maximized.
C) Utility is maximized, and all income is spent.
D) The level of utility is constant.
17. Which of the following is true regarding utility along a price-consumption curve?
A) It is constant.
B) It changes from point to point.
C) It changes only if income changes.
D) It changes only for normal goods.
18. When the income-consumption curve has a positive slope throughout its entire length, we can conclude that
A) both goods are inferior.
B) both goods are normal.
C) the good on the vertical (y) axis is inferior.
D) the good on the horizontal (x) axis is inferior.
Reference: For questions 19 to 25, refer to the information given below about Mr. Thomas O'Malley's preferences:
Mr. Thomas O’Malley has a utility function given by U = 6X +2Y where X and Y are two consumption goods.
The price of X is $2 and the price of Y is $1.
Mr. O’Malley has $12 to spend on the two goods.
19. What is Mr. O’Malley’s budget equation?
a. 12 = 6X+2Y
. 12 = 6X + Y
c. 12 = 2X + 2Y
d. 12 = 2X + Y
20. What type of preferences does Mr. O’Malley have over X and Y?
a. The utility function exhibits Co
Douglas preferences
. The utility function exhibits that goods are perfect complements for the consumer.
c. The utility function exhibits that the goods are perfect substitutes for the consumer.
d. The consumer has lexicographic preferences for the two goods.
21. What is the marginal utility of X?
a. 2
. 6
c. 3
d. 1/6
22. What is the marginal utility of Y?
a. 2
. 6
c. 3
d. 1/6
23. What is Mr. O’Malley’s marginal rate of substitution?
a. 2
. 1/2
c. 1/3
d. 3
24. What is the slope of Mr. O’ Malley’s budget line?
a. 2
. ½
c. 1/3
d. 3
25. If Mr. O’Malley wants to maximize his utility from consumption of X and Y, given his budget of $12, which combination of goods should he choose?
a. X = 6, Y = 0
. X = 3, Y = 3
c. X = 0, Y = 12
d. X = 6, Y = 2