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# ECON 202 STUDY GUIDE

Topic: Indifference Curve Analysis

The marginalrate of substitution measuresthe

magnitude of the substitution effect.

total utility received by a consumer when equilibrium is achieved.

extra utility that a consumer derives from successiveunits of a product.

D. consumer'swillingness to substitute one productfor another so that total utility will remain constant.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

The marginalrate of substitution

may increase or decrease on a given indifferencecurve, depending on whether thesubstitution or the incomeeffect is dominant.

increases as onemoves southeast along an indifference curve.

is constantat all points on thebudget line.

D. declines as one movessoutheast along an indifference curve.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Which of the following iscorrect?

Budget lines are linear and upsloping;indifference curves are downsloping and concave tothe origin.

Budget lines are linear and downsloping; indifference curves are downsloping and concave tothe origin.

C. Budget lines are linear anddownsloping; indifference curves are downsloping and convex tothe origin.

D. Budget lines are downsloping and convex to the origin; indifferencecurves are linear and downsloping.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Indifference curve analysis

presumes, as does utility analysis, that satisfaction is numerically measurable.

presumes, unlike utility analysis,that satisfaction is numerically measurable.

C. presumes only that theconsumer can say onecombination of two goods yields moreorless utility than someother combination.

D. is in conflict with the idea of a downsloping demand curve.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

125.

Refer tothe diagram,where xy is the relevant budget lineand I1, I2, and I3 are indifference curves. Theequilibrium position for theconsumer is at

any point on xy.

point M.

C. point K.

D. point J.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

126.

Refer tothe diagram,where xy is the relevantbudget line and I1, I2, andI3 are indifference curves.Ifthe consumer is initiallyat point L, he or sheshould

strive for point N by obtaininga larger money income.

purchase more ofXand less of Y.

remain at that point to maximize utility.

D. purchasemore of Y and less of X.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

127.

Refer tothe diagram,where xy is therelevant budget lineandI1, I2, andI3 are indifference curves. At point K,

A. MUx =MUy.

B. MRS = Px/Py.

MRS = Py/Px.

Px exceeds Py.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

128.

AA is Al's indifference curve, and BB is Betty's. Al and Betty have thesame budget line, LL. This information implies that

A. Al's demandforXis greater than Betty's.

B. Al's demand for Y isgreater than Betty's.

Al andBetty have the samedemand for both products.

Al will buy some of X, but Betty will not.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

129.

In thediagram,

A. theconsumer is indifferent betweenpoints A and B,butneither point maximizes hisutility.

the consumeris indifferent betweenpoints A and B, andeither point will maximize hisutility.

any combination of X and Y entailing more of Y and less of X than shown at B would be preferred.

any combination of X andY entailingmore of X and less of Y than shown at A would be preferred.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

130. Assume a diagram in which a budget line is imposedonan indifference map. A consumer will maximize her utility

at any point where thebudget line and an indifferencecurve intersect.

at either point where thebudget line intersects the horizontaland vertical axes.

C. wherethe budget line is tangent to an indifference curve.

D. wherethe ratio of thetwo product prices equalsthe reciprocal of the consumer's income.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

131.

Refer tothe diagram,inwhich the downsloping lines are budget lines and I1,I2, and I3 comprise an indifference map. The combinations of productsM and N indicated by points 1, 2, and 5 are such that

point 2 yieldsmore utility than either 1 or 5.

points 1 and 5 yield more utility than point 2.

C. points 1, 2, and 5 yield equal amounts of utility.

D. the levels of utility associatedwith these three points cannot be compared.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

132.

Refer tothe diagram,inwhich the downsloping lines are budget lines and I1,I2, and I3 comprise an indifference map. The combinations of productsM and N indicated by points 1, 3, and 5 are such that

all three imply thesame level of utility.

1 and 5 imply a higher level of utility than does 3.

C. 3 implies a higher level of utility than does 1 or 5.

D. the person is indifferent among thethree combinations.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

133.

Refer tothe diagram.Ifthe budget line shifts from ab to ac, the

A. price of K has increased.

consumer's money incomehas fallen.

price of K has decreased.

price of J has increased.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

134.

Refer tothe diagram.Ifthe budget line shifts from ab to ac, the

consumer's level of total utility will increase.

consumer will purchase more of both J and K.

consumer will purchase less of both J and K.

D. consumer will purchasemore of J and less of K.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

135.

Refer tothe diagram.The equilibrium points shown in the diagram,along with the price change that produced the shift of the budget linefrom ab to ac,

A. are consistent with a downsloping demand curve for productK.

imply that theconsumer's money income has declined, but his or her real income has increased.

imply consumer irrationality sincethe dearer product isbeing substituted for the cheaper product.

suggest that K is an inferiorgood.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

136.

Refer tothe diagram.Suppose the budget lineshifts so that the consumer'sequilibrium changesfrompoint A to point B. This means that the

A. price of Y has increased.

B. price ofYhas decreased.

price of X has increased.

consumer's money income has increased.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

137.

Refer tothe diagram.The budget line shift that moves the consumer'sequilibrium from point A to point B suggests

A. an increase in thedemand for productX.

B. a decrease in the demand for product X.

no change in thedemand for productX.

that X is an inferiorgood.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

138.

