Question 1

Figure 21-5
(a)
(b)    
-Refer to Figure 21-5. In graph (a), what is the price of good Y relative to the price of 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 2

For Brent, the income effect of a wage increase is stronger than the substitution effect. In response to a wage increase, will Brent work more hours or will he work fewer hours?

Accepted Answer

In response to a wag

Question 3

The indifference curves for left shoes and right shoes are right angles.

Accepted Answer

A) True 
 B)False

Question 4

The theory of consumer choice

Accepted Answer

A) underlies the concept of the demand for a particular good. 
B) underlies the concept of the supply of a particular good. 
C) ignores, for the sake of simplicity, the trade-offs that consumers face. 
D) can be applied to many questions about household decisions, but it cannot be applied to questions concerning wages and labor supply. 
A) underlies the concept of the demand for a particular good. 
B) underlies the concept of the supply of a particular good. 
C) ignores, for the sake of simplicity, the trade-offs that consumers face. 
D) can be applied to many questions about household decisions, but it cannot be applied to questions concerning wages and labor supply.

Question 5

Figure 21-6  
-Refer to Figure 21-6. Suppose the price of popcorn is $2, the price of Mt. Dew is $4, the value of A is 30, and the value of B is 15. How much income does the consumer have?

Accepted Answer

A) $120 
B) $80 
C) $60 
D) $30 
A) $120 
B) $80 
C) $60 
D) $30

Question 6

Figure 21-26  
-Refer to Figure 21-26. Rhonda experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Rhonda,

Accepted Answer

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

Question 7

The substitution effect from an increase in wages is evident in a

Accepted Answer

A) decrease in labor demand. 
B) desire to consume less leisure. 
C) desire to consume more leisure. 
D) backward-bending labor supply curve. 
A) decrease in labor demand. 
B) desire to consume less leisure. 
C) desire to consume more leisure. 
D) backward-bending labor supply curve.

Question 8

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 9

Laura consumes only beer and chips. Her indifference curves are all bowed inward. Consider the bundles (2,6), (4,4), and (6,2). If Laura is indifferent between (2,6) and (6,2), then Laura must

Accepted Answer

A) prefer (4,4) to (6,2). 
B) be indifferent between (4,4) and (6,2). 
C) prefer (6,2) to (4,4). 
D) prefer (2,6) to (4,4). 
A) prefer (4,4) to (6,2). 
B) be indifferent between (4,4) and (6,2). 
C) prefer (6,2) to (4,4). 
D) prefer (2,6) to (4,4).

Question 10

Figure 21-4
In each case, the budget constraint moves from BC-1 to BC-2.        
-Refer to Figure 21-4. Which of the graphs in the figure could reflect a simultaneous increase in the price of good X and decrease in the price of good Y?

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 11

The income effect in the work-leisure model induces a person to work less in response to higher wages, which tends to make the labor-supply curve slope backward.

Accepted Answer

A) True 
 B)False

Question 12

A Giffen good is one for which the quantity demanded rises as the price rises because the income effect

Accepted Answer

A) reinforces the substitution effect. 
B) reinforces and is greater than the substitution effect. 
C) counteracts but is smaller than the substitution effect. 
D) counteracts and is greater than the substitution effect. 
A) reinforces the substitution effect. 
B) reinforces and is greater than the substitution effect. 
C) counteracts but is smaller than the substitution effect. 
D) counteracts and is greater than the substitution effect.

Question 13

Mark spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Mark's income has stayed fixed at $46 per week. If you measure gin on the vertical axis and cocktail olives on the horizontal axis, then the budget constraint

Accepted Answer

A) is steeper after the price changes. 
B) is flatter after the price changes. 
C) is the same after the price changes. 
D) shifts in a parallel fashion to the old budget constraint after the price changes. 
A) is steeper after the price changes. 
B) is flatter after the price changes. 
C) is the same after the price changes. 
D) shifts in a parallel fashion to the old budget constraint after the price changes.

Question 14

The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer.   What is the marginal rate of substitution between points A and B?

Accepted Answer

A) 2/5 
B) 1 
C) 5/2 
D) 3 
A) 2/5 
B) 1 
C) 5/2 
D) 3

Question 15

A Giffen good is a good for which an increase in the price

Accepted Answer

A) decreases the quantity supplied. 
B) increases the quantity supplied. 
C) decreases the quantity demanded. 
D) increases the quantity demanded. 
A) decreases the quantity supplied. 
B) increases the quantity supplied. 
C) decreases the quantity demanded. 
D) increases the quantity demanded.

Question 16

Suppose Reta is planning for retirement in a two-period world. In the first period Reta is young and earns $1 million, and in the second period Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

Accepted Answer

A) substitution effect will induce Reta to consume more when she is young. 
B) substitution effect will induce Reta to consume less when she is young. 
C) income effect will induce Reta to consume more when she is young. 
D) change in interest rates affects the substitution effect but not the income effect. 
A) substitution effect will induce Reta to consume more when she is young. 
B) substitution effect will induce Reta to consume less when she is young. 
C) income effect will induce Reta to consume more when she is young. 
D) change in interest rates affects the substitution effect but not the income effect.

