Question 1

The theory of consumer choice examines how

Accepted Answer

A)  firms make profit-maximizing decisions. 
B)  consumers make utility-maximizing decisions. 
C)  wages are determined in competitive labor markets. 
D)  prices are determined in competitive goods markets. 
A)  firms make profit-maximizing decisions. 
B)  consumers make utility-maximizing decisions. 
C)  wages are determined in competitive labor markets. 
D)  prices are determined in competitive goods markets.

Question 2

When the price of an inferior good increases,

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 3

Which of the following is a property of a typical indifference curve?

Accepted Answer

A)  upward sloping 
B)  bowed away from the origin 
C)  does not intersect another indifference curve 
D)  a higher one is preferred to a lower one 
A)  upward sloping 
B)  bowed away from the origin 
C)  does not intersect another indifference curve 
D)  a higher one is preferred to a lower one

Question 4

A consumer chooses an optimal consumption point where the

Accepted Answer

A)  marginal rate of substitution equals the relative price ratio. 
B)  slope of the indifference curve exceeds the slope of the budget constraint. 
C)  ratios of all the marginal utilities are equal. 
D)  All of the above are correct. 
A)  marginal rate of substitution equals the relative price ratio. 
B)  slope of the indifference curve exceeds the slope of the budget constraint. 
C)  ratios of all the marginal utilities are equal. 
D)  All of the above are correct.

Question 5

A consumer likes two goods: books and movies.The two bundles shown in the table below lie on the same indifference curve for the consumer.   Which of the following bundles could not lie on the same indifference curve with A and B and satisfy the four properties of indifference curves?

Accepted Answer

A)  1 movie and 5 books 
B)  3 movies and 3 books 
C)  5 movies and 1 book 
D)  1 movie and 7 books 
A)  1 movie and 5 books 
B)  3 movies and 3 books 
C)  5 movies and 1 book 
D)  1 movie and 7 books

Question 6

Figure 21-10  
-Refer to Figure 21-10.Which of the following statements is correct?

Accepted Answer

A)  Bundle A provides the same utility as bundle E. 
B)  Bundle A provides the same utility as bundle C. 
C)  Bundle B contains more cake than bundle C. 
D)  The bundles along indifference curve Indifference Curve 2 are preferred to those along indifference curve Indifference Curve 3. 
A)  Bundle A provides the same utility as bundle E. 
B)  Bundle A provides the same utility as bundle C. 
C)  Bundle B contains more cake than bundle C. 
D)  The bundles along indifference curve Indifference Curve 2 are preferred to those along indifference curve Indifference Curve 3.

Question 7

If the market is offering consumers the trade-off of 3 pints of Pepsi for 1 pizza,and if the price of a pizza is $9,then what is the price of a pint of Pepsi?

Accepted Answer

The price

Question 8

A good is an inferior good if the consumer buys more of it when

Accepted Answer

A)  his income rises. 
B)  the price of the good falls. 
C)  the price of a substitute good rises. 
D)  his income falls. 
A)  his income rises. 
B)  the price of the good falls. 
C)  the price of a substitute good rises. 
D)  his income falls.

Question 9

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

Accepted Answer

A)  1/3 
B)  1 
C)  3 
D)  10 
A)  1/3 
B)  1 
C)  3 
D)  10

Question 10

Suppose a consumer spends her income on two goods: music CDs and DVDs.The price of a CD is $8,and the price of a DVD is $20.If we graph the budget constraint by measuring the quantity of CDs purchased on the horizontal axis and the quantity of DVDs on the vertical axis,what is the slope of the budget constraint?

Accepted Answer

A)  -5.0 
B)  -2.5 
C)  -0.4 
D)  The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods. 
A)  -5.0 
B)  -2.5 
C)  -0.4 
D)  The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods.

Question 11

Assume that a college student spends her income on books and pizza.The price of a pizza is $8,and the price of a book is $15.If she has $100 in income,she could choose to consume

Accepted Answer

A)  8 pizzas and 4 books. 
B)  4 pizzas and 5 books. 
C)  9 pizzas and 3 books. 
D)  4 pizzas and 3 books. 
A)  8 pizzas and 4 books. 
B)  4 pizzas and 5 books. 
C)  9 pizzas and 3 books. 
D)  4 pizzas and 3 books.

Question 12

Figure 21-1.The figure shows three indifference curves and a budget constraint for a certain consumer named Jack.  
-Refer to Figure 21-1.Starting from point B,which of these events could result in point A becoming Jack's new optimum?

Accepted Answer

A)  a decrease in the price of apples,with no change in the price of pears or income 
B)  a decrease in the price of pears,with no change in the price of apples or income 
C)  an increase in income,with no change in the price of apples or the price of pears 
D)  None of these events could result in point A becoming Jack's new optimum. 
A)  a decrease in the price of apples,with no change in the price of pears or income 
B)  a decrease in the price of pears,with no change in the price of apples or income 
C)  an increase in income,with no change in the price of apples or the price of pears 
D)  None of these events could result in point A becoming Jack's new optimum.

Question 13

Bundle A contains 10 units of good X and 5 units of good Y.Bundle B contains 5 units of good X and 10 units of good Y.Bundle C contains 10 units of good X and 10 units of good Y.The consumer is indifferent between bundle A and bundle B.Assume that the consumer's preferences satisfy the four properties of indifference curves.Which of the following statements is correct?

