Question 1

In terms of indifference curves, a demand curve is generated by changes in:

Accepted Answer

A)  income. 
B)  utility. 
C)  the price of one good. 
D)  the price of both goods simultaneously. 
A)  income. 
B)  utility. 
C)  the price of one good. 
D)  the price of both goods simultaneously.

Question 2

If a consumer is buying two goods and a decrease in the price of one good results in the consumer buying more of both goods:

Accepted Answer

A)  the income effect resulted in increasing the amounts of both goods purchased. 
B)  the demand curves for the two goods shifted to the right. 
C)  the substitution effect was extremely strong, but the income effect was zero. 
D)  none of the above statements are true. 
A)  the income effect resulted in increasing the amounts of both goods purchased. 
B)  the demand curves for the two goods shifted to the right. 
C)  the substitution effect was extremely strong, but the income effect was zero. 
D)  none of the above statements are true.

Question 3

In generating a demand curve using indifference curve analysis, it is assumed that:

Accepted Answer

A)  only preferences vary. 
B)  money income remains constant. 
C)  prices remain constant. 
D)  the level of utility remains constant. 
A)  only preferences vary. 
B)  money income remains constant. 
C)  prices remain constant. 
D)  the level of utility remains constant.

Question 4

A consumer achieves the same level of utility along a given indifference curve.

Accepted Answer

A) True 
 B)False

Question 5

In the case of an inferior good, _______ falls when income _______ .

Accepted Answer

A)  supply; rises 
B)  demand; rises 
C)  demand; falls 
D)  supply; falls 
A)  supply; rises 
B)  demand; rises 
C)  demand; falls 
D)  supply; falls

Question 6

Algebraically, the budget constraint for two goods would be PxQx + PyQy is:

Accepted Answer

A)  equal to B. 
B)  less than B. 
C)  greater than B. 
D)  less than or equal to B. 
A)  equal to B. 
B)  less than B. 
C)  greater than B. 
D)  less than or equal to B.

Question 7

If the price of a good rises, the resulting decrease in the quantity purchased will increase the marginal utility of the good.

Accepted Answer

A) True 
 B)False

Question 8

Marginal utility of a good eventually decreases as the level of consumption increases.

Accepted Answer

A) True 
 B)False

Question 9

When the price of an inferior good falls:

Accepted Answer

A)  the substitution effect will cause the quantity demanded to decrease. 
B)  the substitution effect will cause the quantity demanded to increase. 
C)  the income effect will cause the quantity demanded to decrease. 
D)  both B and C will occur. 
A)  the substitution effect will cause the quantity demanded to decrease. 
B)  the substitution effect will cause the quantity demanded to increase. 
C)  the income effect will cause the quantity demanded to decrease. 
D)  both B and C will occur.

Question 10

Demand for a normal good _______ with _______ in income.

Accepted Answer

A)  rises; decreases 
B)  falls; increases 
C)  rises; increases 
D)  stays the same; increases 
A)  rises; decreases 
B)  falls; increases 
C)  rises; increases 
D)  stays the same; increases

Question 11

-(Exhibit: Consumer Equilibrium 3) Assume that you are consuming the combination of goods at point I. Given budget constraint FL, utility can:

Accepted Answer

A)  not be increased. 
B)  be increased by consuming more of good A and less of good B. 
C)  be increased by consuming less of good A and more of good B. 
D)  be increased by consuming more of both goods. 
A)  not be increased. 
B)  be increased by consuming more of good A and less of good B. 
C)  be increased by consuming less of good A and more of good B. 
D)  be increased by consuming more of both goods.

Question 12

When supply and demand are in equilibrium, the price of a good is:

Accepted Answer

A)  greater than the marginal utility of the good. 
B)  equal to the marginal utility of the good. 
C)  less than the marginal utility of the good. 
D)  not necessarily any of the above. 
A)  greater than the marginal utility of the good. 
B)  equal to the marginal utility of the good. 
C)  less than the marginal utility of the good. 
D)  not necessarily any of the above.

Question 13

-(Exhibit: Consumer Equilibrium 2) Assume the consumer is currently operating at point G. Given the budget constraint shown, the consumer would be able to realize more total utility by choosing point ________ , all other things held equal.

Accepted Answer

A)  J 
B)  K 
C)  I 
D)  H 
A)  J 
B)  K 
C)  I 
D)  H

Question 14

In the case of inferior goods, the substitution effect and the income effect:

Accepted Answer

A)  move in opposite directions. 
B)  move in the same direction. 
C)  cancel each other out in every case. 
D)  will in all cases cause demand to be upsloping. 
A)  move in opposite directions. 
B)  move in the same direction. 
C)  cancel each other out in every case. 
D)  will in all cases cause demand to be upsloping.

Question 15

Suppose that the price of Cracker Jacks is 50 cents a box and the price of M&Ms is 25 cents a bag. If you have $10 to spend on both goods, the maximum quantity of Cracker Jacks that you can purchase is _______ boxes.

Accepted Answer

A)  5 
B)  10 
C)  20 
D)  40 
A)  5 
B)  10 
C)  20 
D)  40

Question 16

The substitution and income effects reinforce each other for:

Accepted Answer

A)  complement goods. 
B)  normal goods. 
C)  inferior goods. 
D)  Giffen goods. 
A)  complement goods. 
B)  normal goods. 
C)  inferior goods. 
D)  Giffen goods.

