Question 1

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes a

Accepted Answer

A) shift to a lower indifference curve, and the consumer buys fewer granola bars. 
B) shift to a higher indifference curve, and the consumer buys more granola bars. 
C) movement along the indifference curve, and the consumer buys fewer granola bars. 
D) movement along the indifference curve, and the consumer buys more granola bars. 
A) shift to a lower indifference curve, and the consumer buys fewer granola bars. 
B) shift to a higher indifference curve, and the consumer buys more granola bars. 
C) movement along the indifference curve, and the consumer buys fewer granola bars. 
D) movement along the indifference curve, and the consumer buys more granola bars.

Question 4

Figure 21-10  
-Refer to Figure 21-10. Which of the following statements is not true for a consumer who moves from bundle B to bundle C?

Accepted Answer

A) At bundle C the consumer would be willing to give up a larger amount of cake in exchange for a donut than at bundle B. 
B) The marginal rate of substitution at bundles B and C are the same since the points lie on the same indifference curve. 
C) The consumer is willing to sacrifice donuts to obtain cake. 
D) The consumer receives the same level of satisfaction at bundles B and C. 
A) At bundle C the consumer would be willing to give up a larger amount of cake in exchange for a donut than at bundle B. 
B) The marginal rate of substitution at bundles B and C are the same since the points lie on the same indifference curve. 
C) The consumer is willing to sacrifice donuts to obtain cake. 
D) The consumer receives the same level of satisfaction at bundles B and C.

Question 5

Given a consumer's indifference map, the demand curve for a good can

Accepted Answer

A) be derived by moving a consumer's budget constraint as her income falls. 
B) be derived by moving a consumer's budget constraint as her income rises. 
C) be derived by moving a consumer's budget constraint as the market price of one good changes. 
D) not be derived from consumer theory. 
A) be derived by moving a consumer's budget constraint as her income falls. 
B) be derived by moving a consumer's budget constraint as her income rises. 
C) be derived by moving a consumer's budget constraint as the market price of one good changes. 
D) not be derived from consumer theory.

Question 6

Budget constraints exist for consumers because

Accepted Answer

A) their utility from consuming goods eventually reaches a maximum level. 
B) even with unlimited incomes they have to pay for each good they consume. 
C) they have to pay for goods, and they have limited incomes. 
D) prices and incomes are inversely related. 
A) their utility from consuming goods eventually reaches a maximum level. 
B) even with unlimited incomes they have to pay for each good they consume. 
C) they have to pay for goods, and they have limited incomes. 
D) prices and incomes are inversely related.

Question 7

A consumer maximizes utility at a point where multiple indifference curves intersect the budget line.

Accepted Answer

A) True 
 B)False

Question 8

Katie wins $3 million in her state's lottery. If Katie drastically reduces the number of hours she works after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Accepted Answer

A) True 
 B)False

Question 9

Assume that a consumer faces the following budget constraints.   
a.Assuming that income is the same on both occasions, describe the difference in relative prices between Panel A and Panel B.
b.If income in Panel B is $126, what is the price of good X?
c.If income in Panel A is $84, what is the price of good Y?
d.Assuming that the price of good X is the same on both occasions, describe the difference in income and price of good Y between Panel A and Panel B.

Accepted Answer

a.The price of good Y is relatively high

Question 10

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin.  
-Refer to Figure 21-31. If point A is Kevin's optimum, then at that optimum, what is his opportunity cost of a shirt in terms of sweaters?

Accepted Answer

Kevin's opportunity

Question 11

Samantha is maximizing total utility while consuming food and clothing. Her marginal utility from food is 50, and her marginal utility from clothing is 25. If clothing is priced at $10 per unit, the price of food per unit must be

Accepted Answer

A) $2. 
B) $2.50. 
C) $5. 
D) $20. 
A) $2. 
B) $2.50. 
C) $5. 
D) $20.

Question 12

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

Accepted Answer

A) less 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) both a) and b) are correct. 
A) less 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) both a) and b) are correct.

