Question 1

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

Accepted Answer

A) is equal to the price of the least-expensive good. 
B) exceeds the marginal utility of each good by the greatest amount. 
C) is less than the slope of the budget constraint. 
D) None of the above is correct. 
A) is equal to the price of the least-expensive good. 
B) exceeds the marginal utility of each good by the greatest amount. 
C) is less than the slope of the budget constraint. 
D) None of the above is correct.

Question 2

Figure 21-8  
-Refer to Figure 21-8. You have $600 to spend on good X and good Y. If good X costs $100 and good Y costs $100, your budget constraint is

Accepted Answer

A) AB. 
B) BC. 
C) CD. 
D) DE. 
A) AB. 
B) BC. 
C) CD. 
D) DE.

Question 3

When two goods are perfect complements, the indifference curves are right angles.

Accepted Answer

A) True 
 B)False

Question 4

Janet prefers cashews to almonds. She prefers macadamia nuts to peanuts, but she is indifferent between almonds and peanuts. Which of the following statements can we say for sure?

Accepted Answer

A) Janet prefers cashews to macadamia nuts. 
B) Janet prefers peanuts to cashews. 
C) Janet prefers macadamia nuts to almonds. 
D) Janet prefers almonds to macadamia nuts. 
A) Janet prefers cashews to macadamia nuts. 
B) Janet prefers peanuts to cashews. 
C) Janet prefers macadamia nuts to almonds. 
D) Janet prefers almonds to macadamia nuts.

Question 5

When the price of a good increases, all else equal, the higher price

Accepted Answer

A) reduces the consumer's set of buying opportunities. 
B) leads to a parallel shift of the budget constraint. 
C) will necessarily lead to an increase in the consumption of goods whose price did not change. 
D) generally discourages the consumption of inferior goods. 
A) reduces the consumer's set of buying opportunities. 
B) leads to a parallel shift of the budget constraint. 
C) will necessarily lead to an increase in the consumption of goods whose price did not change. 
D) generally discourages the consumption of inferior goods.

Question 6

A consumer's preferences provide a ranking of

Accepted Answer

A) all possible consumption bundles. 
B) only the consumption bundles that fall on the same indifference curve. 
C) consumption bundles based their prices. 
D) consumption bundles based on the consumer's income. 
A) all possible consumption bundles. 
B) only the consumption bundles that fall on the same indifference curve. 
C) consumption bundles based their prices. 
D) consumption bundles based on the consumer's income.

Question 7

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of a textbook, by itself, will result in

Accepted Answer

A) a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles. 
B) a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles. 
C) an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles. 
D) an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles. 
A) a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles. 
B) a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles. 
C) an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles. 
D) an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.

Question 8

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 9

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 10

A typical consumer consumes both coffee and donuts. After the consumer's income decreases, the consumer consumes more coffee but fewer donuts than before. For this consumer, coffee is a normal good, but donuts are an inferior good.

Accepted Answer

A) True 
 B)False

Question 11

The following diagram shows two budget lines: A and B.   Which of the following could explain the change in the budget line from A to B?

Accepted Answer

A) a decrease in the price of X 
B) an increase in the price of Y 
C) a decrease in the price of Y 
D) More than one of the above could explain this change. 
A) a decrease in the price of X 
B) an increase in the price of Y 
C) a decrease in the price of Y 
D) More than one of the above could explain this change.

Question 12

A consumer who doesn't spend all of her income

Accepted Answer

A) would be at a point outside of her budget constraint. 
B) would be at a point inside her budget constraint. 
C) must not be consuming positive quantities of all goods. 
D) must be consuming at a point where her budget constraint touches one of the axes. 
A) would be at a point outside of her budget constraint. 
B) would be at a point inside her budget constraint. 
C) must not be consuming positive quantities of all goods. 
D) must be consuming at a point where her budget constraint touches one of the axes.

Question 13

Abby, Bobbi, and Deborah 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. Abby has a budget of $80, Bobbi has a budget of $60, and Deborah has a budget of $40 to spend on ice cream and paperback novels. Which of the following statements is correct?