Refer tothe diagram.The budget line shift that moves the consumer'sequilibrium position from point A to point B suggests

A. an increase in thequantity of Y demanded.

a decrease in the quantity of Y demanded.

a leftward shift in thedemand curve for Y.

a rightward shift in the demand curveforY.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Type: Graph

(Consider This) Thelines on a topographical map are analogous toa(n)

series of demand curves.

series of supply curves.

C. indifferencemap.

D. series of budget constraints.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

(Consider This) A topographical map shows successively higher equal-elevation lines, whereas an indifference map shows successively higher levels of total

A. utility.

revenue.

profit.

cost.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

True / False Questions

Indifference curves are linear, and budget lines are convex to the origin.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Graphically, the consumer maximizes total utility wherethe budget line is tangent to an indifference curve.

TRUE

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

In drawinga particular budget line,money income andthe prices of the two products are fixed.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

With a fixed money income, an increaseinthe price of onegood and a decrease in the price of the other will cause the new budget line to intersect the original budget line.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

In moving northeasterly from theorigin, we encounter indifferencecurves that reflect higher and higher levels oftotal utility.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Each point on a single indifference curve reflects thesame level of total utility for a consumer.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

It is possible for a consumer'sindifference curves tointersect.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

A rationalconsumer will try to achieve thehighest indifference curve that his or her incomewill allow.

TRUE

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Indifference analysis assumes that utility is numerically measurable.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

As a consumer moves down a given indifference curve, his or her total utility will diminish.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium Gradable: automatic

Learning Objective: 07-06 Appendix: Relate how the indifference curve model of consumer behavior derives demandcurves from budget lines, indifference curves, and utility maximization.

Test Bank: I

Topic: Indifference Curve Analysis

Multiple Choice Questions

The satisfaction or pleasure onegets from consuming a good or service is called

A. price.

B. utility.

income.

profits.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

The utility from a specific product is

determined by a consumer'sincome.

determined by the price of the product.

C. a measure of one's preference or tasteforit.

D. constant as one consumes moreunits of it.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

Total utility is best defined as the

change in marginalutility multiplied by the price of a product.

maximum amount of satisfaction from consuming a product.

C. total satisfaction received from consuming a given amount of a product.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

Which of the following statementsis correct?

A. Marginal utility is the cumulation or summation of total utility.

B. Total utility is the cumulation or summationof marginal utility.

Total utility is the product of multiplying price times marginalutility.

Total utility isthechange in marginal utility as quantity consumed increases.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

Which of the following definesmarginal utility?

the change in total utility divided by the price of a product

the maximumamount of satisfaction from consuming a product

the total satisfaction derived from a certain amount of theproduct

D. theadditional satisfaction from consuming onemore unit of a product

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

Which of the following best expresses the law of diminishing marginal utility?

A. Themore of a product consumed, the smalleris the total utility from the product.

B. The less ofa product consumed,the greater is the marginal utility of the product.

The moreofa product consumed, the greater is the total utility from the product.

The less of a product consumed, the smalleris marginal utilityof the product.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicatesthat the

marginal utility for fourpizza slices is negative.

total utility for fivepizza slices is negative.

C. marginal utility is positive for thefourth slice and negative for thefifth slice.

D. marginal utility for thefourth slice is the largest among all slices.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

When diminishing marginal utility startshappening as a person consumesmore and more of a given good,

A. total utility will diminish.

B. total utility will increase at a diminishing rate.

marginal utility will become negative.

total utility will becomenegative.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

Which situation isconsistent with the law of diminishing marginal utility?

A. Themore pizza Joe eats, the morehe enjoys an additional slice.

B. The morepizza Joe eats, the less heenjoys an additional slice.

Joe's marginalutility from eating pizzabecomes positive after eating three slices.

Joe's marginal utility from eating pizza reaches a maximum when total utility is zero.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

Which of the following statementsis correct?

When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility.

When marginal utility ispositive, an increase in the quantity consumedwilldecrease total utility.

C. When marginal utility is positive, an increase in the quantity consumed will increasetotal utility.

D. When marginal utility is zero, an increase in thequantity consumed will make total utility zero.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

Children who dislikeBrussels sprouts exemplify thenotion that the marginal utility of Brusselssprouts is

A. zero.

B. negative.

positive, but decreasing.

less than the total utility.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

Number of Units of CommodityTotal Utility3364805150625273508440 162.

Refer tothe table. What is themarginal utility of the fourth unit?

A. 40

B. 44 C. 320 D. 116

AACSB: Knowledge Application

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

Number of Units of CommodityTotal Utility3364805150625273508440 163.

Refer tothe table. The additionof which unit hasthe greatest marginal utility?

A. fifth

B. sixth

seventh

eighth

AACSB: Knowledge Application

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 07-01 Defineand explain the relationship between total utility,marginal utility, and the lawofdiminishing marginalutility.

Test Bank: II Topic: Law of Diminishing Marginal Utility

Number of Units of CommodityTotal Utility3364805150625273508440 164.

Refer tothe table.Atwhat consumption level for this product does diminishing marginal utility set in?

4 units

5 units