Question 1

Suppose that Mfundo gets an increase in his wage and he decides to work fewer hours. For him, the substitution effect of the wage change is

Accepted Answer

A)  greater than the income effect. 
B)  less than the income effect. 
C)  exactly offset by the income effect. 
D)  zero. 
A)  greater than the income effect. 
B)  less than the income effect. 
C)  exactly offset by the income effect. 
D)  zero.

Question 2

When drawn on a graph that measures the quantity of a good on each axis, indifference curves are usually straight lines that slope downward (negatively).

Accepted Answer

A) True 
 B)False

Question 3

If an increase in a consumer's income causes the consumer to decrease her quantity demanded of a good, then the good is

Accepted Answer

A)  a substitute good. 
B)  a normal good. 
C)  a complementary good. 
D)  an inferior good. 
A)  a substitute good. 
B)  a normal good. 
C)  a complementary good. 
D)  an inferior good.

Question 4

For dessert, Pranisha has the choice between cheesecake and apple pie. Pranisha would gain marginal utility of 50 from a piece of cheesecake, while the price of cheesecake is R50 per slice. Pranisha would gain marginal utility of 30 from a piece of apple pie, and the price of apple pie is R30 per slice. Given this information, Ingrid should buy

Accepted Answer

A)  the cheesecake. 
B)  the apple pie. 
C)  two servings of the apple pie and no cheesecake. 
D)  either the apple pie or the cheesecake; it makes no difference to Pranisha at this point. 
A)  the cheesecake. 
B)  the apple pie. 
C)  two servings of the apple pie and no cheesecake. 
D)  either the apple pie or the cheesecake; it makes no difference to Pranisha at this point.

Question 5

A budget constraint is a set of commodity bundles that provide the consumer with the same level of satisfaction.

Accepted Answer

A) True 
 B)False

Question 6

The change in consumption that results when a price change moves the consumer along a given indifference curve is known as the

Accepted Answer

A)  income effect. 
B)  normal effect. 
C)  inferior effect. 
D)  substitution effect. 
A)  income effect. 
B)  normal effect. 
C)  inferior effect. 
D)  substitution effect.

Question 7

At the consumer's optimum point, the marginal rate of substitution of apples for oranges is equal to the ratio of the price of oranges to the price of apples.

Accepted Answer

A) True 
 B)False

Question 8

What is the budget constraint?

Accepted Answer

The budget constraint refers to the diff

Question 9

The consumer's optimal purchase of any two goods is the point where the

Accepted Answer

A)  budget constraint crosses the indifference curve. 
B)  two highest indifference curves cross. 
C)  consumer reaches the highest indifference curve subject to remaining on the budget constraint. 
D)  consumer has reached the highest indifference curve. 
A)  budget constraint crosses the indifference curve. 
B)  two highest indifference curves cross. 
C)  consumer reaches the highest indifference curve subject to remaining on the budget constraint. 
D)  consumer has reached the highest indifference curve.

Question 10

Suppose Roberto always consumes two packets of sugar with his tea. Roberto's indifference curves for sugar and tea are

Accepted Answer

A)  bowed inward. 
B)  bowed outward. 
C)  straight lines. 
D)  L shaped. 
A)  bowed inward. 
B)  bowed outward. 
C)  straight lines. 
D)  L shaped.

Question 11

Suppose the price of a pizza is R80, the price of a milk shake is R20, and the consumer's weekly income is R320. Suppose we have constructed the consumer's budget line with pizzas on the vertical axis and milk shakes on the horizontal axis. Given this information, if the price of a milk shake doubles to R40, then what will happen to the budget line?

Accepted Answer

A)  It will move so that it intersects the horizontal axis at 16 milk shakes per week. 
B)  Its slope rises to -1/2. 
C)  It will move so that it intersects the horizontal axis at 8 milk shakes per week. 
D)  It will shift inward but remain parallel to its original position. 
A)  It will move so that it intersects the horizontal axis at 16 milk shakes per week. 
B)  Its slope rises to -1/2. 
C)  It will move so that it intersects the horizontal axis at 8 milk shakes per week. 
D)  It will shift inward but remain parallel to its original position.

Question 12

If income were to double and prices were to double, the budget line would

Accepted Answer

A)  stay the same. 
B)  rotate inward. 
C)  shift outward in a parallel fashion. 
D)  rotate outward. 
E)  shift inward in a parallel fashion. 
A)  stay the same. 
B)  rotate inward. 
C)  shift outward in a parallel fashion. 
D)  rotate outward. 
E)  shift inward in a parallel fashion.

Question 13

If the substitution effect of a lowered price is partly or fully offset by the income effect, we know that the good in question is

Accepted Answer

A)  a complementary good. 
B)  an inferior good. 
C)  a luxury good. 
D)  a normal good. 
A)  a complementary good. 
B)  an inferior good. 
C)  a luxury good. 
D)  a normal good.

