Economics 251 – Review Questions Chapter 20 – Appendix – Indifference Curves

(1) The slope of the budget constraint is always equal to the:

(a) marginal rate of substitution.

(b) ratio of the price of one good to the price of the other good.

(c) income of the consumer.

(d) None of the above.

(2) The optimum consumption combination:

(a) maximizes total utility subject to a budget constraint.

(b) is the point of tangency between the budget constraint and an indifference curve.

(c) occurs when the marginal rate of substitution equals the ratio of the prices of the two goods.

(d) All of the above.

Use the indifference curves and budget lines in Figure 1 to answer Questions (3) and (4). Assume the price of Y is $1 per unit.

Figure 1

(3) In Figure 1, if the price per unit of good X is $3, the consumer would maximize utility by consuming:

(a) 30 units of X.

(b) 21 units of X.

(c) 3 units of X.

(d) 15 units of X.

(4) In Figure 1, if the price per unit of X is $1, optimal consumption is found at point:

(a) B

(b) D

(c) E

(d) C