Chapter 6A Practice Quiz Tutorial Indifference Curve Analysis ©2000 South-Western College Publishing

Exhibit A-6 A Consumer’s Budget Line and Indifference Curves

1. 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 but not 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.

2. The consumer equilibrium shown in Exhibit A-6 is located at point: c. Consumer equilibrium occurs at point C where the budget line is tangent to the highest attainable indifference curve (I2).

3. In Exhibit A-6, point D is a consumer equilibrium. unattainable given the consumer’s current budget constraint. a point that does not exhaust all of the consumer’s income. none of the above. b. At point D, the budget line constraint does not intersect point D on indifference curve I3.

4. 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 The demand curve for X. The demand curve for Y. c. The demand curve for both X and Y. d. None of the above. Exhibit A-6 Slide 1 A Consumer’s Budget Line and Indifference Curves

Exhibit A-6 Slide 2 Effect of Decrease in Price of Good X

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