Question 1

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Accepted Answer

A) True 
 B)False

Question 2

Casey consumes two goods,hamburgers and ice cream sandwiches.He has maximized his utility given his income.Ice cream sandwiches costs $2,and he consumes them to the point where the marginal utility he receives is 6.Hamburgers cost $4,and the relationship between the marginal utility that Casey gets from eating hamburgers and the number he eats per month is as follows:   How many hamburgers does Casey buy each month?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 3

Figure 21-13  
-Refer to Figure 21-13.As the consumer moves from A to B to C,the marginal rate of substitution

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains constant. 
D)  first increases,then decreases. 
A)  increases. 
B)  decreases. 
C)  remains constant. 
D)  first increases,then decreases.

Question 4

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the

Accepted Answer

A)  prices of the products. 
B)  amount of each good the consumer is currently consuming. 
C)  consumer's income. 
D)  marginal value product. 
A)  prices of the products. 
B)  amount of each good the consumer is currently consuming. 
C)  consumer's income. 
D)  marginal value product.

Question 5

For Antonio,the income effect of an interest-rate increase is stronger than the substitution effect.In response to a higher interest rate,will Antonio save more or will he save less?

Accepted Answer

In response to a hig

Question 6

The rate at which a consumer is willing to exchange one good for another while maintaining a constant level of satisfaction is called the

Accepted Answer

A)  relative expenditure ratio. 
B)  value of marginal product. 
C)  marginal rate of substitution. 
D)  relative price ratio. 
A)  relative expenditure ratio. 
B)  value of marginal product. 
C)  marginal rate of substitution. 
D)  relative price ratio.

Question 7

Figure 21-2.The graph shows two budget constraints for a consumer.  
-Refer to Figure 21-2.What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

Accepted Answer

A decrease in the pr

Question 8

Consider the indifference curve map and budget constraint for two goods,X and Y.Suppose the good on the horizontal axis,X,is normal.When the price of X increases,the substitution effect

Accepted Answer

A)  and income effect both cause an increase in the consumption of X. 
B)  causes a decrease in the consumption of X,and the income effect causes an increase in the consumption of X.However,the substitution effect is greater than the income effect. 
C)  causes an increase in the consumption of X,and the income effect causes a decrease in the consumption of X.However,the substitution effect is greater than the income effect. 
D)  and income effect both cause a decrease in the consumption of X. 
A)  and income effect both cause an increase in the consumption of X. 
B)  causes a decrease in the consumption of X,and the income effect causes an increase in the consumption of X.However,the substitution effect is greater than the income effect. 
C)  causes an increase in the consumption of X,and the income effect causes a decrease in the consumption of X.However,the substitution effect is greater than the income effect. 
D)  and income effect both cause a decrease in the consumption of X.

Question 9

Figure 21-24  
-Refer to Figure 21-24.Anna experiences an increase in her hourly wage.Her optimal choice point moves from A to B.For Anna,

Accepted Answer

A)  her labor supply curve is backward bending. 
B)  her labor supply curve is upward sloping. 
C)  leisure is an inferior good. 
D)  both a and c are correct. 
A)  her labor supply curve is backward bending. 
B)  her labor supply curve is upward sloping. 
C)  leisure is an inferior good. 
D)  both a and c are correct.

Question 10

Which of the following descriptions best depicts the substitution effect?

Accepted Answer

A)  the change in consumption resulting from a change in the consumer's income,holding the prices of the goods constant 
B)  the change in consumption resulting from a change in the consumer's income,holding the consumer's level of satisfaction constant 
C)  the change in consumption resulting from a change in the price of one good,holding the consumer's level of satisfaction constant 
D)  the change in consumption resulting from a change in the price of one good,allowing the consumer's level of satisfaction to change 
A)  the change in consumption resulting from a change in the consumer's income,holding the prices of the goods constant 
B)  the change in consumption resulting from a change in the consumer's income,holding the consumer's level of satisfaction constant 
C)  the change in consumption resulting from a change in the price of one good,holding the consumer's level of satisfaction constant 
D)  the change in consumption resulting from a change in the price of one good,allowing the consumer's level of satisfaction to change

Question 11

The consumer's optimum choice is represented by

Accepted Answer

A)  MUx/MUy = Px/Py. 
B)  MUx/Px = MUy/Py. 
C)  MRSxy = Px/Py. 
D)  All of the above are correct. 
A)  MUx/MUy = Px/Py. 
B)  MUx/Px = MUy/Py. 
C)  MRSxy = Px/Py. 
D)  All of the above are correct.

Question 12

A consumer's preferences for $1 bills and $20 bills can be represented by indifference curves that are

Accepted Answer

A)  bowed out from the origin 
B)  bowed in toward the origin 
C)  straight lines 
D)  right angles 
A)  bowed out from the origin 
B)  bowed in toward the origin 
C)  straight lines 
D)  right angles

Question 13

Dave consumes two normal goods,X and Y,and is currently at an optimum.If the price of good X falls,we can predict with certainty that

Accepted Answer

A)  Dave will consume more of both goods because his real income has risen. 
B)  the substitution effect will be positive for good X and negative for good Y. 
C)  Dave may consume more or less of good X,but he will consume less of good Y. 
D)  the substitution effect will offset the income effect for good X. 
A)  Dave will consume more of both goods because his real income has risen. 
B)  the substitution effect will be positive for good X and negative for good Y. 
C)  Dave may consume more or less of good X,but he will consume less of good Y. 
D)  the substitution effect will offset the income effect for good X.

