Question 1

When two goods are perfect substitutes,the

Accepted Answer

A)  indifference curve is a horizontal straight line. 
B)  marginal rate of substitution is constant. 
C)  indifference curve is a vertical straight line. 
D)  Both a and b are correct. 
A)  indifference curve is a horizontal straight line. 
B)  marginal rate of substitution is constant. 
C)  indifference curve is a vertical straight line. 
D)  Both a and b are correct.

Question 2

Explain the difference between inferior and normal goods.As a developing economy experiences increases in income (measured by GDP),what would you predict to happen to demand for inferior goods?

Accepted Answer

Normal goods are those for which consump

Question 3

We can use the theory of consumer choice to analyze

Accepted Answer

A)  why most demand curves slope downward. 
B)  the tradeoff between work and leisure 
C)  how interest rates affect household saving. 
D)  All of the above are correct. 
A)  why most demand curves slope downward. 
B)  the tradeoff between work and leisure 
C)  how interest rates affect household saving. 
D)  All of the above are correct.

Question 4

Figure 21-3
In each case,the budget constraint moves from BC-1 to BC-2.        
-Refer to Figure 21-3.Which of the graphs in the figure reflects an increase in the price of good Y only?

Accepted Answer

A)  graph a 
B)  graph b 
C)  graph c 
D)  graph d 
A)  graph a 
B)  graph b 
C)  graph c 
D)  graph d

Question 5

Suppose that you have $100 today and expect to receive $100 one year from today.Your money market account pays an annual interest rate of 25%,and you may borrow money at that interest rate.If you save all your money,how much money will you have one year from today?

Accepted Answer

A)  $100 
B)  $125 
C)  $200 
D)  $225 
A)  $100 
B)  $125 
C)  $200 
D)  $225

Question 6

If leisure were an inferior good,then labor supply curves

Accepted Answer

A)  would all be negatively sloped. 
B)  would all be positively sloped. 
C)  would all be vertical. 
D)  could still be positively or negatively sloped. 
A)  would all be negatively sloped. 
B)  would all be positively sloped. 
C)  would all be vertical. 
D)  could still be positively or negatively sloped.

Question 7

Traci consumes two goods,lemonade and pretzels.Lemonade costs $1 per glass,and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 3.Pretzels cost $2 per bag.The relationship between the marginal utility Traci gets from eating a bag of pretzels and the number of bags she eats per month is as follows:   If Traci is maximizing his utility,how many bags of potato chips does he buy each month?

Accepted Answer

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

Question 8

When the price of a normal good decreases,

Accepted Answer

A)  both the income and substitution effects encourage the consumer to purchase more of the good. 
B)  both the income and substitution effects encourage the consumer to purchase less of the good. 
C)  the income effect encourages the consumer to purchase more of the good,and the substitution effect encourages the consumer to purchase less of the good. 
D)  the income effect encourages the consumer to purchase less of the good,and the substitution effect encourages the consumer to purchase more of the good. 
A)  both the income and substitution effects encourage the consumer to purchase more of the good. 
B)  both the income and substitution effects encourage the consumer to purchase less of the good. 
C)  the income effect encourages the consumer to purchase more of the good,and the substitution effect encourages the consumer to purchase less of the good. 
D)  the income effect encourages the consumer to purchase less of the good,and the substitution effect encourages the consumer to purchase more of the good.

Question 9

Refer to Scenario 21-1.If the consumer's income rises to $60,then the budget line for hot wings and beer would

Accepted Answer

A)  now intersect the horizontal axis at 6 orders of hot wings and the vertical axis at 60 beers. 
B)  not change. 
C)  now intersect the horizontal axis at 4 orders of hot wings and the vertical axis at 16 beers. 
D)  rotate outward along the beer axis. 
A)  now intersect the horizontal axis at 6 orders of hot wings and the vertical axis at 60 beers. 
B)  not change. 
C)  now intersect the horizontal axis at 4 orders of hot wings and the vertical axis at 16 beers. 
D)  rotate outward along the beer axis.

