Question 1

A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume

Accepted Answer

A) more popcorn and more Pepsi. 
B) less popcorn and less Pepsi. 
C) more popcorn and less Pepsi. 
D) less popcorn and more Pepsi. 
A) more popcorn and more Pepsi. 
B) less popcorn and less Pepsi. 
C) more popcorn and less Pepsi. 
D) less popcorn and more Pepsi.

Question 2

Figure 21-7  
-Refer to Figure 21-7. Suppose the price of a book is $15, the price of a DVD is $10, the value of A is 5, and the value of B is 7.5. How much income does the consumer have?

Accepted Answer

A) $150 
B) $100 
C) $75 
D) $37.50 
A) $150 
B) $100 
C) $75 
D) $37.50

Question 3

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 4

Figure 21-22  
-Refer to Figure 21-22. If the consumer were initially at point A in the figure, a movement from point B to point C as a result of a decrease in the price of potato chips represents the

Accepted Answer

A) substitution effect. 
B) income effect. 
C) budget effect. 
D) price effect. 
A) substitution effect. 
B) income effect. 
C) budget effect. 
D) price effect.

Question 5

Figure 21-19  
-Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $50. The price of Skittles is $5 and the price of M&M's is $5. This consumer will choose a consumption bundle where the marginal rate of substitution is

Accepted Answer

A) 10. 
B) 5. 
C) 1. 
D) 1/5. 
A) 10. 
B) 5. 
C) 1. 
D) 1/5.

Question 6

When Joshua's income increases, he purchases more prime-rib dinners than he did before his income increased. For Joshua, prime-rib dinners are a(n)

Accepted Answer

A) normal good. 
B) inferior good. 
C) optimal good. 
D) Giffen good. 
A) normal good. 
B) inferior good. 
C) optimal good. 
D) Giffen good.

Question 7

Scenario 21-3
Scott knows that he will ultimately face retirement. Assume that Scott will experience two periods in his life, one in which he works and earns income, and one in which he is retired and earns no income. Scott can earn $250,000 during his working period and nothing in his retirement period. He must both save and consume in his work period with an interest rate of 10 percent on savings.
-Refer to Scenario 21-3. If the interest rate on savings increases, it is possible that

Accepted Answer

A) Scott will decrease his savings in the work period. 
B) Scott will increase his savings in the work period. 
C) Scott will not change his consumption in the work period. 
D) All of the above are possible. 
A) Scott will decrease his savings in the work period. 
B) Scott will increase his savings in the work period. 
C) Scott will not change his consumption in the work period. 
D) All of the above are possible.

Question 8

At the consumer's optimum

Accepted Answer

A) the budget constraint will have a slope of MUx/Px. 
B) it is still possible for the consumer to increase his consumption of both goods. 
C) the indifference curve will intersect the budget constraint at the midpoint of the budget constraint. 
D) the slope of the indifference curve is equal to the slope of the budget constraint. 
A) the budget constraint will have a slope of MUx/Px. 
B) it is still possible for the consumer to increase his consumption of both goods. 
C) the indifference curve will intersect the budget constraint at the midpoint of the budget constraint. 
D) the slope of the indifference curve is equal to the slope of the budget constraint.

Question 9

When we draw Katie's indifference curves to represent her preferences for books and movies, we find that her indifference curves are upward-sloping. What does this tell us about Katie's preferences?

Accepted Answer

Either Katie dislike

Question 10

Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese. The price of one pound of cheese is $6, and the price of a bottle of wine is $10. The consumer should increase his consumption of

Accepted Answer

A) cheese, decrease his consumption of wine, and move to a lower indifference curve. 
B) cheese, decrease his consumption of wine, and move to a higher indifference curve. 
C) wine, decrease consumption of cheese, and move to a higher indifference curve. 
D) cheese, decrease consumption of wine, and remain on the same indifference curve. 
A) cheese, decrease his consumption of wine, and move to a lower indifference curve. 
B) cheese, decrease his consumption of wine, and move to a higher indifference curve. 
C) wine, decrease consumption of cheese, and move to a higher indifference curve. 
D) cheese, decrease consumption of wine, and remain on the same indifference curve.

Question 11

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 12

Which of the following is not a property of a typical indifference curve?

Accepted Answer

A) downward 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) downward 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 13

Explain the difference between inferior and normal goods. As a developing economy experiences increases in income (measured by GDP), what would you predict to happen to demand for inferior goods?

Accepted Answer

Normal goods are those for which consump

Question 14

If an increase in the interest rate lowers savings, then

Accepted Answer

A) the substitution effect is greater than the income effect. 
B) the income effect is greater than the substitution effect. 
C) the income effect and the substitution effect move in the same direction. 
D) we are unable to determine the sizes of the income and substitution effects without more information. 
A) the substitution effect is greater than the income effect. 
B) the income effect is greater than the substitution effect. 
C) the income effect and the substitution effect move in the same direction. 
D) we are unable to determine the sizes of the income and substitution effects without more information.