Question 14

A consumer consumes two normal goods,coffee and chocolate.The price of coffee rises.The income effect,by itself,suggests that the consumer will consume

Accepted Answer

A)  more coffee and more chocolate. 
B)  less coffee and less chocolate. 
C)  more coffee and less chocolate. 
D)  less coffee and more chocolate. 
A)  more coffee and more chocolate. 
B)  less coffee and less chocolate. 
C)  more coffee and less chocolate. 
D)  less coffee and more chocolate.

Question 15

The theory of consumer choice examines

Accepted Answer

A)  the determination of output in competitive markets. 
B)  the tradeoffs inherent in decisions made by consumers. 
C)  how consumers select inputs into manufacturing production processes. 
D)  the determination of prices in competitive markets. 
A)  the determination of output in competitive markets. 
B)  the tradeoffs inherent in decisions made by consumers. 
C)  how consumers select inputs into manufacturing production processes. 
D)  the determination of prices in competitive markets.

Question 16

Economic theory predicts that an increase in wages

Accepted Answer

A)  will cause a wage earner to work more. 
B)  will cause a wage earner to work less. 
C)  will cause a wage earner to be more productive. 
D)  might cause a wage earner to work more or work less. 
A)  will cause a wage earner to work more. 
B)  will cause a wage earner to work less. 
C)  will cause a wage earner to be more productive. 
D)  might cause a wage earner to work more or work less.

Question 17

Figure 21-5
 
-Refer to Figure 21-5.In graph (a),what is the price of good Y relative to good X (i.e. ,Py/Px)?

Accepted Answer

A)  1/4 
B)  1/3 
C)  3 
D)  4 
A)  1/4 
B)  1/3 
C)  3 
D)  4

Question 18

All of the following are properties of typical indifference curves except

Accepted Answer

A)  higher indifference curves are preferred to lower ones. 
B)  indifference curves are downward sloping. 
C)  indifference curves do not cross. 
D)  indifference curves are bowed outward. 
A)  higher indifference curves are preferred to lower ones. 
B)  indifference curves are downward sloping. 
C)  indifference curves do not cross. 
D)  indifference curves are bowed outward.

Question 19

Assume that a person consumes two goods,Coke and Snickers.Use a graph to demonstrate how the consumer adjusts his/her optimal consumption bundle when the price of Coke decreases.Carefully label all curves and axes.What will happen to consumption if Coke is a normal good? What will happen to consumption if Coke is an inferior good? (Remember to explain the possible change when the income effect dominates and when the substitution effect dominates. )

Accepted Answer

@#IMG-DLM& If Coke is a normal good,the consumptio

Question 20

Figure 21-19
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies:  
-Refer to Figure 21-19.Assume that the consumer depicted the figure has an income of $50.Based on the information available in the graph,which of the following price-quantity combinations would be on her demand curve for chocolate chips if the price of marshmallows is $2.50?

Accepted Answer

A)  P=$2.50,Q=6 
B)  P=$2.50,Q=10 
C)  P=$5.00,Q=3 
D)  P=$5.00,Q=5 
A)  P=$2.50,Q=6 
B)  P=$2.50,Q=10 
C)  P=$5.00,Q=3 
D)  P=$5.00,Q=5

Exam 21: The Theory of Consumer Choice

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Figure 21-13 -Refer to Figure 21-13.As the consumer moves from A to B to C,the marginal rate of substitution

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the

For Antonio,the income effect of an interest-rate increase is stronger than the substitution effect.In response to a higher interest rate,will Antonio save more or will he save less?

The rate at which a consumer is willing to exchange one good for another while maintaining a constant level of satisfaction is called the

Figure 21-2.The graph shows two budget constraints for a consumer. -Refer to Figure 21-2.What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

Consider the indifference curve map and budget constraint for two goods,X and Y.Suppose the good on the horizontal axis,X,is normal.When the price of X increases,the substitution effect

Figure 21-24 -Refer to Figure 21-24.Anna experiences an increase in her hourly wage.Her optimal choice point moves from A to B.For Anna,

Which of the following descriptions best depicts the substitution effect?

The consumer's optimum choice is represented by

A consumer's preferences for $1 bills and $20 bills can be represented by indifference curves that are

Dave consumes two normal goods,X and Y,and is currently at an optimum.If the price of good X falls,we can predict with certainty that

A consumer consumes two normal goods,coffee and chocolate.The price of coffee rises.The income effect,by itself,suggests that the consumer will consume

The theory of consumer choice examines

Economic theory predicts that an increase in wages

Figure 21-5 -Refer to Figure 21-5.In graph (a),what is the price of good Y relative to good X (i.e. ,Py/Px)?

All of the following are properties of typical indifference curves except

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

Filters

Figure 21-5 -Refer to Figure 21-5.In graph (a),what is the price of good Y relative to good X (i.e. ,P_y/P_x)?