True-false test

1. A consumer is in equilibrium when total utility from consumption of good A is equal to total utility
from consumption of good B.
2. If there is a move up along the indifference curve, the consumer increases her/his satisfaction (utility)
form consumption of a given market basket.
3. A consumer finds herself/himself in equilibrium point when an indifference curve crosses a budget line.
4. When prices of both goods A and B increase, then a budget line always becomes steeper.
5. When a consumer’s income increases, her/his budget indifference curves move to the right.
6. A budget line presents all combinations of goods that are available for the consumer at given income
and prices.
7. When income changes, location and slope of the budget line change as well.
8. Total utility measures a consumer’s satisfaction coming from consumption of a given basket of goods.
9. When total utility increases, marginal utility grows as well.
10.Marginal utility measures an increase in total utility resulting from consumption of one extra unit of a
good.

1
11.When marginal utility turns to be negative, total utility starts to diminish.
12.Indifference curve presents all market baskets that are indifferent for the consumer, i.e, that give the
consumer the same satisfaction (utility) from consumption.
13.Marginal rate of substitution measures an amount of the good that have to be given up to increase the
consumption of the other good by one extra unit.
14.When a consumer has a fixed income, an increase in consumption of one good needs to decrease
consumption of the other, which is presented by downward sloping budget line.
15.Marginal rate of substitution indicates an increase in consumption that is needed to move to higher
indifference curve.
16.For typical indifference curves, when the consumer increases consumption of good X, she/he is willing
to give up smaller and smaller fractions of consumption of the other good.
17.Marginal rate of substitution measures distance between two indifference curves.
18.Price-consumption curve presents relationship between consumption of a good and changes of price of
that good.
19.At given prices and income, the consumer is able to buy combinations of goods lying below, on, and
above budget line.

2
20.When the consumer is in equilibrium , she/he is not interested in changing the status quo.

Choice test

1. Consumer has income I=8 zl, price of good X is 1zl, price of good Y is 0.5zl. Which of the following
market baskets (combinations of goods) lies on the budget line?
a. 6X and 4Y
b. 5X and 5Y
c. 4X and 2Y
d. 3X and 6Y.
2. The consumer’s budget constraint is as follows: 30X+90Y=1800. In an equilibrium, the consumer buys
60 units of good X. The number of units of good Y consumed is then:
a. 20 units
b. 10 units
c. 5 units
d. 0 units of the good.

3
3. If you can buy 11 units of good X and 10 units of good Y or 6 units of good X and 20 units of good Y,
then, spending your whole income for good Y, you will buy:
a. 15 units of good Y
b. 25 units of good Y
c. 28 units of good Y
d. 32 units of good Y.
4. Assume that price of good X triples, price of good Y doubles, while income remains the same. This
means that the new budget line:
a. is more flat than the original one and lies below it
b. is more flat than the original one and lies above it
c. is more steep than the original one and lies below it
d. is more steep than the original one and lies below it.
5. A consumer’s demand for good X was 200 kilos, and for good Y 100 kilos a month, when prices of
those goods were 1zl and 2 zl respectively. What should be an increase in a consumer’s income enablin
her/hip to keep the consumption at the same level?
a. by 200zl

4
b. by 400 zl
c. by 700 zl
d. by 1100 zl.
6. If consumption of good X is measured at horizontal axis, while consumption of good Y is measured at
vertical axis, then a drop in price of good X will result in:
a. parallel shift of the budget line up
b. shift to the righ of the point of intersection of the line with horizontal axis
c. parallel shift of the budget line down
d. increase of the slope of the line.
7. If income amounted to I=200zl, price of good X was 2zl, price of good Y was 4zl, and then income
increased to I=400zl, price of good X grew to 4zl, and price of good Y increased to 8zl, then:
a. budget line shifted up (parallely)
b. slope of the budget line increased twice (in magnitude)
c. budget line did not change its location
d. budget line shifted down (parallely).

5
8. If a consumer’s utility function is given by U(X,Y)=XY, a consumer will be indifferent with respect to
market basket of (X,Y)=(4,25) and:
a. (X,Y)=(100,0)
b. (X,Y)=(50,2)
c. (X,Y)=(95, 5)
d. both (a.) and (b.) market baskets.
9. A consumer spends his whole income for bananas and oranges and he is able to buy 10 bananas and 20
oranges a day. He could also buy 15 bananas and 10 oranges. If a price of one banana is 1zl, what is
daily income of the consumer?
a. 15zl
b. 20zl
c. 25zl
d. 30zl.
10.All combinations of two goods that lie on an indifference curve, at which an optimum market basket is
located, are:
a. attainable but of lower utility than optimal combination

6
b. of the same utility, but unattainable
c. attainable and of the same utility
d. of higher utility, but unattainable.

11.An indifference curve presents:

a. different market baskets that are attainable at given income
b. different market baskets that give the consumer the same utility
c. amount of one good that has to be given up to get one extra unit of other good
d. market basket that gives the consumer the highest possible utility at a given income.

12.If a consumer’s utility function is given by U(X,Y)=XY, a consumer will prefer a market basket of
(X,Y)=(40,10) to the following one:
a. (20,20)
b. (30,15)
c. (10,35)
d. none of the above is true.

7
 13.A budget line is given by the formula: 10X+2Y=80. A consumer buys 4 units of X and 20 units of Y.
To increase purchases of X by 3 units, the consumer has to give up:
a. 4 units of Y
b. 10 units of Y
c. 15 units of Y
d. 18 units of Y.

Exercise 1.
A consumer purchases two goods: X and Y. Price of X equals 5, price of Y equals 2, and income I=300.
a/ Formulate the budget constraint equation and make a graph presenting the budget line.
b/ what happens to the original budget line when the consumer’s income increases by 105 (zlotys)?
c/ what happens to the original budget line when the price of X raises by 1(zloty)?
d/ what happens to the original budget line when the price of X raises by 10%, while the price of Y drops by
10%?

Exercise 2.

8
A consumer buys two goods: X and Y. Price of X equals 2, price of Y equals 6, and income I=360. Marginal
utilities from consumption of both goods are as follows: MUX=2XY, and MUY=X2 respectively.
a/ what is an optimal structure of consumption for the consumer?
b/ what is a cross-price elasticity of demand for good X when price of good Y raises by 100%? What kind of
goods are X and Y?
c/ what is an income elasticity of demand for goods X and Y when the consumer’s income drops by 50%?
What kind of goods are X and Y?

Exercise 3.
Assume that a consumer earns income I that spends for two goods X and Y with the prices pX and pY
respectively.
a/ make a graph presenting an optimal (hypothetical) structure of consumption.
Suppose now that price of good X increased which caused a shift of the budget line to a new location.
Indicate a new optimal consumption structure assuming that:
a/ goods X and Y are complementary goods
b/ goods X and Y are substitutes

9
c/ goods X and Y are independent (not related) goods.

10