1. Which of the following best describes a budget constraint?
• A) The maximum amount of a single good a consumer can purchase
• B) The trade-offs consumers face given limited income
• C) The preference ranking of various goods for a consumer
• D) The satisfaction derived from consuming a good
2. An indifference curve represents:
• A) All combinations of goods that provide different levels of satisfaction
• B) Combinations of goods that yield the same level of utility for a consumer
• C) A consumer’s budget constraint for two goods
• D) The points where marginal cost equals marginal benefit
3. If the price of good X decreases, the substitution effect for good Y would
likely:
• A) Increase the quantity demanded of good Y
• B) Decrease the quantity demanded of good Y
• C) Have no effect on good Y’s demand
• D) Increase the supply of good Y
4. Total utility generally:
• A) Increases at an increasing rate as more of a good is consumed
• B) Decreases with additional consumption
• C) Increases at a decreasing rate with additional consumption
• D) Remains constant with additional consumption
5. The concept of diminishing marginal utility implies that:
• A) Total utility falls as more units are consumed
• B) Each additional unit of a good consumed provides less additional satisfaction than the
previous unit
• C) Marginal utility increases with each additional unit consumed
• D) Consumers always prefer more of one good over another
6. At the optimal consumption bundle, which of the following must hold true?
• A) The marginal utility of each good is equal
• B) The budget constraint is not binding
• C) The marginal rate of substitution (MRS) equals the price ratio of the goods
• D) Total utility is minimized
7. If a consumer experiences an increase in income, which of the following is true
assuming normal goods?
• A) The budget line shifts inward
• B) The consumer purchases more of both goods
• C) The slope of the budget line changes
• D) The consumer’s preferences change
8. When a good’s price decreases, the income effect suggests:
• A) The consumer feels poorer
• B) The consumer feels wealthier and may buy more of all goods
• C) The consumer’s budget constraint remains unchanged
• D) The quantity demanded of the good must decrease
9. If a consumer is at a point inside the budget line, then:
• A) The consumer is maximizing utility
• B) The consumer is not using all available income
• C) The consumer’s income has increased
• D) The consumer’s budget line has shifted outward
10. An indifference curve that lies further from the origin represents:
• A) A higher level of satisfaction
• B) A lower level of satisfaction
• C) The budget line for the consumer
• D) The consumer’s minimum utility
11. The point where the budget line is tangent to an indifference curve
represents:
• A) The maximum affordable utility level
• B) The lowest affordable utility level
• C) Where the marginal utility per dollar is unequal across goods
• D) Where the consumer would be better off purchasing more of one good
12. If a consumer’s income doubles, the budget line will:
• A) Shift outward, with the slope remaining the same
• B) Shift outward, with the slope doubling
• C) Shift inward, with the slope remaining the same
• D) Become horizontal
13. The area under the demand curve above the market price line represents:
• A) Consumer surplus
• B) Producer surplus
• C) Marginal utility
• D) Total expenditure
14. The marginal rate of substitution (MRS) between two goods X and Y
indicates:
• A) How much of Y a consumer is willing to give up to gain one more unit of X
• B) How much of X a consumer must gain to lose one unit of Y
• C) The budget constraint faced by the consumer
• D) The relative market prices of X and Y
15. If the MRS of good A for good B is higher than the price ratio of A to B, the
consumer should:
• A) Buy more of good A and less of good B
• B) Buy more of good B and less of good A
• C) Remain at the current consumption bundle
• D) Buy only good A
16. In a two-good world, if the consumer is at an optimal bundle and the price of
one good rises, the consumer will:
• A) Move to a lower indifference curve
• B) Stay on the same indifference curve
• C) Move to a higher indifference curve
• D) Stop consuming the good entirely
17. If good X is a normal good, an increase in income will:
• A) Decrease the demand for X
• B) Increase the demand for X
• C) Have no effect on the demand for X
• D) Decrease the price of X
18. The price elasticity of demand measures:
• A) The change in demand resulting from a change in income
• B) The responsiveness of quantity demanded to a price change
• C) The slope of the indifference curve
• D) The total utility from consumption
19. If a consumer is indifferent between two bundles, it means:
• A) The bundles cost the same
• B) The bundles yield the same level of satisfaction
• C) The consumer prefers one bundle slightly more
• D) The consumer cannot afford either bundle
20. Consumer surplus generally increases when:
• A) The market price of a good rises
• B) The market price of a good falls
• C) Marginal utility decreases
• D) The supply curve shifts inward
