Question 1

Figure 21-13  
-Refer to Figure 21-13.What is the consumer's marginal rate of substitution as she moves from A to B?

Accepted Answer

A)  4 
B)  2 
C)  1 
D)  0.5 
A)  4 
B)  2 
C)  1 
D)  0.5

Question 2

Assume that a college student spends her income on mac-n-cheese and CDs.The price of one box of mac-n-cheese is $1,and the price of one CD is $12.If she has $100 of income,she could choose to consume

Accepted Answer

A)  15 boxes of mac-n-cheese and 6 CDs. 
B)  20 boxes of mac-n-cheese and 7 CDs. 
C)  10 boxes of mac-n-cheese and 8 CDs. 
D)  30 boxes of mac-n-cheese and 6 CDs. 
A)  15 boxes of mac-n-cheese and 6 CDs. 
B)  20 boxes of mac-n-cheese and 7 CDs. 
C)  10 boxes of mac-n-cheese and 8 CDs. 
D)  30 boxes of mac-n-cheese and 6 CDs.

Question 3

Giffen goods are

Accepted Answer

A)  normal goods for which the income effect dominates the substitution effect. 
B)  normal goods for which the substitution effect dominates the income effect. 
C)  inferior goods for which the income effect dominates the substitution effect. 
D)  inferior goods for which the substitution effect dominates the income effect. 
A)  normal goods for which the income effect dominates the substitution effect. 
B)  normal goods for which the substitution effect dominates the income effect. 
C)  inferior goods for which the income effect dominates the substitution effect. 
D)  inferior goods for which the substitution effect dominates the income effect.

Question 4

If Walter has one hour of leisure time in which to watch a sporting event on television,his preferences are as follows: Walter prefers watching football to watching baseball,but he prefers watching baseball to watching basketball.He is indifferent between watching baseball and watching hockey.Bundle A contains one hour of football and zero hours of all other sports.Bundle B contains one hour of baseball and zero hours of all other sports.Bundle C contains one hour of basketball and zero hours of all other sports.Bundle D contains one hour of hockey and zero hours of all other sports.If we were to graph Walter's preferences using indifference curves,which of the following bundles would be on the same indifference curve?

Accepted Answer

A)  A,B,and C only 
B)  B and D only 
C)  A and D only 
D)  There is no combination of the sports that could be drawn on the same indifference curve. 
A)  A,B,and C only 
B)  B and D only 
C)  A and D only 
D)  There is no combination of the sports that could be drawn on the same indifference curve.

Question 5

A consumer's indifference curves are straight lines when,for the consumer,the goods in question are __________.

Accepted Answer

The answer of A consumer's indifference curves are straight lines...

Question 6

Janet knows that she will ultimately face retirement.Assume that Janet will experience two periods in her life,one in which she works and earns income,and one in which she is retired and earns no income.Janet can earn $250,000 during her working period and nothing in her retirement period.She must both save and consume in her work period and can earn 10 percent interest on her savings.
a.Use a graph to demonstrate Janet's budget constraint.
b.On your graph,show Janet at an optimal level of consumption in the work period equal to $150,000.What is the implied optimal level of consumption in her retirement period?
c.Now,using your graph from part b above,demonstrate how Janet will be affected by an increase in the interest rate on savings to 14 percent.Discuss the role of income and substitution effects in determining whether Janet will increase,or decrease her savings in the work period.

Accepted Answer

a.see graph below
b.see graph below
c.se

Question 7

Pete consumes two goods,rice and fish.When the price of fish rises,he consumes less fish.When the price of rice rises,he consumes more rice.For Pete,

Accepted Answer

A)  fish is not a Giffen good but rice is. 
B)  rice is not a Giffen good but fish is. 
C)  both fish and rice are normal goods. 
D)  both fish and rice are Giffen goods. 
A)  fish is not a Giffen good but rice is. 
B)  rice is not a Giffen good but fish is. 
C)  both fish and rice are normal goods. 
D)  both fish and rice are Giffen goods.

Question 8

The marginal rate of substitution between goods A and B measures the price of A relative to the price of B.

Accepted Answer

A) True 
 B)False

Question 9

Steak and pasta are normal goods.When the price of pasta falls,the substitution effect by itself causes

Accepted Answer

A)  the consumer to feel richer,so the consumer buys more steak. 
B)  the consumer to feel richer,so the consumer buys less steak. 
C)  steak to be relatively more expensive,so the consumer buys less steak. 
D)  steak to be relatively less expensive,so the consumer buys more steak. 
A)  the consumer to feel richer,so the consumer buys more steak. 
B)  the consumer to feel richer,so the consumer buys less steak. 
C)  steak to be relatively more expensive,so the consumer buys less steak. 
D)  steak to be relatively less expensive,so the consumer buys more steak.

