Module M13 Quiz: Budget Constraints, Preferences, and Utility
25 questions · Intermediate · Multiple choice, calculation, and short answer
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Attempt each question before clicking Show Answer.
Question 1
Lesson L01 · Consumer Theory
What does the slope of the budget constraint represent?
Type: Multiple Choice
- A) Marginal utility
- B) Opportunity cost of good 1 in terms of good 2
- C) Total utility
- D) Income elasticity
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Answer: B) Opportunity cost of good 1 in terms of good 2
The slope (-P1/P2) shows how much of good 2 must be sacrificed to obtain more of good 1
Question 2
Lesson L01 · Consumer Theory
If prices double while income doubles, what happens to the budget constraint?
Type: Multiple Choice
- A) Shifts outward
- B) Shifts inward
- C) Remains unchanged
- D) Rotates
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Answer: C) Remains unchanged
Budget constraints are homogeneous of degree zero in prices and income
Question 3
Lesson L01 · Maximum Q2 = M/P2 = 100/10 = 10
Calculate the maximum quantity of good 2 if m=100, P1=5, P2=10
Type: Calculation
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Answer:
20
Question 4
Lesson L01 · Because The Intercept For Good 2 Depends Only On M And P2, Not P1
Explain why a price increase for one good doesn't affect the maximum quantity of the other good
Type: Short Answer
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Answer:
Question 5
Lesson L01 · Consumer Theory
A consumer has m=120, P1=4, P2=6. What's the opportunity cost of one more unit of good 1?
Type: Multiple Choice
- A) 0.67 units of good 2
- B) 1.5 units of good 2
- C) 4 units of good 2
- D) 6 units of good 2
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Answer: A) 0.67 units of good 2
Opportunity cost = P1/P2 = 4/6 ≈ 0.67
Question 6
Lesson L02 · Consumer Theory
What property ensures indifference curves cannot cross?
Type: Multiple Choice
- A) Completeness
- B) Transitivity
- C) Monotonicity
- D) Convexity
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Answer: B) Transitivity
Transitivity prevents preference cycles that would occur if curves crossed
Question 7
Lesson L02 · Mrs = Mu1/Mu2 = X2/X1 = 4/2 = 2
Calculate MRS for U=x1x2 at bundle (2,4)
Type: Calculation
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Answer:
1
Question 8
Lesson L02 · Because More Is Preferred To Less (Monotonicity), So To Keep Utility Constant, More Of One Good Must Compensate For Less Of The Other
Why are indifference curves downward sloping?
Type: Short Answer
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Answer:
Question 9
Lesson L02 · Consumer Theory
Which utility function represents perfect substitutes?
Type: Multiple Choice
- A) U=min{x1,x2}
- B) U=x1+x2
- C) U=x1x2
- D) U=x1^0.5x2^0.5
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Answer: B) U=x1+x2
Perfect substitutes have linear indifference curves (constant MRS)
Question 10
Lesson L02 · Consumer Theory
What does diminishing MRS imply about preferences?
Type: Multiple Choice
- A) Goods are perfect complements
- B) Consumers prefer variety
- C) Utility is linear
- D) Indifference curves are straight lines
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Answer: B) Consumers prefer variety
Diminishing MRS (convex indifference curves) means consumers prefer balanced bundles
Question 11
Lesson L03 · Consumer Theory
Which property is violated if A≻B, B≻C, but C≻A?
Type: Multiple Choice
- A) Completeness
- B) Transitivity
- C) Monotonicity
- D) Convexity
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Answer: B) Transitivity
Transitivity requires consistent rankings
Question 12
Lesson L03 · Perfect Substitutes (Linear Indifference Curves)
Give an example of non-convex preferences
Type: Short Answer
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Answer:
Question 13
Lesson L03 · 24)
For U=min{2x1,x2}, what's the optimal bundle if p1=2, p2=3, m=60?
Type: Calculation
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Answer:
(12
Question 14
Lesson L03 · Consumer Theory
What does monotonicity imply about marginal utilities?
Type: Multiple Choice
- A) MU can be negative
- B) MU is always positive
- C) MU is constant
- D) MU is zero at optimal bundles
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Answer: B) MU is always positive
More is better implies positive MU for all goods
Question 15
Lesson L03 · Consumer Theory
Why can't indifference curves be thick?
Type: Multiple Choice
- A) Violates transitivity
- B) Violates monotonicity
- C) Violates convexity
- D) Violates completeness
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Answer: B) Violates monotonicity
Thick curves would contain bundles with more of both goods but same utility, violating 'more is better'
Question 16
Lesson L04 · Consumer Theory
Which transformation preserves the same preferences: U=x1x2 → V=?
Type: Multiple Choice
- A) V=x1+x2
- B) V=lnx1+lnx2
- C) V=x1^2x2^2
- D) V=x1^0.3x2^0.7
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Answer: B) V=lnx1+lnx2
Monotonic transformations preserve preference orderings
Question 17
Lesson L04 · Mrs = (2X1X2)/(X1^2) = (212)/(1) = 4
Calculate MRS for U=x1^2x2 at (1,2)
Type: Calculation
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Answer:
4
Question 18
Lesson L04 · Only The Ranking Of Bundles Matters, Not The Absolute Utility Values
Why is utility ordinal rather than cardinal?
Type: Short Answer
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Answer:
Question 19
Lesson L04 · Consumer Theory
What's the MRS for perfect complements U=min{x1,2x2} at (2,1)?
Type: Multiple Choice
- A) 0
- B) 0.5
- C) 1
- D) Undefined
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Answer: D) Undefined
MRS is undefined at the kink of perfect complements
Question 20
Lesson L04 · Consumer Theory
If U=x1+x2, what type of preferences are represented?
Type: Multiple Choice
- A) Perfect substitutes
- B) Perfect complements
- C) Cobb-Douglas
- D) Quasilinear
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Answer: A) Perfect substitutes
Linear utility represents perfect substitutes
Question 21
Lesson L05 · Consumer Theory
For U=2x1+3x2, what's the optimal bundle if p1=4, p2=3, m=60?
Type: Multiple Choice
- A) (0,20)
- B) (15,0)
- C) (5,10)
- D) (12,4)
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Answer: B) (15,0)
With perfect substitutes, consume only the good with higher MU/$
Question 22
Lesson L05 · 18)
Calculate the optimal bundle for U=min{x1,3x2} with p1=2, p2=1, m=30
Type: Calculation
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Answer:
(6
Question 23
Lesson L05 · Because Indifference Curves Are Strictly Convex And Asymptotically Approach Axes
Why does Cobb-Douglas utility guarantee an interior solution?
Type: Short Answer
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Answer:
Question 24
Lesson L05 · Consumer Theory
What's the expenditure share on good 1 for U=x1^0.4x2^0.6?
Type: Multiple Choice
- A) 20%
- B) 40%
- C) 60%
- D) 80%
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Answer: B) 40%
Expenditure share equals the exponent (0.4 → 40%)
Question 25
Lesson L05 · Consumer Theory
Which utility function has indifference curves that are L-shaped?
Type: Multiple Choice
- A) U=x1+x2
- B) U=x1x2
- C) U=min{x1,x2}
- D) U=x1^0.5x2^0.5
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Answer: C) U=min{x1,x2}
Perfect complements have L-shaped indifference curves