Question 1

If the price of a good increases,all else equal,consumers perceive

Accepted Answer

A) an increase in purchasing power if the good is an inferior good. 
B) an increase in income if the price increase occurs for a normal good. 
C) a decrease in purchasing power. 
D) a net gain in purchasing power if they decrease consumption of some goods. 
A) an increase in purchasing power if the good is an inferior good. 
B) an increase in income if the price increase occurs for a normal good. 
C) a decrease in purchasing power. 
D) a net gain in purchasing power if they decrease consumption of some goods.

Question 2

Figure 21-6
  
-Refer to Figure 21-6.The consumer is likely to select the consumption bundle at

Accepted Answer

A) point B 
B) point C 
C) point D 
D) point E 
A) point B 
B) point C 
C) point D 
D) point E

Question 3

A consumer's preferences for right shoes and left shoes can be represented by indifference curves that are

Accepted Answer

A) bowed out from the origin 
B) bowed in towards the origin 
C) straight lines 
D) right angles 
A) bowed out from the origin 
B) bowed in towards the origin 
C) straight lines 
D) right angles

Question 4

A consumer has preferences over two goods,x and y.Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves)and budget constraint on a diagram with x on the horizontal axis and y on the vertical axis.At the consumer's current consumption bundle,the consumer is spending all available income,and the marginal rate of substitution is greater than the slope of the budget constraint.We can conclude that

Accepted Answer

A) the consumer is currently maximizing satisfaction. 
B) the consumer could increase satisfaction by consuming more x and less y. 
C) the consumer could increase satisfaction by consuming less x and more y. 
D) the consumer could purchase more x and more y and increase total satisfaction. 
A) the consumer is currently maximizing satisfaction. 
B) the consumer could increase satisfaction by consuming more x and less y. 
C) the consumer could increase satisfaction by consuming less x and more y. 
D) the consumer could purchase more x and more y and increase total satisfaction.

Question 5

Higher indifference curves are preferred to lower ones as long as the

Accepted Answer

A) marginal rate of substitution is diminishing. 
B) products in the bundle are "bads." 
C) products in the bundle are "goods." 
D) budget constraint does not shift. 
A) marginal rate of substitution is diminishing. 
B) products in the bundle are "bads." 
C) products in the bundle are "goods." 
D) budget constraint does not shift.

Question 6

Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis.Suppose that you have $100 today and expect to receive $100 one year from today.Your money market account pays an annual interest rate of 25%,and you may borrow money at that interest rate.Suppose now that the interest rate decreases to 10%.What happens to the slope of your budget constraint relative to when the interest rate was $25%?

Accepted Answer

A) it becomes steeper 
B) it becomes flatter 
C) it doesn't change because the budget constraint shifts in parallel to the original budget constraint 
D) it doesn't change because the budget constraint shifts out parallel to the original budget constraint 
A) it becomes steeper 
B) it becomes flatter 
C) it doesn't change because the budget constraint shifts in parallel to the original budget constraint 
D) it doesn't change because the budget constraint shifts out parallel to the original budget constraint

Question 7

Scenario 21-1
Suppose the price of pizza is $10, the price of cola is $1, and the consumer's income is $50. In addition, suppose the consumer's budget constraint measures pizza on the horizontal axis and cola on the vertical axis.
-Refer to Scenario 21-1.If the consumer's income rises to $60,then the budget line for pizza and cola would

Accepted Answer

A) now intersect the horizontal axis at 6 pizzas and the vertical axis at 60 colas. 
B) not change. 
C) now intersect the horizontal axis at 4 pizzas and the vertical axis at 16 colas. 
D) rotate outward along the cola axis. 
A) now intersect the horizontal axis at 6 pizzas and the vertical axis at 60 colas. 
B) not change. 
C) now intersect the horizontal axis at 4 pizzas and the vertical axis at 16 colas. 
D) rotate outward along the cola axis.

Question 8

A way to describe the consumer's optimum other than "the marginal rate of substitution for two goods is equal to their relative price ratio",is

Accepted Answer

A) MUₓ/MUᵧ = Pᵧ/Pₓ. 
B) MUₓ/Pᵧ = MUᵧ/Pₓ. 
C) MUₓ/Pₓ = MUᵧ/Pᵧ. 
D) MUᵧ/MUₓ = Pₓ/Pᵧ. 
A) MUₓ/MUᵧ = Pᵧ/Pₓ. 
B) MUₓ/Pᵧ = MUᵧ/Pₓ. 
C) MUₓ/Pₓ = MUᵧ/Pᵧ. 
D) MUᵧ/MUₓ = Pₓ/Pᵧ.