Question 10

In the upward-sloping portion of the individual labor-supply curve,the substitution effect is

Accepted Answer

A)  greater than the income effect. 
B)  less than the income effect. 
C)  equal to the income effect. 
D)  exactly offset by the income effect. 
A)  greater than the income effect. 
B)  less than the income effect. 
C)  equal to the income effect. 
D)  exactly offset by the income effect.

Question 11

Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis.Suppose that you have $100 today and expect to receive $100 one year from today.Your money market account pays an annual interest rate of 25%,and you may borrow money at that interest rate.Suppose now that the interest rate increases to 40%.What happens to the slope of your budget constraint relative to when the interest rate was 25%? The slope

Accepted Answer

A)  becomes steeper. 
B)  becomes flatter. 
C)  doesn't change because the budget constraint shifts in parallel to the original budget constraint. 
D)  doesn't change because the budget constraint shifts out parallel to the original budget constraint. 
A)  becomes steeper. 
B)  becomes flatter. 
C)  doesn't change because the budget constraint shifts in parallel to the original budget constraint. 
D)  doesn't change because the budget constraint shifts out parallel to the original budget constraint.

Question 12

A consumer has preferences over two goods,X and Y.Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves)and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis.At the consumer's current consumption bundle,the consumer is spending all available income,and the marginal rate of substitution is greater than the slope of the budget constraint.We can conclude that the consumer

Accepted Answer

A)  is currently maximizing satisfaction subject to the budget constraint. 
B)  could increase satisfaction by consuming more X and less Y. 
C)  could increase satisfaction by consuming less X and more Y. 
D)  could purchase more X and more Y and increase total satisfaction. 
A)  is currently maximizing satisfaction subject to the budget constraint. 
B)  could increase satisfaction by consuming more X and less Y. 
C)  could increase satisfaction by consuming less X and more Y. 
D)  could purchase more X and more Y and increase total satisfaction.

Question 13

If the price of a good increases,all else equal,consumers perceive

Accepted Answer

A)  an increase in purchasing power if the good is an inferior good. 
B)  an increase in income if the price increase occurs for a normal good. 
C)  a decrease in purchasing power. 
D)  a net gain in purchasing power if they decrease consumption of some goods. 
A)  an increase in purchasing power if the good is an inferior good. 
B)  an increase in income if the price increase occurs for a normal good. 
C)  a decrease in purchasing power. 
D)  a net gain in purchasing power if they decrease consumption of some goods.

Question 14

Figure 21-22  
-Refer to Figure 21-22.When the price of X is $80,the price of Y is $20,and the consumer's income is $160,the consumer's optimal choice is D.Then the price of X decreases to $20.The substitution effect can be illustrated as the movement from

Accepted Answer

A)  D to E. 
B)  D to C. 
C)  C to E. 
D)  E to D. 
A)  D to E. 
B)  D to C. 
C)  C to E. 
D)  E to D.

Question 15

Figure 21-26
The figure below illustrates the preferences of a representative consumer,Carlos.  
-Refer to Figure 21-26.Interest rates increase by 4 percent.Carlos's optimal choice point moves from A to B.Carlos consumes

Accepted Answer

A)  less while he is younger and saves more than he did before interest rates increased. 
B)  more while he is younger and saves more than he did before interest rates increased. 
C)  less while he is younger and saves less than he did before interest rates increased. 
D)  more while he is younger and saves less than he did before interest rates increased. 
A)  less while he is younger and saves more than he did before interest rates increased. 
B)  more while he is younger and saves more than he did before interest rates increased. 
C)  less while he is younger and saves less than he did before interest rates increased. 
D)  more while he is younger and saves less than he did before interest rates increased.