Accepted Answer

A) Each woman faces the same budget constraint. 
B) The slope of the budget constraint is the same for each woman. 
C) The area underneath the budget constraint is larger for Deborah than for Abby. 
D) All of the above are correct. 
A) Each woman faces the same budget constraint. 
B) The slope of the budget constraint is the same for each woman. 
C) The area underneath the budget constraint is larger for Deborah than for Abby. 
D) All of the above are correct.

Question 14

If Chad's labor-supply curve is upward-sloping, then, for Chad,

Accepted Answer

A) an increase in the wage creates an income effect that is greater than the substitution effect. 
B) an increase in the wage creates a substitution effect that is greater than the income effect. 
C) leisure and consumption are perfect substitutes. 
D) leisure and consumption are perfect complements. 
A) an increase in the wage creates an income effect that is greater than the substitution effect. 
B) an increase in the wage creates a substitution effect that is greater than the income effect. 
C) leisure and consumption are perfect substitutes. 
D) leisure and consumption are perfect complements.

Question 15

Which of the following represents a consumer's optimum?

Accepted Answer

A) MUx/MUy = Py/Px 
B) MUx/Py = MUy/Px 
C) MUx/Px = MUy/Py 
D) MUy/MUx = Px/Py 
A) MUx/MUy = Py/Px 
B) MUx/Py = MUy/Px 
C) MUx/Px = MUy/Py 
D) MUy/MUx = Px/Py

Question 16

All Giffen goods are

Accepted Answer

A) inferior goods, and all inferior goods are Giffen goods. 
B) inferior goods, but not all inferior goods are Giffen goods. 
C) normal goods, but not all normal goods are Giffen goods. 
D) normal goods, and all normal goods are Giffen goods. 
A) inferior goods, and all inferior goods are Giffen goods. 
B) inferior goods, but not all inferior goods are Giffen goods. 
C) normal goods, but not all normal goods are Giffen goods. 
D) normal goods, and all normal goods are Giffen goods.

Question 17

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

Question 18

Indifference curves illustrate

Accepted Answer

A) a firm's profits. 
B) a consumer's budget. 
C) a consumer's preferences. 
D) the prices of two goods. 
A) a firm's profits. 
B) a consumer's budget. 
C) a consumer's preferences. 
D) the prices of two goods.

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 consumpti

Question 20

A rational consumer maximizes her

Accepted Answer

A) preferences. 
B) marginal rate of substitution. 
C) utility. 
D) budget constraint. 
A) preferences. 
B) marginal rate of substitution. 
C) utility. 
D) budget constraint.

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

Figure 21-8 -Refer to Figure 21-8. You have $600 to spend on good X and good Y. If good X costs $100 and good Y costs $100, your budget constraint is

When two goods are perfect complements, the indifference curves are right angles.

Janet prefers cashews to almonds. She prefers macadamia nuts to peanuts, but she is indifferent between almonds and peanuts. Which of the following statements can we say for sure?

When the price of a good increases, all else equal, the higher price

A consumer's preferences provide a ranking of

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of a textbook, by itself, will result in

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

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

A typical consumer consumes both coffee and donuts. After the consumer's income decreases, the consumer consumes more coffee but fewer donuts than before. For this consumer, coffee is a normal good, but donuts are an inferior good.

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

A consumer who doesn't spend all of her income

If Chad's labor-supply curve is upward-sloping, then, for Chad,

Which of the following represents a consumer's optimum?

All Giffen goods are

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.

Indifference curves illustrate

A rational consumer maximizes her

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

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

Figure 21-8 -Refer to Figure 21-8. You have $600 to spend on good X and good Y. If good X costs $100 and good Y costs $100, your budget constraint is

When two goods are perfect complements, the indifference curves are right angles.

Janet prefers cashews to almonds. She prefers macadamia nuts to peanuts, but she is indifferent between almonds and peanuts. Which of the following statements can we say for sure?

When the price of a good increases, all else equal, the higher price

A consumer's preferences provide a ranking of

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of a textbook, by itself, will result in

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

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

A typical consumer consumes both coffee and donuts. After the consumer's income decreases, the consumer consumes more coffee but fewer donuts than before. For this consumer, coffee is a normal good, but donuts are an inferior good.

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

A consumer who doesn't spend all of her income

If Chad's labor-supply curve is upward-sloping, then, for Chad,

Which of the following represents a consumer's optimum?

All Giffen goods are

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.

Indifference curves illustrate

A rational consumer maximizes her

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