Question 1

In the work-leisure model,suppose consumption and leisure are both normal goods.The income effect of a wage increase results in the worker choosing to

Accepted Answer

A) work less than before. 
B) work more than before. 
C) possibly work more or less than before. 
D) work more than before with a higher level of consumption. 
A) work less than before. 
B) work more than before. 
C) possibly work more or less than before. 
D) work more than before with a higher level of consumption.

Question 2

The substitution effect of a wage decrease in the work-leisure model results in the worker choosing to

Accepted Answer

A) work less than before. 
B) work more than before. 
C) possibly work more or less than before. 
D) work more with a higher level of consumption. 
A) work less than before. 
B) work more than before. 
C) possibly work more or less than before. 
D) work more with a higher level of consumption.

Question 3

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 increases to 40%.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 4

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 5

A family on a trip budgets $800 for meals and hotel accommodations.Suppose the price of a meal is $40.In addition,suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals.How many meals could the family afford if they gave up two nights in the hotel?

Accepted Answer

A) 1 
B) 2 
C) 5 
D) 8 
A) 1 
B) 2 
C) 5 
D) 8

Question 6

Economic theory predicts that an increase in wages

Accepted Answer

A) will cause a wage earner to work more. 
B) will cause a wage earner to work less. 
C) will cause a wage earner to be more productive. 
D) might cause a wage earner to work more or work less. 
A) will cause a wage earner to work more. 
B) will cause a wage earner to work less. 
C) will cause a wage earner to be more productive. 
D) might cause a wage earner to work more or work less.

Question 7

Utility measures

Accepted Answer

A) the income a consumer receives from consuming a bundle of goods. 
B) the satisfaction a consumer receives from consuming a bundle of goods. 
C) the satisfaction a consumer places on their budget constraint. 
D) All of the above are correct. 
A) the income a consumer receives from consuming a bundle of goods. 
B) the satisfaction a consumer receives from consuming a bundle of goods. 
C) the satisfaction a consumer places on their budget constraint. 
D) All of the above are correct.

Question 8

List and briefly explain each of the four properties of indifference curves.

Accepted Answer

1: Higher indifference curves are prefer

Question 9

The slope of the budget constraint is all of the following except

Accepted Answer

A) the relative price of two goods. 
B) the rate at which a consumer can trade one good for another. 
C) the marginal rate of substitution. 
D) constant. 
A) the relative price of two goods. 
B) the rate at which a consumer can trade one good for another. 
C) the marginal rate of substitution. 
D) constant.

Question 10

Suppose the only two goods that Brett consumes are wine and cheese.When wine sells for $10 a bottle and cheese sell for $10 a pound,he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100.One day the price of wine falls to $5 a bottle and the price of cheese increases to $20 a pound,while his income does not change.The bundle of wine and cheese that he purchased at the old prices,now costs,at the new prices,

Accepted Answer

A) the same amount. 
B) less than Brett's income. 
C) more than Brett's income. 
D) not enough information to answer the question. 
A) the same amount. 
B) less than Brett's income. 
C) more than Brett's income. 
D) not enough information to answer the question.

Question 11

Which of the following statements best describes the substitution effect?

Accepted Answer

A) The change in consumption resulting from a change in the consumer's income holding the prices of the goods constant. 
B) The change in consumption resulting from a change in the consumer's income holding the consumer's level of satisfaction constant. 
C) The change in consumption resulting from a change in the price of one good holding the consumer's level of satisfaction constant. 
D) The change in consumption resulting from a change in the price of one good allowing the consumer's level of satisfaction to change. 
A) The change in consumption resulting from a change in the consumer's income holding the prices of the goods constant. 
B) The change in consumption resulting from a change in the consumer's income holding the consumer's level of satisfaction constant. 
C) The change in consumption resulting from a change in the price of one good holding the consumer's level of satisfaction constant. 
D) The change in consumption resulting from a change in the price of one good allowing the consumer's level of satisfaction to change.

Question 12

A consumer has preferences over two goods,books and movies.The consumer is currently spending all available income on these two goods and maximizes satisfaction by purchasing ten books and five movies.The price of a movie falls and the consumer optimally chooses to consume eleven books and four movies.From this information we can infer that

Accepted Answer

A) movies are a normal good for this consumer. 
B) movies are an inferior good for this consumer. 
C) movies are a Giffen good for this consumer. 
D) movies are either an inferior good or a Giffen good for this consumer; we would need information on prices and income to be certain. 
A) movies are a normal good for this consumer. 
B) movies are an inferior good for this consumer. 
C) movies are a Giffen good for this consumer. 
D) movies are either an inferior good or a Giffen good for this consumer; we would need information on prices and income to be certain.

Question 13

All of the following are properties of indifference curves except

Accepted Answer

A) higher indifference curves are preferred to lower ones. 
B) indifference curves are downward sloping. 
C) indifference curves do not cross. 
D) indifference curves are bowed outward. 
A) higher indifference curves are preferred to lower ones. 
B) indifference curves are downward sloping. 
C) indifference curves do not cross. 
D) indifference curves are bowed outward.