Question 16

As more units of an item are purchased,everything else equal,marginal satisfaction from consuming additional units will tend to

Accepted Answer

A)  decrease at the same rate for all consumers. 
B)  decrease but at different rates for different people. 
C)  increase at the same rate for all consumers. 
D)  increase but at a decreasing rate for all consumers. 
A)  decrease at the same rate for all consumers. 
B)  decrease but at different rates for different people. 
C)  increase at the same rate for all consumers. 
D)  increase but at a decreasing rate for all consumers.

Question 17

Figure 21-6  
-Refer to Figure 21-6.Suppose a consumer has $100 in income,the price of Mt.Dew is $2,and the value of A is 200.What is the price of popcorn?

Accepted Answer

A)  $0.50 
B)  $1 
C)  $2 
D)  $4 
A)  $0.50 
B)  $1 
C)  $2 
D)  $4

Question 18

Figure 21-3
In each case,the budget constraint moves from BC-1 to BC-2.        
-Refer to Figure 21-3.Which of the graphs in the figure reflects a decrease in the price of good Y only?

Accepted Answer

A)  graph a 
B)  graph b 
C)  graph c 
D)  graph d 
A)  graph a 
B)  graph b 
C)  graph c 
D)  graph d

Question 19

Each of the following are characteristics of a typical indifference curve map except

Accepted Answer

A)  moving northeast to a new indifference curve will increase utility. 
B)  points on the same indifference curve yield equal utility. 
C)  the axes represent levels of utility for each of the goods. 
D)  indifference curves cannot cross. 
A)  moving northeast to a new indifference curve will increase utility. 
B)  points on the same indifference curve yield equal utility. 
C)  the axes represent levels of utility for each of the goods. 
D)  indifference curves cannot cross.

Question 20

Good X is a Giffen good.When the price of X increases,the consumer will consume

Accepted Answer

A)  more X. 
B)  the same amount of X. 
C)  less X. 
D)  more or less X depending on the size of the income effect relative to the size of the substitution effect. 
A)  more X. 
B)  the same amount of X. 
C)  less X. 
D)  more or less X depending on the size of the income effect relative to the size of the substitution effect.

Exam 21: The Theory of Consumer Choice

When two goods are perfect substitutes,the

Explain the difference between inferior and normal goods.As a developing economy experiences increases in income (measured by GDP),what would you predict to happen to demand for inferior goods?

We can use the theory of consumer choice to analyze

Figure 21-3 In each case,the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3.Which of the graphs in the figure reflects an increase in the price of good Y only?

Suppose that you have $100 today and expect to receive $100 one year from today.Your money market account pays an annual interest rate of 25%,and you may borrow money at that interest rate.If you save all your money,how much money will you have one year from today?

If leisure were an inferior good,then labor supply curves

When the price of a normal good decreases,

Refer to Scenario 21-1.If the consumer's income rises to $60,then the budget line for hot wings and beer would

In the upward-sloping portion of the individual labor-supply curve,the substitution effect is

If the price of a good increases,all else equal,consumers perceive

Figure 21-22 -Refer to Figure 21-22.When the price of X is $80,the price of Y is $20,and the consumer's income is $160,the consumer's optimal choice is D.Then the price of X decreases to $20.The substitution effect can be illustrated as the movement from

Figure 21-26 The figure below illustrates the preferences of a representative consumer,Carlos. -Refer to Figure 21-26.Interest rates increase by 4 percent.Carlos's optimal choice point moves from A to B.Carlos consumes

As more units of an item are purchased,everything else equal,marginal satisfaction from consuming additional units will tend to

Figure 21-6 -Refer to Figure 21-6.Suppose a consumer has $100 in income,the price of Mt.Dew is $2,and the value of A is 200.What is the price of popcorn?

Figure 21-3 In each case,the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3.Which of the graphs in the figure reflects a decrease in the price of good Y only?

Each of the following are characteristics of a typical indifference curve map except

Good X is a Giffen good.When the price of X increases,the consumer will consume

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply,demand,and Government Policies

Consumers,producers,and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Market for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving,investment,and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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