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 ratios”does 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 Consumer’s 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 consumer’s current
budget constraint.
c. a point that does not exhaust all of the
consumer’s 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 consumer’s 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 derive
a. 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.
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