Question 1

-Sharmila has a budget line for DVDs and books. DVDs are on the vertical axis and books on the horizontal. Her budget line becomes steeper as

Accepted Answer

A)  the price of a DVD falls. 
B)  the price of a DVD rises. 
C)  her income decreases. 
D)  her income increases. 
A)  the price of a DVD falls. 
B)  the price of a DVD rises. 
C)  her income decreases. 
D)  her income increases.

Question 2

-The change in consumption that results from a change in the relative price of goods while staying on the same indifference curve is the

Accepted Answer

A)  income effect. 
B)  substitution effect. 
C)  indifference effect. 
D)  price effect. 
A)  income effect. 
B)  substitution effect. 
C)  indifference effect. 
D)  price effect.

Question 3

-The figure above shows a consumer is indifferent between points

Accepted Answer

A)  d and c. 
B)  a, b, c, d, and e. 
C)  e and d. 
D)  b and a. 
A)  d and c. 
B)  a, b, c, d, and e. 
C)  e and d. 
D)  b and a.

Question 4

-The figure above contains several budget lines for Sarah, who uses her income to purchase two goods, cheese and crackers.
a) A movement between which two budget lines represents an increase in income?
b) A movement between which two budget lines represents an increase in the price of a pound of cheese?
c) A movement between which two budget lines represents an increase in the price of a box of crackers?

Accepted Answer

a) A movement from BL₁ to BL₃ shows an inc

Question 5

-The marginal rate of substitution is

Accepted Answer

A)  the rate at which the consumer will give up one good to get an additional unit of another good while remaining on the same indifference curve. 
B)  the rate at which utility increases as the consumer increases purchases of a good, holding purchases of the other good constant. 
C)  the rate at which a consumer will exchange a good for income holding prices constant. 
D)  None of the above answers is correct. 
A)  the rate at which the consumer will give up one good to get an additional unit of another good while remaining on the same indifference curve. 
B)  the rate at which utility increases as the consumer increases purchases of a good, holding purchases of the other good constant. 
C)  the rate at which a consumer will exchange a good for income holding prices constant. 
D)  None of the above answers is correct.

Question 6

Suppose the price of a good rises. The income effect

Accepted Answer

A)  shows the change in consumption that results from the change in relative price while staying on the same indifference curve. 
B)  shows the change in consumption that results from the change in relative price while keeping income constant. 
C)  is shown by decreasing income at the new relative price in order to move from the old indifference curve to the new indifference curve after the price change. 
D)  is shown by increasing income at the new relative price in order to move from the old indifference curve to the new indifference curve after the price change. 
A)  shows the change in consumption that results from the change in relative price while staying on the same indifference curve. 
B)  shows the change in consumption that results from the change in relative price while keeping income constant. 
C)  is shown by decreasing income at the new relative price in order to move from the old indifference curve to the new indifference curve after the price change. 
D)  is shown by increasing income at the new relative price in order to move from the old indifference curve to the new indifference curve after the price change.

Question 7

Bart consumes food and clothing, which are both normal goods. Suppose that the price of food falls. The substitution effect of this price decrease is ________ and the income effect of this price decrease is ________.

Accepted Answer

A)  that Bart buys more clothing and less food; that Bart buys more of both food and clothing 
B)  reflected by a change in the relative prices of food and clothing; is represented by a movement along the original indifference curve 
C)  reflected by a parallel shift outward of the budget line; that Bart earns more money each month 
D)  reflected by the change in the slope of the budget line; that Bart has greater purchasing power 
A)  that Bart buys more clothing and less food; that Bart buys more of both food and clothing 
B)  reflected by a change in the relative prices of food and clothing; is represented by a movement along the original indifference curve 
C)  reflected by a parallel shift outward of the budget line; that Bart earns more money each month 
D)  reflected by the change in the slope of the budget line; that Bart has greater purchasing power

Question 8

-In the above figure, what is the magnitude of the marginal rate of substitution (MRS) at point a?

Accepted Answer

A)  1/2 
B)  the rate at which the consumer will give up magazines to purchase more CDs while preferring the new combination to the old 
C)  2 
D)  The question cannot be answered without more information. 
A)  1/2 
B)  the rate at which the consumer will give up magazines to purchase more CDs while preferring the new combination to the old 
C)  2 
D)  The question cannot be answered without more information.

Question 9

-The figure above shows Sam's budget line. Which of the following would result in Sam's budget line rotating inward and not changing its vertical intercept?

Accepted Answer

A)  a decline in his preference for coffee 
B)  a fall in the price of a gallon of gasoline 
C)  a decrease in Sam's income 
D)  an increase in the price of a pound of coffee 
A)  a decline in his preference for coffee 
B)  a fall in the price of a gallon of gasoline 
C)  a decrease in Sam's income 
D)  an increase in the price of a pound of coffee

Question 10

-The above figure shows Jane's budget line and two of her indifference curves. How many steak dinners will Jane purchase each month?

Accepted Answer

A)  4 steak dinners 
B)  6 steak dinners 
C)  8 steak dinners 
D)  10 steak dinners 
A)  4 steak dinners 
B)  6 steak dinners 
C)  8 steak dinners 
D)  10 steak dinners

Question 11

-In the above figure, Mark's monthly budget line for movies and plays changed, as shown by the arrow. The change was caused by

Accepted Answer

A)  a decrease in Mark's income. 
B)  an increase in Mark's income. 
C)  a fall in the price of a play. 
D)  a rise in the price of a play. 
A)  a decrease in Mark's income. 
B)  an increase in Mark's income. 
C)  a fall in the price of a play. 
D)  a rise in the price of a play.

Question 12

The slope of the indifference curve between steak and lobster is always equal to the ratio of their prices.