Question 17

The slope of an indifference curve is

Accepted Answer

A) the rate of change of consumer's preferences. 
B) the marginal rate of preference. 
C) the marginal rate of substitution. 
D) always equal to the slope of the budget constraint. 
A) the rate of change of consumer's preferences. 
B) the marginal rate of preference. 
C) the marginal rate of substitution. 
D) always equal to the slope of the budget constraint.

Question 18

What are the two effects of a change in a price that a consumer experiences?

Accepted Answer

A) the income effect and the budget effect 
B) the complement effect and the substitute effect 
C) the price effect and the preference effect 
D) the income effect and the substitution effect 
A) the income effect and the budget effect 
B) the complement effect and the substitute effect 
C) the price effect and the preference effect 
D) the income effect and the substitution effect

Question 19

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50, then

Accepted Answer

A) this is the last candy bar John will purchase since the marginal utility is less than the price. 
B) the opportunity cost of the candy bar is less than $1.50. 
C) if John purchases and consumes the candy bar his total satisfaction will go down because the marginal utility is less than the price. 
D) there is not enough information to determine if John will or will not purchase the candy bar. 
A) this is the last candy bar John will purchase since the marginal utility is less than the price. 
B) the opportunity cost of the candy bar is less than $1.50. 
C) if John purchases and consumes the candy bar his total satisfaction will go down because the marginal utility is less than the price. 
D) there is not enough information to determine if John will or will not purchase the candy bar.

Question 20

The following diagram shows a budget constraint for a particular consumer.   If the price of X is $5, what is the consumer's income?

Accepted Answer

A) $10 
B) $30 
C) $150 
D) $300 
A) $10 
B) $30 
C) $150 
D) $300

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

For Brent, the income effect of a wage increase is stronger than the substitution effect. In response to a wage increase, will Brent work more hours or will he work fewer hours?

The indifference curves for left shoes and right shoes are right angles.

The theory of consumer choice

Figure 21-6 -Refer to Figure 21-6. Suppose the price of popcorn is $2, the price of Mt. Dew is $4, the value of A is 30, and the value of B is 15. How much income does the consumer have?

Figure 21-26 -Refer to Figure 21-26. Rhonda experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Rhonda,

The substitution effect from an increase in wages is evident in a

Laura consumes only beer and chips. Her indifference curves are all bowed inward. Consider the bundles (2,6), (4,4), and (6,2). If Laura is indifferent between (2,6) and (6,2), then Laura must

Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4. Which of the graphs in the figure could reflect a simultaneous increase in the price of good X and decrease in the price of good Y?

The income effect in the work-leisure model induces a person to work less in response to higher wages, which tends to make the labor-supply curve slope backward.

A Giffen good is one for which the quantity demanded rises as the price rises because the income effect

The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer. What is the marginal rate of substitution between points A and B?

A Giffen good is a good for which an increase in the price

Suppose Reta is planning for retirement in a two-period world. In the first period Reta is young and earns $1 million, and in the second period Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

The slope of an indifference curve is

What are the two effects of a change in a price that a consumer experiences?

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50, then

The following diagram shows a budget constraint for a particular consumer. If the price of X is $5, what is the consumer's income?

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 Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

Frontiers in Microeconomics

Filters

Exam 21: The Theory of Consumer Choice

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

For Brent, the income effect of a wage increase is stronger than the substitution effect. In response to a wage increase, will Brent work more hours or will he work fewer hours?

The indifference curves for left shoes and right shoes are right angles.

The theory of consumer choice

Figure 21-6 -Refer to Figure 21-6. Suppose the price of popcorn is $2, the price of Mt. Dew is $4, the value of A is 30, and the value of B is 15. How much income does the consumer have?

Figure 21-26 -Refer to Figure 21-26. Rhonda experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Rhonda,

The substitution effect from an increase in wages is evident in a

Laura consumes only beer and chips. Her indifference curves are all bowed inward. Consider the bundles (2,6), (4,4), and (6,2). If Laura is indifferent between (2,6) and (6,2), then Laura must

Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4. Which of the graphs in the figure could reflect a simultaneous increase in the price of good X and decrease in the price of good Y?

The income effect in the work-leisure model induces a person to work less in response to higher wages, which tends to make the labor-supply curve slope backward.

A Giffen good is one for which the quantity demanded rises as the price rises because the income effect

The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer. What is the marginal rate of substitution between points A and B?

A Giffen good is a good for which an increase in the price

Suppose Reta is planning for retirement in a two-period world. In the first period Reta is young and earns $1 million, and in the second period Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

The slope of an indifference curve is

What are the two effects of a change in a price that a consumer experiences?

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50, then

The following diagram shows a budget constraint for a particular consumer. If the price of X is $5, what is the consumer's income?

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 Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

Frontiers in Microeconomics

Filters

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