Question

1) The budget line shows the set of all possible combinations:

a. that yield the same level of utility to the consumer

b. that maximize a customer’s utility

c. that can be purchased, given the consumer’s income and the price of the goods

d. that are equilibrium points

2) The budget line will shift parallel to the left if:

a.income increases

b.income decreases

c.the price of the good on the vertical axis increases

d.the price of the good on the vertical axis decreases

3)The utility maximization rule says that:

a. the average utility per dollar spent is the same for all goods

b. the marginal utility per dollar spent is the same for all goods

c. the total utility per dollar spent is the same for all goods

d. the marginal utility per dollar will fall the more items you buy

4)Using a budget line, if Jeff’s budget increases while prices stay the same,

a.Jeff’s budget line will pivot inwards

b.Jeff’s budget line will pivot outwards

c.Jeff’s budget line will shift inwards parallel

d.Jeff’s budget line will shift outwards parallel

5)Using the utility maximization rule, Jenn’s marginal utility of the last candy bar consumed is 8 and her marginal utility of the last smoothie consumed is 20. If candy bars cost $2 and smoothies cost $4, which of the following is true?

a. Jenn is maximizing her utility

b.Jenn must consume more candy bars and less smoothies to maximize utility

c.Jenn must consume more smoothies and less candy bars to maximize utility

d.Jenn must consume less of both candy bars and smoothies to maximize utility

Answer 1

Answer.)

Q1.) c. that can be purchased, given the consumer’s income and the price of the goods

Q2.) b.income decreases

Budget line shifts only due to changes in income level. While decrease in income shift it leftward on the other hand, increase in income shift it rightward.

Q3.) b. the marginal utility per dollar spent is the same for all goods

The optimal consumption rule says that when a consumer maximizes utility, the marginal utility per dollar spent must be the same for all goods and services in the consumption bundle.

Q4.) d.Jeff’s budget line will shift outwards parallel

Budget line shifts only due to changes in income level. While decrease in income shift it leftward on the other hand, increase in income shift it rightward.

Q5.) c.Jenn must consume more smoothies and less candy bars to maximize utility

Note that

( marginal utility of the last smoothie consumed / marginal utility of the last candy bar consumed ) > ( Price of a smoothie / price of a candy bar )

thus, Jenn must consume more smoothies and less candy bars to maximize utility.