Accepted Answer

A)  The consumer must prefer bundle C to either bundle A or B. 
B)  Bundle A and bundle B lie on the same indifference curve. 
C)  The consumer must prefer bundle B to bundle C. 
D)  Both a and b are correct. 
A)  The consumer must prefer bundle C to either bundle A or B. 
B)  Bundle A and bundle B lie on the same indifference curve. 
C)  The consumer must prefer bundle B to bundle C. 
D)  Both a and b are correct.

Question 14

Ryan experiences an increase in his wages.The hours of labor that he supplies to the market would increase if

Accepted Answer

A)  the income effect is larger than the substitution effect. 
B)  the substitution effect is larger than the income effect. 
C)  neither the income effect nor the substitution effect apply to Tom's labor-leisure tradeoff. 
D)  Ryan views both labor and leisure as inferior goods. 
A)  the income effect is larger than the substitution effect. 
B)  the substitution effect is larger than the income effect. 
C)  neither the income effect nor the substitution effect apply to Tom's labor-leisure tradeoff. 
D)  Ryan views both labor and leisure as inferior goods.

Question 15

When a consumer experiences a price increase for an inferior good,if the income effect is

Accepted Answer

A)  greater than the substitution effect,the demand curve will be downward sloping. 
B)  greater than the substitution effect,the demand curve will be upward sloping. 
C)  less than the substitution effect,the demand curve will be upward sloping. 
D)  less than the substitution effect but the substitution effect is positive,the demand curve will be upward sloping. 
A)  greater than the substitution effect,the demand curve will be downward sloping. 
B)  greater than the substitution effect,the demand curve will be upward sloping. 
C)  less than the substitution effect,the demand curve will be upward sloping. 
D)  less than the substitution effect but the substitution effect is positive,the demand curve will be upward sloping.

Question 16

Which of the following is an example of a Giffen good?

Accepted Answer

A)  potatoes during the Irish potato famine 
B)  rice in the Chinese province of Hunan 
C)  fish in Japan 
D)  Both a and b are correct. 
A)  potatoes during the Irish potato famine 
B)  rice in the Chinese province of Hunan 
C)  fish in Japan 
D)  Both a and b are correct.

Question 17

Karen,Tara,and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days.Ice cream costs $5 per gallon,and paperback novels cost $8 each.Karen has a budget of $80,Tara has a budget of $60,and Chelsea has a budget of $40 to spend on ice cream and paperback novels.Who can afford to purchase 4 gallons of ice cream and 5 paperback novels?

Accepted Answer

A)  Karen,Tara,and Chelsea 
B)  Karen only 
C)  Karen and Tara but not Chelsea 
D)  none of the women 
A)  Karen,Tara,and Chelsea 
B)  Karen only 
C)  Karen and Tara but not Chelsea 
D)  none of the women

Question 18

Figure 21-14      
-Refer to Figure 21-14.Which of the graphs shown represent indifference curves for perfect substitutes?

Accepted Answer

A)  graph a 
B)  graph b 
C)  graph c 
D)  All of the above are correct. 
A)  graph a 
B)  graph b 
C)  graph c 
D)  All of the above are correct.

Question 19

Jack and Diane each buy pizza and paperback novels.Pizza costs $3 per slice,and paperback novels cost $5 each.Jack has a budget of $30,and Diane has a budget of $15 to spend on pizza and paperback novels.Which consumer(s)can afford to purchase 5 slices of pizza and 3 paperback novels?

Accepted Answer

A)  Jack only 
B)  Diane only 
C)  both Jack and Diane 
D)  neither Jack nor Diane 
A)  Jack only 
B)  Diane only 
C)  both Jack and Diane 
D)  neither Jack nor Diane

Question 20

Figure 21-11  
-Refer to Figure 21-11.What is the consumer's marginal rate of substitution as she moves from A to B?

Accepted Answer

A)  12 
B)  6 
C)  4 
D)  1 
A)  12 
B)  6 
C)  4 
D)  1

Exam 21: The Theory of Consumer Choice

The theory of consumer choice examines how

When the price of an inferior good increases,

Which of the following is a property of a typical indifference curve?

A consumer chooses an optimal consumption point where the

A consumer likes two goods: books and movies.The two bundles shown in the table below lie on the same indifference curve for the consumer. Which of the following bundles could not lie on the same indifference curve with A and B and satisfy the four properties of indifference curves?

Figure 21-10 -Refer to Figure 21-10.Which of the following statements is correct?

If the market is offering consumers the trade-off of 3 pints of Pepsi for 1 pizza,and if the price of a pizza is $9,then what is the price of a pint of Pepsi?

A good is an inferior good if the consumer buys more of it when

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

Assume that a college student spends her income on books and pizza.The price of a pizza is $8,and the price of a book is $15.If she has $100 in income,she could choose to consume

Figure 21-1.The figure shows three indifference curves and a budget constraint for a certain consumer named Jack. -Refer to Figure 21-1.Starting from point B,which of these events could result in point A becoming Jack's new optimum?

Ryan experiences an increase in his wages.The hours of labor that he supplies to the market would increase if

When a consumer experiences a price increase for an inferior good,if the income effect is

Which of the following is an example of a Giffen good?

Figure 21-14 -Refer to Figure 21-14.Which of the graphs shown represent indifference curves for perfect substitutes?

Jack and Diane each buy pizza and paperback novels.Pizza costs $3 per slice,and paperback novels cost $5 each.Jack has a budget of $30,and Diane has a budget of $15 to spend on pizza and paperback novels.Which consumer(s)can afford to purchase 5 slices of pizza and 3 paperback novels?

Figure 21-11 -Refer to Figure 21-11.What is the consumer's marginal rate of substitution as she moves from A to B?

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 (b),what is the price of good Y relative to good X (i.e. ,P_Y/P_X)?