Question 15

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 16

Figure 21-12  
-Refer to Figure 21-12. If the consumer moves from bundle W to bundle Z, the

Accepted Answer

A) marginal rate of substitution remains constant. 
B) total utility remains constant. 
C) total utility decreases. 
D) Both a) and b) are correct. 
A) marginal rate of substitution remains constant. 
B) total utility remains constant. 
C) total utility decreases. 
D) Both a) and b) are correct.

Question 17

If goods X and Y are both normal goods for Brenda, then an increase in Brenda's income will lead her to __________.

Accepted Answer

buy more o

Question 18

Suppose an individual is choosing between Netflix and Redbox movies. He has $16 a month to spend on movies. The price of a Redbox movie is $1 while Netflix offers unlimited movies for a monthly fee of $8. Which of the following represents this individual's budget line?

Accepted Answer

A) ​   
B) ​   
C) ​   
D) ​   
A) ​   
B) ​   
C) ​   
D) ​

Question 19

Higher education is a normal good. If its price falls,

Accepted Answer

A) the quantity demanded of higher education will fall. 
B) the substitution and income effects work in opposite directions. 
C) the income effect is positive. 
D) higher education will be a Giffen good. 
A) the quantity demanded of higher education will fall. 
B) the substitution and income effects work in opposite directions. 
C) the income effect is positive. 
D) higher education will be a Giffen good.

Question 20

Scenario 21-2
Lawrence has recently graduated from college with a degree in journalism and economics. He has decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Lawrence is typically awake for 112 hours each week (he sleeps an average of 8 hours each day). For each hour Lawrence spends writing, he can earn $75. Lawrence is such a good writer that he can get paid for as many hours of writing as he chooses to work.
-Refer to Scenario 21-2. If Lawrence decides to spend 80 hours a week playing volleyball on the beach and the rest of his time writing, how much income will he have available to spend on consumption goods?

Accepted Answer

A) $900 
B) $1,500 
C) $2,400 
D) $3,000 
A) $900 
B) $1,500 
C) $2,400 
D) $3,000

A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume

Figure 21-7 -Refer to Figure 21-7. Suppose the price of a book is $15, the price of a DVD is $10, the value of A is 5, and the value of B is 7.5. How much income does the consumer have?

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,

Figure 21-22 -Refer to Figure 21-22. If the consumer were initially at point A in the figure, a movement from point B to point C as a result of a decrease in the price of potato chips represents the

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $50. The price of Skittles is $5 and the price of M&M's is $5. This consumer will choose a consumption bundle where the marginal rate of substitution is

When Joshua's income increases, he purchases more prime-rib dinners than he did before his income increased. For Joshua, prime-rib dinners are a(n)

At the consumer's optimum

When we draw Katie's indifference curves to represent her preferences for books and movies, we find that her indifference curves are upward-sloping. What does this tell us about Katie's preferences?

Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese. The price of one pound of cheese is $6, and the price of a bottle of wine is $10. The consumer should increase his consumption of

Which of the following is not a property of a typical indifference curve?

Explain the difference between inferior and normal goods. As a developing economy experiences increases in income (measured by GDP), what would you predict to happen to demand for inferior goods?

If an increase in the interest rate lowers savings, then

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

Figure 21-12 -Refer to Figure 21-12. If the consumer moves from bundle W to bundle Z, the

If goods X and Y are both normal goods for Brenda, then an increase in Brenda's income will lead her to __________.

Suppose an individual is choosing between Netflix and Redbox movies. He has $16 a month to spend on movies. The price of a Redbox movie is $1 while Netflix offers unlimited movies for a monthly fee of $8. Which of the following represents this individual's budget line?

Higher education is a normal good. If its price falls,

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

A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume

Figure 21-7 -Refer to Figure 21-7. Suppose the price of a book is $15, the price of a DVD is $10, the value of A is 5, and the value of B is 7.5. How much income does the consumer have?

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,

Figure 21-22 -Refer to Figure 21-22. If the consumer were initially at point A in the figure, a movement from point B to point C as a result of a decrease in the price of potato chips represents the

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $50. The price of Skittles is $5 and the price of M&M's is $5. This consumer will choose a consumption bundle where the marginal rate of substitution is

When Joshua's income increases, he purchases more prime-rib dinners than he did before his income increased. For Joshua, prime-rib dinners are a(n)

At the consumer's optimum

When we draw Katie's indifference curves to represent her preferences for books and movies, we find that her indifference curves are upward-sloping. What does this tell us about Katie's preferences?

Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese. The price of one pound of cheese is $6, and the price of a bottle of wine is $10. The consumer should increase his consumption of

Which of the following is not a property of a typical indifference curve?

Explain the difference between inferior and normal goods. As a developing economy experiences increases in income (measured by GDP), what would you predict to happen to demand for inferior goods?

If an increase in the interest rate lowers savings, then

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

Figure 21-12 -Refer to Figure 21-12. If the consumer moves from bundle W to bundle Z, the

If goods X and Y are both normal goods for Brenda, then an increase in Brenda's income will lead her to __________.

Suppose an individual is choosing between Netflix and Redbox movies. He has $16 a month to spend on movies. The price of a Redbox movie is $1 while Netflix offers unlimited movies for a monthly fee of $8. Which of the following represents this individual's budget line?

Higher education is a normal good. If its price falls,

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