Question 1

If the interest rate rises,the household could choose to

Accepted Answer

A) increase consumption when young. 
B) increase consumption when old. 
C) decrease consumption when young. 
D) Any of the above could be correct. 
A) increase consumption when young. 
B) increase consumption when old. 
C) decrease consumption when young. 
D) Any of the above could be correct.

Question 2

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X

Accepted Answer

A) is equal to the marginal utility per dollar saved on good X. 
B) is greater than the marginal utility per dollar spent on good Y. 
C) is equal to the marginal utility per dollar spent on good Y. 
D) is less than the marginal utility per dollar spent on good Y. 
A) is equal to the marginal utility per dollar saved on good X. 
B) is greater than the marginal utility per dollar spent on good Y. 
C) is equal to the marginal utility per dollar spent on good Y. 
D) is less than the marginal utility per dollar spent on good Y.

Question 3

When indifference curves are bowed in toward the origin,

Accepted Answer

A) a consumer is less inclined to trade away goods they are lacking. 
B) a consumer's 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 away from the origin. 
A) a consumer is less inclined to trade away goods they are lacking. 
B) a consumer's 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 away from the origin.

Question 4

The income effect of an increase in the interest rate (when "Consumption when young" and "Consumption when old" are both normal goods)will result in

Accepted Answer

A) an increase in saving when young. 
B) an increase in saving when old. 
C) a decrease in saving when young. 
D) a decrease in saving when old. 
A) an increase in saving when young. 
B) an increase in saving when old. 
C) a decrease in saving when young. 
D) a decrease in saving when old.

Question 5

If leisure were an inferior good,then labor supply curves

Accepted Answer

A) would all be negatively sloped. 
B) would all be positively sloped. 
C) would all be vertical. 
D) could still be positively or negatively sloped. 
A) would all be negatively sloped. 
B) would all be positively sloped. 
C) would all be vertical. 
D) could still be positively or negatively sloped.

Question 6

The slope of an indifference curve is

Accepted Answer

A) the rate of change of consumer's preferences. 
B) the marginal rate of preference. 
C) the marginal rate of substitution. 
D) always equal to the slope of the budget constraint. 
A) the rate of change of consumer's preferences. 
B) the marginal rate of preference. 
C) the marginal rate of substitution. 
D) always equal to the slope of the budget constraint.

Question 7

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 that you borrow $60 and spend $160 today.After you repay your loan one year from today,how much money will you have available for consumption one year from today?

Accepted Answer

A) $0 
B) $25 
C) $50 
D) $75 
A) $0 
B) $25 
C) $50 
D) $75

Question 8

A good is an inferior good if the consumer buys less of it when

Accepted Answer

A) his income rises. 
B) the price of the good rises. 
C) he feels less well off. 
D) his income falls. 
A) his income rises. 
B) the price of the good rises. 
C) he feels less well off. 
D) his income falls.

Question 9

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

Accepted Answer

A) True 
 B)False

Question 10

Explain the relationship between the budget constraint and indifference curve at consumer optimum.

Accepted Answer

Since the budget constraint is tangent t

Question 11

An outward shift of the budget constraint will cause a consumer to buy

Accepted Answer

A) fewer normal goods and more inferior goods. 
B) more normal goods and fewer inferior goods. 
C) more normal goods and more inferior goods. 
D) fewer normal goods and fewer inferior goods. 
A) fewer normal goods and more inferior goods. 
B) more normal goods and fewer inferior goods. 
C) more normal goods and more inferior goods. 
D) fewer normal goods and fewer inferior goods.

Question 12

The slope of the budget constraint is determined by the

Accepted Answer

A) relative price of the goods measured on the axes. 
B) relative price of the goods measured on the axes and the consumer's income. 
C) endowment of productive resources. 
D) preferences of the consumer. 
A) relative price of the goods measured on the axes. 
B) relative price of the goods measured on the axes and the consumer's income. 
C) endowment of productive resources. 
D) preferences of the consumer.

Question 13

Figure 21-3
  
-Refer to Figure 21-3.Assume that a consumer faces both budget constraints in graph (a)and graph (b)on two different occasions.If her income has remained constant,what has happened to prices?