Question 9

The price of gin has risen from $7 to $9 per bottle,the price of cocktail onions has fallen from $6 to $5 per jar,and Elizabeth's income has stayed fixed at $46 per week.Since the price changes,Elizabeth has been buying 4 bottles of gin and 2 jars of cocktail onions per week.At the original prices,4 bottles of gin and 2 jars of cocktail onions would have

Accepted Answer

A) exactly exhausted her income. 
B) cost more than her income. 
C) cost less than her income. 
D) could have maximized her satisfaction given her budget constraint. 
A) exactly exhausted her income. 
B) cost more than her income. 
C) cost less than her income. 
D) could have maximized her satisfaction given her budget constraint.

Question 10

The income effect of a price change is depicted by

Accepted Answer

A) a parallel shift of the budget constraint at the old set of prices. 
B) a parallel shift of the budget constraint at the new set of prices. 
C) a movement along the budget constraint holding the level of satisfaction constant. 
D) not observable and is therefore neither a shift nor a change in the slope of the budget constraint. 
A) a parallel shift of the budget constraint at the old set of prices. 
B) a parallel shift of the budget constraint at the new set of prices. 
C) a movement along the budget constraint holding the level of satisfaction constant. 
D) not observable and is therefore neither a shift nor a change in the slope of the budget constraint.

Question 11

A Giffen good is one in 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 12

Beer and pretzels are normal goods.When the price of beer falls,the income effect causes

Accepted Answer

A) the consumer to feel richer, so the consumer buys more pretzels. 
B) the consumer to feel richer, so the consumer buys less pretzels. 
C) pretzels to be relatively more expensive, so the consumer buys more pretzels. 
D) pretzels to be relatively less expensive, so the consumer buys less pretzels. 
A) the consumer to feel richer, so the consumer buys more pretzels. 
B) the consumer to feel richer, so the consumer buys less pretzels. 
C) pretzels to be relatively more expensive, so the consumer buys more pretzels. 
D) pretzels to be relatively less expensive, so the consumer buys less pretzels.

Question 13

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 hig

Question 14

As one moves down a typical indifference curve,the marginal rate of substitution

Accepted Answer

A) increases. 
B) decreases. 
C) is constant. 
D) will switch from positive to negative. 
A) increases. 
B) decreases. 
C) is constant. 
D) will switch from positive to negative.

Question 15

A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

Accepted Answer

A) perfect substitutes. 
B) perfect complements. 
C) very close substitutes. 
D) very close complements. 
A) perfect substitutes. 
B) perfect complements. 
C) very close substitutes. 
D) very close complements.

Question 16

Indifference curves tend to be bowed inward because of diminishing

Accepted Answer

A) marginal rates of substitution. 
B) demand for the good as prices rise. 
C) income. 
D) Both a and b are correct. 
A) marginal rates of substitution. 
B) demand for the good as prices rise. 
C) income. 
D) Both a and b are correct.

Question 17

Which of the following is not true? Indifference curves

Accepted Answer

A) are downward sloping. 
B) that are closer to the origin are preferable to indifference curves further from the origin. 
C) are bowed in toward the origin. 
D) do not cross. 
A) are downward sloping. 
B) that are closer to the origin are preferable to indifference curves further from the origin. 
C) are bowed in toward the origin. 
D) do not cross.

Question 18

When leisure is a normal good,the income effect from a decrease in wages is evident in

Accepted Answer

A) a desire to consume more leisure. 
B) a desire to consume less leisure. 
C) an upward-sloping labor supply curve. 
D) a shift in labor demand. 
A) a desire to consume more leisure. 
B) a desire to consume less leisure. 
C) an upward-sloping labor supply curve. 
D) a shift in labor demand.

Question 19

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 in which consumpt

Question 20

Figure 21-9
  
-Refer to Figure 21-9.Assume that the consumer depicted in the figure has an income of $100 and currently optimizes at point A.When the price of marshmallows decreases to $5,which point will the optimizing consumer choose?

Accepted Answer

A) Point A 
B) Point B 
C) Point C 
D) Point D 
A) Point A 
B) Point B 
C) Point C 
D) Point D

Exam 21: The Theory of Consumer Choice

If the price of a good increases,all else equal,consumers perceive

Figure 21-6 -Refer to Figure 21-6.The consumer is likely to select the consumption bundle at

A consumer's preferences for right shoes and left shoes can be represented by indifference curves that are

Higher indifference curves are preferred to lower ones as long as the

A way to describe the consumer's optimum other than "the marginal rate of substitution for two goods is equal to their relative price ratio",is

The income effect of a price change is depicted by

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

Beer and pretzels are normal goods.When the price of beer falls,the income effect causes

As one moves down a typical indifference curve,the marginal rate of substitution

A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

Indifference curves tend to be bowed inward because of diminishing

Which of the following is not true? Indifference curves

When leisure is a normal good,the income effect from a decrease in wages is evident in

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?

Figure 21-9 -Refer to Figure 21-9.Assume that the consumer depicted in the figure has an income of $100 and currently optimizes at point A.When the price of marshmallows decreases to $5,which point will the optimizing consumer choose?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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