Question 14

Briefly explain heuristics using two examples.

Accepted Answer

Heuristics are shortcuts or rules of thu

Question 15

An indifference curve is a curve that shows consumption bundles that give the consumer

Accepted Answer

A)  increasing levels of satisfaction. 
B)  decreasing levels of satisfaction. 
C)  the same level of satisfaction. 
D)  perfect substitutes. 
A)  increasing levels of satisfaction. 
B)  decreasing levels of satisfaction. 
C)  the same level of satisfaction. 
D)  perfect substitutes.

Question 16

If a consumer spent their entire income on chips and cola, what would happen if the consumer's income were to double and the prices of chips and cola were also to double?

Accepted Answer

A)  The consumer's budget line would remain unchanged. 
B)  The consumer's budget line would shift outward, but remain parallel to the original budget line. 
C)  The consumer's budget line would shift inward, but remain parallel to the original budget line. 
D)  The consumer's budget line would shift in an unpredictable way. 
A)  The consumer's budget line would remain unchanged. 
B)  The consumer's budget line would shift outward, but remain parallel to the original budget line. 
C)  The consumer's budget line would shift inward, but remain parallel to the original budget line. 
D)  The consumer's budget line would shift in an unpredictable way.

Question 17

Suppose the price of a pizza is R80, the price of a milk shake is R20, and the consumer's weekly income is R320. Suppose we have constructed the consumer's budget line with pizzas on the vertical axis and milk shakes on the horizontal axis. Given this information, if the consumer's income rises to R480, then what will happen to the consumer's budget line?

Accepted Answer

A)  It move outwards so that it now intersects the vertical axis at 6 pizzas per week and the horizontal axis at 24 milk shakes per week. 
B)  It would not change. 
C)  It would move inwards so that it now intersects the vertical axis at 3 pizzas per week and the horizontal axis at 8 milk shakes per week. 
D)  It would rotate in a clockwise direction around the point at which it intersects the horizontal axis. 
A)  It move outwards so that it now intersects the vertical axis at 6 pizzas per week and the horizontal axis at 24 milk shakes per week. 
B)  It would not change. 
C)  It would move inwards so that it now intersects the vertical axis at 3 pizzas per week and the horizontal axis at 8 milk shakes per week. 
D)  It would rotate in a clockwise direction around the point at which it intersects the horizontal axis.

Question 18

Explain the income and substitution effects.

Accepted Answer

When the price of a good falls, the impa

Suppose that Mfundo gets an increase in his wage and he decides to work fewer hours. For him, the substitution effect of the wage change is

When drawn on a graph that measures the quantity of a good on each axis, indifference curves are usually straight lines that slope downward (negatively).

If an increase in a consumer's income causes the consumer to decrease her quantity demanded of a good, then the good is

A budget constraint is a set of commodity bundles that provide the consumer with the same level of satisfaction.

The change in consumption that results when a price change moves the consumer along a given indifference curve is known as the

At the consumer's optimum point, the marginal rate of substitution of apples for oranges is equal to the ratio of the price of oranges to the price of apples.

What is the budget constraint?

The consumer's optimal purchase of any two goods is the point where the

Suppose Roberto always consumes two packets of sugar with his tea. Roberto's indifference curves for sugar and tea are

If income were to double and prices were to double, the budget line would

If the substitution effect of a lowered price is partly or fully offset by the income effect, we know that the good in question is

Briefly explain heuristics using two examples.

An indifference curve is a curve that shows consumption bundles that give the consumer

If a consumer spent their entire income on chips and cola, what would happen if the consumer's income were to double and the prices of chips and cola were also to double?

Explain the income and substitution effects.

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

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Exam 5: Background to Demand: Consumer Choices

Suppose that Mfundo gets an increase in his wage and he decides to work fewer hours. For him, the substitution effect of the wage change is

When drawn on a graph that measures the quantity of a good on each axis, indifference curves are usually straight lines that slope downward (negatively).

If an increase in a consumer's income causes the consumer to decrease her quantity demanded of a good, then the good is

A budget constraint is a set of commodity bundles that provide the consumer with the same level of satisfaction.

The change in consumption that results when a price change moves the consumer along a given indifference curve is known as the

At the consumer's optimum point, the marginal rate of substitution of apples for oranges is equal to the ratio of the price of oranges to the price of apples.

What is the budget constraint?

The consumer's optimal purchase of any two goods is the point where the

Suppose Roberto always consumes two packets of sugar with his tea. Roberto's indifference curves for sugar and tea are

If income were to double and prices were to double, the budget line would

If the substitution effect of a lowered price is partly or fully offset by the income effect, we know that the good in question is

Briefly explain heuristics using two examples.

An indifference curve is a curve that shows consumption bundles that give the consumer

If a consumer spent their entire income on chips and cola, what would happen if the consumer's income were to double and the prices of chips and cola were also to double?

Explain the income and substitution effects.

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Filters