Accepted Answer

A) True 
 B)False

Question 13

-The curve in the above figure shows alternative combinations of gasoline and coffee that Sam likes equally well. This curve is called

Accepted Answer

A)  a budget line. 
B)  a demand curve. 
C)  a consumption curve. 
D)  an indifference curve. 
A)  a budget line. 
B)  a demand curve. 
C)  a consumption curve. 
D)  an indifference curve.

Question 14

All points below the budget line are

Accepted Answer

A)  inferior to every point on the budget line. 
B)  preferred to every point on the budget line. 
C)  affordable. 
D)  Answers A and C are correct. 
A)  inferior to every point on the budget line. 
B)  preferred to every point on the budget line. 
C)  affordable. 
D)  Answers A and C are correct.

Question 15

-In an indifference curve diagram, the quantities of good Y are measured along the vertical axis and the quantities of good X are measured along the horizontal axis. The marginal rate of substitution is defined as

Accepted Answer

A)  how much good Y you must give up to get one more unit of good X. 
B)  how much good Y you are willing to give up to get one more unit of good X. 
C)  the relative price of good Y in terms of good X. 
D)  how much you prefer to substitute good X for good Y. 
A)  how much good Y you must give up to get one more unit of good X. 
B)  how much good Y you are willing to give up to get one more unit of good X. 
C)  the relative price of good Y in terms of good X. 
D)  how much you prefer to substitute good X for good Y.

Question 16

-Based on the above figure showing a budget line, which of the following combinations of soda and bottled water are not affordable?

Accepted Answer

A)  3 bottles of water and 4 cans of soda. 
B)  4 bottles of water and 2 cans of soda. 
C)  2 bottles of water and 6 cans of soda. 
D)  None of the above, that is, all the combinations listed are affordable. 
A)  3 bottles of water and 4 cans of soda. 
B)  4 bottles of water and 2 cans of soda. 
C)  2 bottles of water and 6 cans of soda. 
D)  None of the above, that is, all the combinations listed are affordable.

Question 17

-Sherry is on vacation and wants to bring souvenirs home to family and friends. Her souvenir budget is $100, and she can choose between T-shirts, which cost $20 each, and key chains, which cost $5 each.
a) Draw a graph of Sherry's budget line in the figure above.
b) What is the slope of Sherry's budget line? How does that slope represent an opportunity cost?
Suppose that Sherry now finds a store where T-shirts are on sale for $10 each. (Key chains still cost $5 each).
c) Draw the new budget line in the figure.
d) What is the slope of the new budget line? How has the opportunity cost changed?

Accepted Answer

@#IMG-DLM& a) The budget line is in the figure abo

Question 18

-In the figure above, which budget line results in the most real income in terms of compact discs?

Accepted Answer

A)  AD 
B)  BD 
C)  CD 
D)  Real income is equal for all three budget lines. 
A)  AD 
B)  BD 
C)  CD 
D)  Real income is equal for all three budget lines.

Question 19

-The effect of a change in price on the quantity bought when the consumer remains indifferent between the original and the new situation is called the

Accepted Answer

A)  income effect. 
B)  indifference effect. 
C)  substitution effect. 
D)  demand effect. 
A)  income effect. 
B)  indifference effect. 
C)  substitution effect. 
D)  demand effect.

Question 20

-As a consumer moves rightward along an indifference curve, the

Accepted Answer

A)  consumer remains indifferent among the different combinations of goods. 
B)  consumer generally prefers the combinations of goods farther rightward along the indifference curve. 
C)  income required to buy the combinations of the goods always increases. 
D)  relative price of both goods falls. 
A)  consumer remains indifferent among the different combinations of goods. 
B)  consumer generally prefers the combinations of goods farther rightward along the indifference curve. 
C)  income required to buy the combinations of the goods always increases. 
D)  relative price of both goods falls.

Exam 9: Possibilities, Preferences, and Choices

-Sharmila has a budget line for DVDs and books. DVDs are on the vertical axis and books on the horizontal. Her budget line becomes steeper as

-The change in consumption that results from a change in the relative price of goods while staying on the same indifference curve is the

-The figure above shows a consumer is indifferent between points

-The marginal rate of substitution is

Suppose the price of a good rises. The income effect

Bart consumes food and clothing, which are both normal goods. Suppose that the price of food falls. The substitution effect of this price decrease is ________ and the income effect of this price decrease is ________.

-In the above figure, what is the magnitude of the marginal rate of substitution (MRS) at point a?

-The figure above shows Sam's budget line. Which of the following would result in Sam's budget line rotating inward and not changing its vertical intercept?

-The above figure shows Jane's budget line and two of her indifference curves. How many steak dinners will Jane purchase each month?

-In the above figure, Mark's monthly budget line for movies and plays changed, as shown by the arrow. The change was caused by

The slope of the indifference curve between steak and lobster is always equal to the ratio of their prices.

-The curve in the above figure shows alternative combinations of gasoline and coffee that Sam likes equally well. This curve is called

All points below the budget line are

-In an indifference curve diagram, the quantities of good Y are measured along the vertical axis and the quantities of good X are measured along the horizontal axis. The marginal rate of substitution is defined as

-Based on the above figure showing a budget line, which of the following combinations of soda and bottled water are not affordable?

-In the figure above, which budget line results in the most real income in terms of compact discs?

-The effect of a change in price on the quantity bought when the consumer remains indifferent between the original and the new situation is called the

-As a consumer moves rightward along an indifference curve, the

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Choices and Public Goods

Externalities and the Environment

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Extension A: Review

Extension B: Review

Extension C: Review

Extension D: Review

Extension E: Review

Extension F: Review

Filters

Bart consumes food and clothing, which are both normal goods. Suppose that the price of food falls. The substitution effect of this price decrease is and the income effect of this price decrease is .