Question 17

-(Exhibit: Consumer Equilibrium 3) Assume that you are consuming the combination of goods at point K. Given budget constraint FL, utility can be increased by moving to point:

Accepted Answer

A)  F. 
B)  G. 
C)  H. 
D)  I. 
A)  F. 
B)  G. 
C)  H. 
D)  I.

Question 18

John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and ice cream. He had just achieved the utility-maximizing solution in his consumption of the two goods when the price of ice cream fell. As he adjusts to this event, he will consume:

Accepted Answer

A)  more peanut butter and more ice cream. 
B)  less peanut butter and less ice cream. 
C)  more peanut butter and less ice cream. 
D)  less peanut butter and more ice cream. 
A)  more peanut butter and more ice cream. 
B)  less peanut butter and less ice cream. 
C)  more peanut butter and less ice cream. 
D)  less peanut butter and more ice cream.

Question 19

The fact that a Giffen good might exist:

Accepted Answer

A)  negates the law of demand. 
B)  does not negate the law of demand. 
C)  means that the law of demand is fine in theory but not valid in the real world. 
D)  negates the law of increasing cost. 
A)  negates the law of demand. 
B)  does not negate the law of demand. 
C)  means that the law of demand is fine in theory but not valid in the real world. 
D)  negates the law of increasing cost.

Question 20

-(Exhibit: Consumer Equilibrium 1) Assume that the price of good X is $2 per unit, the price of good Y is $1 per unit, and you have $10 of income to spend on both goods. To maximize utility, you would consume _______ units of X and _______ units of Y.

Accepted Answer

A)  3; 4 
B)  4; 3 
C)  4; 6 
D)  5; 5 
A)  3; 4 
B)  4; 3 
C)  4; 6 
D)  5; 5

Exam 7: Cost and Industry Structure

In terms of indifference curves, a demand curve is generated by changes in:

If a consumer is buying two goods and a decrease in the price of one good results in the consumer buying more of both goods:

In generating a demand curve using indifference curve analysis, it is assumed that:

A consumer achieves the same level of utility along a given indifference curve.

In the case of an inferior good, _______ falls when income _______ .

Algebraically, the budget constraint for two goods would be PxQx + PyQy is:

If the price of a good rises, the resulting decrease in the quantity purchased will increase the marginal utility of the good.

Marginal utility of a good eventually decreases as the level of consumption increases.

When the price of an inferior good falls:

Demand for a normal good _______ with _______ in income.

-(Exhibit: Consumer Equilibrium 3) Assume that you are consuming the combination of goods at point I. Given budget constraint FL, utility can:

When supply and demand are in equilibrium, the price of a good is:

-(Exhibit: Consumer Equilibrium 2) Assume the consumer is currently operating at point G. Given the budget constraint shown, the consumer would be able to realize more total utility by choosing point ________ , all other things held equal.

In the case of inferior goods, the substitution effect and the income effect:

Suppose that the price of Cracker Jacks is 50 cents a box and the price of M&Ms is 25 cents a bag. If you have $10 to spend on both goods, the maximum quantity of Cracker Jacks that you can purchase is _______ boxes.

The substitution and income effects reinforce each other for:

-(Exhibit: Consumer Equilibrium 3) Assume that you are consuming the combination of goods at point K. Given budget constraint FL, utility can be increased by moving to point:

John Smedley, a careful maximizer of utility, consumes only two goods, peanut butter and ice cream. He had just achieved the utility-maximizing solution in his consumption of the two goods when the price of ice cream fell. As he adjusts to this event, he will consume:

The fact that a Giffen good might exist:

-(Exhibit: Consumer Equilibrium 1) Assume that the price of good X is $2 per unit, the price of good Y is $1 per unit, and you have $10 of income to spend on both goods. To maximize utility, you would consume _______ units of X and _______ units of Y.

Welcome to Economics

Demand and Supply

Labor and Financial Markets

Elasticity

Consumer Choices

Perfect Competition

Monopolistic Competition and Oligopoly

Monopoly and Antitrust Policy

Environmental Protection and Negative Externalities

Positive Externalities and Public Goods

Poverty and Economic Inequality

Issues in Labor Markets: Unions, Discrimination, Immigration

Information, Risk, and Insurance

Financial Markets

Public Economy

The Macroeconomic Perspective

Economic Growth

Unemployment

Inflation

The International Trade and Capital Flows

The Aggregate Demandaggregate Supply Model

The Keynesian Perspective

The Neoclassical Perspective

Money and Banking

Monetary Policy and Bank Regulation

Exchange Rates and International Capital Flows

Government Budgets and Fiscal Policy

The Impacts of Government Borrowing

Macroeconomic Policy Around the World

International Trade

Globalization and Protectionism

Filters

In the case of an inferior good, _ falls when income _ .

Algebraically, the budget constraint for two goods would be P_xQ_x + P_yQ_y is:

Demand for a normal good _ with _ in income.

-(Exhibit: Consumer Equilibrium 1) Assume that the price of good X is $2 per unit, the price of good Y is $1 per unit, and you have $10 of income to spend on both goods. To maximize utility, you would consume _ units of X and _ units of Y.