Chapter 2: Utility and Choice

Indifference curves
1. are non-intersecting.
2. are contour lines of a utility function.
3. are negatively sloped.
4. all of the above.
For an individual who consumes only two goods, X and Y, the opportunity cost of consuming one unit of X in terms of how much Y must be given up is reflected in
1. the individual’s marginal rate of consumption.
2. the slope of the individual’s budget constraint.
3. the slope of the individual’s indifference curve.
4. none of the above.
If bundles of goods A and B lie on the same indifference curve, one can assume
1. the individual prefers bundle A to bundle B.
2. the individual prefers bundle B to bundle A.
3. the individual enjoys bundle A and B equally.
4. bundle A contains the same goods as bundle B.
If bundle A lies on an indifference curve and bundle B lies to the right of the curve, the individual
1. prefers bundle A to bundle B.
2. prefers bundle B to bundle A.
3. enjoys bundle A and B equally.
4. must receive more of both—with bundle B.
“If an individual is to maximize the utility received from consumption, he or she should spend all available income. . . .” This statement assumes
1. that saving is impossible.
2. that the individual is not satiated in all goods.
3. that no goods are “inferior.”
4. both a and b.
Suppose an individual’s MRS (of steak for beer) is 2:1. That is, at the current consumption choices he or she is willing to give up 2 beers to get an extra steak. Suppose also that the price of a steak is €1 and a beer is 25c. Then in order to increase utility the individual should
1. buy more steak and less beer.
2. buy more beer and less steak.
3. continue with current consumption plans.
4. Not enough information to answer the question.
Suppose that at current consumption levels an individual’s marginal utility of consuming an extra hot dog is 10 whereas the marginal utility of consuming an extra soft drink is 2. Then the MRS (of soft drinks for hot dogs) - that is, the number of hot dogs the individual is willing to give up to get one more soft drink is
1. 5
2. 2
3. 1/2
4. 1/5
If an individual’s indifference curve map does not obey the assumption of a diminishing MRS, then
1. the individual will not maximize utility.
2. the individual will buy none of good X.
3. tangencies of indifference curves to the budget constraint may not be points of utility maximization.
4. the budget constraint cannot be tangent to an appropriate indifference curve.
As an individual moves northwest along his or her indifference curve substituting more and more Y for X, his or her MRS of X for Y
1. increases.
2. decreases.
3. stays the same.
4. changes in a way that cannot be determined.
The X-intercept of the budget constraint represents
1. how much of good Y can be purchased if no good X is purchased and all income is spent.
2. how much of good X can be purchased if no good Y is purchased and all income is spent.
3. total income divided by the price of X.
4. a and c.

Chapter 2: Utility and Choice

Multiple Choice Questions