Accepted Answer

A) The price of X in graph (a) is higher than the price of X in graph (b). 
B) The price of Y in graph (a) is higher than the price of Y in graph (b). 
C) The prices of both X and Y are lower in graph (a). 
D) None of the above are true. 
A) The price of X in graph (a) is higher than the price of X in graph (b). 
B) The price of Y in graph (a) is higher than the price of Y in graph (b). 
C) The prices of both X and Y are lower in graph (a). 
D) None of the above are true.

Question 14

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution is called

Accepted Answer

A) the income effect. 
B) the substitution effect. 
C) the Giffen good effect. 
D) the inferior good effect. 
A) the income effect. 
B) the substitution effect. 
C) the Giffen good effect. 
D) the inferior good effect.

Question 15

A consumer's preferences for $1 bills and $20 bills 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 16

Suppose a consumer spends her income on two goods: music CDs and DVDs.If the consumer has $200 to allocate to these two goods,the price of a CD is $10,and the price of a DVD is $20,what is the maximum number of CDs the consumer can purchase?

Accepted Answer

A) 10 
B) 20 
C) 40 
D) 50 
A) 10 
B) 20 
C) 40 
D) 50

Question 17

The marginal rate of substitution between two goods always equals the

Accepted Answer

A) marginal utility of one divided by the marginal utility of the other. 
B) marginal utility of one times the marginal utility of the other. 
C) price of one good divided by the price of the other. 
D) Both a and c are correct. 
A) marginal utility of one divided by the marginal utility of the other. 
B) marginal utility of one times the marginal utility of the other. 
C) price of one good divided by the price of the other. 
D) Both a and c are correct.

Question 18

A fall in the price of DVD players leads consumers to buy more DVD players.From this information we can conclude that DVD players

Accepted Answer

A) are normal goods. 
B) are inferior goods. 
C) are Giffen goods. 
D) None of the above is correct. 
A) are normal goods. 
B) are inferior goods. 
C) are Giffen goods. 
D) None of the above is correct.

Question 19

A decrease in income will cause a shift in the budget constraint

Accepted Answer

A) outward. 
B) towards the good most consumed. 
C) towards the good least consumed. 
D) inward. 
A) outward. 
B) towards the good most consumed. 
C) towards the good least consumed. 
D) inward.

Question 20

If goods X and Y are perfect complements,then if the price of good Y falls,changes in the amount of goods X and Y purchased are due

Accepted Answer

A) strictly to the substitution effect. 
B) strictly to the income effect. 
C) to both the income and substitution effects 
D) strictly to the complement effect. 
A) strictly to the substitution effect. 
B) strictly to the income effect. 
C) to both the income and substitution effects 
D) strictly to the complement effect.

Exam 21: The Theory of Consumer Choice

If the interest rate rises,the household could choose to

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X

When indifference curves are bowed in toward the origin,

The income effect of an increase in the interest rate (when "Consumption when young" and "Consumption when old" are both normal goods)will result in

If leisure were an inferior good,then labor supply curves

The slope of an indifference curve is

A good is an inferior good if the consumer buys less of it when

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

Explain the relationship between the budget constraint and indifference curve at consumer optimum.

An outward shift of the budget constraint will cause a consumer to buy

The slope of the budget constraint is determined by the

Figure 21-3 -Refer to Figure 21-3.Assume that a consumer faces both budget constraints in graph (a)and graph (b)on two different occasions.If her income has remained constant,what has happened to prices?

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution is called

A consumer's preferences for $1 bills and $20 bills can be represented by indifference curves that are

Suppose a consumer spends her income on two goods: music CDs and DVDs.If the consumer has $200 to allocate to these two goods,the price of a CD is $10,and the price of a DVD is $20,what is the maximum number of CDs the consumer can purchase?

The marginal rate of substitution between two goods always equals the

A fall in the price of DVD players leads consumers to buy more DVD players.From this information we can conclude that DVD players

A decrease in income will cause a shift in the budget constraint

If goods X and Y are perfect complements,then if the price of good Y falls,changes in the amount of goods X and Y purchased are due

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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