Question 14

The bowed shape of the indifference curve reflects the consumer's

Accepted Answer

A) unwillingness to give up a good that he already has in large quantity. 
B) unwillingness to purchase a good that he already has in large quantity. 
C) greater willingness to give up a good that he already has in large quantity. 
D) greater willingness to purchase a good that he already has in large quantity. 
A) unwillingness to give up a good that he already has in large quantity. 
B) unwillingness to purchase a good that he already has in large quantity. 
C) greater willingness to give up a good that he already has in large quantity. 
D) greater willingness to purchase a good that he already has in large quantity.

Question 15

If two bundles of goods give a consumer the same satisfaction,the consumer must be

Accepted Answer

A) on her budget constraint. 
B) in a position of equilibrium. 
C) indifferent between the bundles. 
D) Both a and c are correct. 
A) on her budget constraint. 
B) in a position of equilibrium. 
C) indifferent between the bundles. 
D) Both a and c are correct.

Question 16

If a consumer's income decreases,the budget constraint for CDs and DVDs will

Accepted Answer

A) shift outward, parallel to the original budget constraint. 
B) shift inward, parallel to the original budget constraint. 
C) rotate outward along the CD axis because we can afford more CDs. 
D) rotate outward along the DVD axis because we can afford more DVDs. 
A) shift outward, parallel to the original budget constraint. 
B) shift inward, parallel to the original budget constraint. 
C) rotate outward along the CD axis because we can afford more CDs. 
D) rotate outward along the DVD axis because we can afford more DVDs.

Question 17

Graphically demonstrate the conditions associated with a consumer optimum.Carefully label all curves and axes.

Accepted Answer

The answer of Graphically demonstrate the conditions associated with a...

Question 18

Consider the indifference curve map and budget constraint for two goods (B and K).Suppose the good on the horizontal axis (K)is inferior,but not Giffen.When the price of the inferior good on the horizontal axis (K)decreases

Accepted Answer

A) the substitution effect and income effect both cause an increase in the consumption of K. 
B) the substitution effect causes a decrease in the consumption of K and the income effect causes an increase in the consumption of K.However, the substitution effect is greater than the income effect. 
C) the substitution effect causes an increase in the consumption of K and the income effect causes a decrease in the consumption of K.However, the substitution effect is greater than the income effect. 
D) the substitution effect and income effect both cause a decrease in the consumption of K. 
A) the substitution effect and income effect both cause an increase in the consumption of K. 
B) the substitution effect causes a decrease in the consumption of K and the income effect causes an increase in the consumption of K.However, the substitution effect is greater than the income effect. 
C) the substitution effect causes an increase in the consumption of K and the income effect causes a decrease in the consumption of K.However, the substitution effect is greater than the income effect. 
D) the substitution effect and income effect both cause a decrease in the consumption of K.

Question 19

Figure 21-4
  
-Refer to Figure 21-4.Which of the following statements is true for a consumer who moves from point A to point D?

Accepted Answer

A) It is difficult to compare the level of consumer satisfaction between points D and a. 
B) The consumer is indifferent between point A and point D. 
C) The consumer is definitely worse off. 
D) The consumer is likely to place a higher relative value on Twinkies at point A than at point D. 
A) It is difficult to compare the level of consumer satisfaction between points D and a. 
B) The consumer is indifferent between point A and point D. 
C) The consumer is definitely worse off. 
D) The consumer is likely to place a higher relative value on Twinkies at point A than at point D.

Question 20

Figure 21-7
  
-Refer to Figure 21-7.Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B.According to the graph,what change forces the consumer to move to point A?

Accepted Answer

A) a decrease in the price of Skittles 
B) a decrease in the price of M&M's 
C) an increase in the price of Skittles 
D) an increase in the price of M&M's 
A) a decrease in the price of Skittles 
B) a decrease in the price of M&M's 
C) an increase in the price of Skittles 
D) an increase in the price of M&M's

Exam 21: The Theory of Consumer Choice

In the work-leisure model,suppose consumption and leisure are both normal goods.The income effect of a wage increase results in the worker choosing to

The substitution effect of a wage decrease in the work-leisure model results in the worker choosing to

Budget constraints exist for consumers because

A family on a trip budgets $800 for meals and hotel accommodations.Suppose the price of a meal is $40.In addition,suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals.How many meals could the family afford if they gave up two nights in the hotel?

Economic theory predicts that an increase in wages

Utility measures

List and briefly explain each of the four properties of indifference curves.

The slope of the budget constraint is all of the following except

Which of the following statements best describes the substitution effect?

All of the following are properties of indifference curves except

The bowed shape of the indifference curve reflects the consumer's

If two bundles of goods give a consumer the same satisfaction,the consumer must be

If a consumer's income decreases,the budget constraint for CDs and DVDs will

Graphically demonstrate the conditions associated with a consumer optimum.Carefully label all curves and axes.

Consider the indifference curve map and budget constraint for two goods (B and K).Suppose the good on the horizontal axis (K)is inferior,but not Giffen.When the price of the inferior good on the horizontal axis (K)decreases

Figure 21-4 -Refer to Figure 21-4.Which of the following statements is true for a consumer who moves from point A to point D?

Figure 21-7 -Refer to Figure 21-7.Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B.According to the graph,what change forces the consumer to move to point A?

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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