Question 10

When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs

Accepted Answer

A)  along the highest indifference curve. 
B)  along the lowest budget constraint. 
C)  where the indifference curve is tangent to the budget constraint. 
D)  All of the above are correct. 
A)  along the highest indifference curve. 
B)  along the lowest budget constraint. 
C)  where the indifference curve is tangent to the budget constraint. 
D)  All of the above are correct.

Question 11

Assume that a consumer's indifference curve is bowed outward but satisfies the other three properties of indifference curves.As the consumer moves from left to right along the horizontal axis,the consumer's marginal rate of substitution

Accepted Answer

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

Question 12

A normal good is one

Accepted Answer

A)  the average consumer chooses to consume at a normal level. 
B)  the average consumer chooses to consume over other similar goods. 
C)  for which an increase in income increases consumption of the good. 
D)  for which an increase in income decreases consumption of the good. 
A)  the average consumer chooses to consume at a normal level. 
B)  the average consumer chooses to consume over other similar goods. 
C)  for which an increase in income increases consumption of the good. 
D)  for which an increase in income decreases consumption of the good.

Question 13

"Left" gloves and "right" gloves provide a good example of

Accepted Answer

A)  perfect substitutes. 
B)  perfect complements. 
C)  negatively sloped indifference curves. 
D)  positively sloped indifference curves. 
A)  perfect substitutes. 
B)  perfect complements. 
C)  negatively sloped indifference curves. 
D)  positively sloped indifference curves.

Question 14

Using our model of consumer choice,is it possible for a consumer to buy less of a particular good when his income rises? Briefly explain.

Accepted Answer

Yes,an increase in i

Question 15

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 income 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 16

When indifference curves are bowed in toward the origin,

Accepted Answer

A)  consumers are less inclined to trade away goods they are lacking. 
B)  consumers' willingness to trade away goods they have in abundance diminishes. 
C)  an increase in income will shift the indifference curve away from the origin. 
D)  a decrease in income will shift the indifference curve toward the origin. 
A)  consumers are less inclined to trade away goods they are lacking. 
B)  consumers' willingness to trade away goods they have in abundance diminishes. 
C)  an increase in income will shift the indifference curve away from the origin. 
D)  a decrease in income will shift the indifference curve toward the origin.

Question 17

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 less 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 18

Both Diana and Sarah like jazz music and music by the Beatles.Diana likes music by the Beatles much better than jazz music,whereas Sarah prefers jazz music to music by the Beatles.If we were to graph an indifference curve with cds by the Beatles on the horizontal axis and jazz cds on the vertical axis,then

Accepted Answer

A)  Diana and Sarah would have identical indifference curves. 
B)  Diana's indifference curve would be steeper than Sarah's indifference curve. 
C)  Sarah's indifference curve would be steeper than Diana's indifference curve. 
D)  We do not have enough information to compare their indifference curves. 
A)  Diana and Sarah would have identical indifference curves. 
B)  Diana's indifference curve would be steeper than Sarah's indifference curve. 
C)  Sarah's indifference curve would be steeper than Diana's indifference curve. 
D)  We do not have enough information to compare their indifference curves.

Question 19

The slope of the budget constraint is all of the following except

Accepted Answer

A)  the relative price of two goods. 
B)  the rate at which a consumer can afford to trade one good for another. 
C)  the marginal rate of substitution. 
D)  constant. 
A)  the relative price of two goods. 
B)  the rate at which a consumer can afford to trade one good for another. 
C)  the marginal rate of substitution. 
D)  constant.

Question 20

Explain the relationship between the budget constraint and indifference curve at a consumer's optimum.

Accepted Answer

Because the budget constraint is tangent

Exam 21: The Theory of Consumer Choice

Figure 21-13 -Refer to Figure 21-13.What is the consumer's marginal rate of substitution as she moves from A to B?

Assume that a college student spends her income on mac-n-cheese and CDs.The price of one box of mac-n-cheese is $1,and the price of one CD is $12.If she has $100 of income,she could choose to consume

Giffen goods are

A consumer's indifference curves are straight lines when,for the consumer,the goods in question are __________.

Pete consumes two goods,rice and fish.When the price of fish rises,he consumes less fish.When the price of rice rises,he consumes more rice.For Pete,

The marginal rate of substitution between goods A and B measures the price of A relative to the price of B.

Steak and pasta are normal goods.When the price of pasta falls,the substitution effect by itself causes

When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs

Assume that a consumer's indifference curve is bowed outward but satisfies the other three properties of indifference curves.As the consumer moves from left to right along the horizontal axis,the consumer's marginal rate of substitution

A normal good is one

"Left" gloves and "right" gloves provide a good example of

Using our model of consumer choice,is it possible for a consumer to buy less of a particular good when his income rises? Briefly explain.

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 income effect can be illustrated as the movement from

When indifference curves are bowed in toward the origin,

The slope of the budget constraint is all of the following except

Explain the relationship between the budget constraint and indifference curve at a consumer's optimum.

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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