Question 13

Good X is an inferior good but not a Giffen good. When the price of X increases, the consumer will consume

Accepted Answer

A) more X. 
B) the same amount of X. 
C) less X. 
D) more or less X depending on the size of the income effect relative to the size of the substitution effect. 
A) more X. 
B) the same amount of X. 
C) less X. 
D) more or less X depending on the size of the income effect relative to the size of the substitution effect.

Question 14

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.        
-Refer to Figure 21-3. Which of the graphs in the figure could reflect a simultaneous decrease in the price of good X and increase in the price of good Y? (i)
Graph a
(ii)
Graph b
(iii)
Graph c
(iv)
Graph d

Accepted Answer

A) (ii) only 
B) (iii) only 
C) (ii) or (iv) only 
D) None of the above is correct. 
A) (ii) only 
B) (iii) only 
C) (ii) or (iv) only 
D) None of the above is correct.

Question 15

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 16

A decrease in a consumer's income

Accepted Answer

A) increases the slope of the consumer's budget constraint. 
B) has no effect on the consumer's budget constraint. 
C) decreases the slope of the consumer's budget constraint. 
D) has no effect on the slope of the consumer's budget constraint. 
A) increases the slope of the consumer's budget constraint. 
B) has no effect on the consumer's budget constraint. 
C) decreases the slope of the consumer's budget constraint. 
D) has no effect on the slope of the consumer's budget constraint.

Question 17

A consumer maximizes utility when she consumes at a point where​

Accepted Answer

A) ​the marginal utility of each good is the same. 
B) ​the marginal utility per dollar spent on each good is the same. 
C) ​the price of each good is the same. 
D) ​All of the above statements are true. 
A) ​the marginal utility of each good is the same. 
B) ​the marginal utility per dollar spent on each good is the same. 
C) ​the price of each good is the same. 
D) ​All of the above statements are true.

Question 18

If Suzette responds to an increase in the interest rate by decreasing her saving, then, for Suzette,

Accepted Answer

A) the increase in the interest rate creates an income effect that is greater than the substitution effect. 
B) the increase in the interest rate creates a substitution effect that is greater than the income effect. 
C) consumption when young and consumption when old are perfect substitutes. 
D) consumption when young and consumption when old are perfect complements. 
A) the increase in the interest rate creates an income effect that is greater than the substitution effect. 
B) the increase in the interest rate creates a substitution effect that is greater than the income effect. 
C) consumption when young and consumption when old are perfect substitutes. 
D) consumption when young and consumption when old are perfect complements.

Question 19

Figure 21-23  
-Refer to Figure 21-23. 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 substitution 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 20

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

Accepted Answer

A) True 
 B)False

Exam 21: The Theory of Consumer Choice

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

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

Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes a

Figure 21-10 -Refer to Figure 21-10. Which of the following statements is not true for a consumer who moves from bundle B to bundle C?

Given a consumer's indifference map, the demand curve for a good can

Budget constraints exist for consumers because

A consumer maximizes utility at a point where multiple indifference curves intersect the budget line.

Katie wins $3 million in her state's lottery. If Katie drastically reduces the number of hours she works after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If point A is Kevin's optimum, then at that optimum, what is his opportunity cost of a shirt in terms of sweaters?

Samantha is maximizing total utility while consuming food and clothing. Her marginal utility from food is 50, and her marginal utility from clothing is 25. If clothing is priced at $10 per unit, the price of food per unit must be

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

Good X is an inferior good but not a Giffen good. When the price of X increases, the consumer will consume

Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3. Which of the graphs in the figure could reflect a simultaneous decrease in the price of good X and increase in the price of good Y? (i) Graph a (ii) Graph b (iii) Graph c (iv) Graph d

When indifference curves are bowed in toward the origin,

A decrease in a consumer's income

A consumer maximizes utility when she consumes at a point where​

If Suzette responds to an increase in the interest rate by decreasing her saving, then, for Suzette,

Figure 21-23 -Refer to Figure 21-23. 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 substitution effect can be illustrated as the movement from

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

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

A consumer maximizes utility when she consumes at a point where