Chapter 6A Practice Quiz Indifference Curve Analysis

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Chapter 6A Practice Quiz Indifference Curve
Analysis
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1. An indifference curve consists of quantity
combination of two goods that yield a. equal
marginal utilities. b. negative marginal
utilities. c. the same price ratios. d.
the same total satisfaction.
D. Answers equal marginal utilities and
negative marginal utilities involve a change in
total utility (marginal utility), and answer the
same price ratiosdoes not define an indifference
curve.
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2. The absolute value of the slope of an
indifference curve is called the a.
marginal rate of transformation. b.
transitivity slope. c. indifference rate of
preference. d. marginal rate of substitution.
D. The other answers are nonsense terms.
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3. The slope of the indifference curve for goods
X and Y is called the marginal a.
product rate. b. rate of transformation.
c. rate of substitution. d. rate of utility.
C. The other answers are nonsense terms.
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4. Given the prices of two goods, all quantity
combinations inside the budget line are
a. indifferent. b. efficient. c.
unattainable. d. attainable.
D. See Exhibit A-3 in the text.
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5. Assume the price of good X is PX, price of
good Y is PY, and B is the budget. . The formula
for the budget line for these two goods is a.
PYQY/PXQX. b. PXB PYB B. c. PXX
PYY B. d. (1 PY/B)PX.
C. See Exhibit A-3 in the text.
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6. The ratio of the price of good X on the
horizontal axis to the price of good Y on
the vertical axis is the ______ of the
budget line. a. marginal rate
b. slope c. marginal utility d.
equalization rate
B. Computing the slope of the budget line
results in the ratio of the price of the good on
the horizontal axis divided by the price of the
good on the vertical axis.
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7. Assume Px is the price of good X on the
horizontal axis and Py is the price of good Y
on the vertical axis. The slope of the budget
line equals a. Py/PxY. b. PyQy/PxQx.
c. (1 - Py/Px). d. Px/Py.
D. Computing the slope of the budget line results
in the ratio of the price of the good on the
horizontal axis divided by the price of the good
on the vertical axis.
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8. Consumer equilibrium occurs where the budget
line is tangent to the a. lowest
possible indifference curve. b. highest
possible indifference curve. c.
utility-maximizing indifference curve. d.
utility-equalization indifference curve.
B. High indifference curves yield higher
satisfaction, but they are unattainable beyond
the tangency to a given budget line.
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9. Only at the point of consumer equilibrium does
the marginal rate of substitution (MRS)
equal the a. slope of the budget line.
b. slope of the indifference curve. c. price
ratio. d. all of the above.
D. All of the answers are correct.
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Exhibit A-6 A Consumers Budget Line and
Indifference Curves
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• 10. At point A in Exhibit A-6, consumers would be
• a. spending all of their income but not
  maximizing
• total utility.
• b. spending all of their income and
  maximizing
• total utility.
• c. maximizing total utility without spending
  all of their
• income.
• d. none of the above.

A. Point A is a point on the budget line so,
given the prices of good x and y, the entire
amount of income is spent. However, at point C
the consumer would be on higher indifference
curve I2.
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• 11. The consumer equilibrium shown in Exhibit A-6
  is located at point
• a. A.
• b. B.
• c. C.
• d. D.

C. Consumer equilibrium occurs at point C where
the budget line is tangent to the highest
attainable indifference curve (I2).
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• 12. In Exhibit A-6, point D is
• a. a consumer equilibrium.
• b. unattainable given the consumers current
• budget constraint.
• c. a point that does not exhaust all of the
• consumers income.
• d. none of the above.

B. At point D, the budget line constraint does
not intersect point D on indifference curve I3.
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• 13. Assume that a consumers preference is for
  two goods X and Y in Exhibit A-6. By holding the
  price of Y and money income constant while
  varying the price of X, it is possible to
  derivea. The demand curve for X.
• b. The demand curve for Y.
• c. The demand curve for both X and Y.
• d. None of the above.

A. At a price for good X of 6, the quantity
demanded is obtained at point C on the highest
possible indifference curve I2. At a price for
good X of 5, the quantity demanded is obtained
at point D on the new highest possible
indifference curve I3 created by the outward
shift in the budget line.