Question 1

What does utility measure

Accepted Answer

A) the satisfaction a consumer receives from spending her income 
B) the satisfaction a consumer receives from consuming a bundle of goods 
C) the satisfaction a consumer places on her budget constraint 
D) the satisfaction a consumer places on normal goods 
A) the satisfaction a consumer receives from spending her income 
B) the satisfaction a consumer receives from consuming a bundle of goods 
C) the satisfaction a consumer places on her budget constraint 
D) the satisfaction a consumer places on normal goods

Question 2

Figure 21-3
  
-Refer to Figure 21-3.In graph (a),if income is equal to $210,what is the price of good Y

Accepted Answer

A) $1 
B) $2.50 
C) $3.50 
D) $4 
A) $1 
B) $2.50 
C) $3.50 
D) $4

Question 3

In the work-leisure model,the income effect of a wage increase is when the worker chooses which option

Accepted Answer

A) She wishes to work less. 
B) She wishes to work more. 
C) She is indifferent between working more or less. 
D) She wishes to work more but be less productive. 
A) She wishes to work less. 
B) She wishes to work more. 
C) She is indifferent between working more or less. 
D) She wishes to work more but be less productive.

Question 4

A slightly bowed inward set of indifference curves represents the two goods as which of the following types

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 5

Assume that a college student purchases only coffee and almonds.If both coffee and almonds are normal goods,what will the income effect associated with a decrease in the price of almonds result in

Accepted Answer

A) a decrease in the consumption of almonds, and an increase in the consumption of coffee 
B) a decrease in the consumption of both almonds and coffee 
C) an increase in the consumption of almonds, and a decrease in the consumption of coffee 
D) an increase in the consumption of both almonds and coffee 
A) a decrease in the consumption of almonds, and an increase in the consumption of coffee 
B) a decrease in the consumption of both almonds and coffee 
C) an increase in the consumption of almonds, and a decrease in the consumption of coffee 
D) an increase in the consumption of both almonds and coffee

Question 6

Higher indifference curves are preferred to lower ones as long as which circumstance applies

Accepted Answer

A) The marginal rate of substitution is diminishing. 
B) The consumer's income remains constant. 
C) Commodities in the bundle are "goods." 
D) The budget constraint does not shift. 
A) The marginal rate of substitution is diminishing. 
B) The consumer's income remains constant. 
C) Commodities in the bundle are "goods." 
D) The budget constraint does not shift.

Question 7

What does the backward-bending portion of an individual labour supply curve indicate

Accepted Answer

A) dominant income effects at higher levels of income 
B) dominant income effects at lower levels of income 
C) a desire to reduce work effort (hours) as wage rate falls 
D) a desire to increase work effort (hours) as wage rate rises 
A) dominant income effects at higher levels of income 
B) dominant income effects at lower levels of income 
C) a desire to reduce work effort (hours) as wage rate falls 
D) a desire to increase work effort (hours) as wage rate rises

Question 8

For normal goods like cola and pizza,what happens due to the income effect when the price of pizza falls

Accepted Answer

A) There is a shift to a lower indifference curve, so the consumer buys more cola. 
B) There is a shift to a higher indifference curve, so the consumer buys more cola. 
C) There is movement along the indifference curve, so the consumer buys more cola. 
D) There is movement along the indifference curve, so the consumer buys less cola. 
A) There is a shift to a lower indifference curve, so the consumer buys more cola. 
B) There is a shift to a higher indifference curve, so the consumer buys more cola. 
C) There is movement along the indifference curve, so the consumer buys more cola. 
D) There is movement along the indifference curve, so the consumer buys less cola.

Question 9

For normal goods like cola and pizza,what is a likely result of the substitution effect when the price of pizza falls

Accepted Answer

A) The consumer feels richer, so he buys more cola. 
B) The consumer feels richer, so he buys less cola. 
C) Cola becomes relatively more expensive, so the consumer buys less cola. 
D) Cola becomes relatively less expensive, so the consumer buys less cola. 
A) The consumer feels richer, so he buys more cola. 
B) The consumer feels richer, so he buys less cola. 
C) Cola becomes relatively more expensive, so the consumer buys less cola. 
D) Cola becomes relatively less expensive, so the consumer buys less cola.

Question 10

Figure 21-3
  
-Refer to Figure 21-3.In graph (a),if income is equal to $180,what is the price of good X

Accepted Answer

A) $1 
B) $3 
C) $6 
D) $9 
A) $1 
B) $3 
C) $6 
D) $9

Question 11

Figure 21-7
  
-Refer to Figure 21-7.If the consumer is currently at point A,what effect is represented by a movement to point B as a result of a decrease in the price of potato chips

Accepted Answer

A) the substitution effect 
B) the income effect 
C) the budget effect 
D) the price effect 
A) the substitution effect 
B) the income effect 
C) the budget effect 
D) the price effect

Question 12

What determines the slope of the budget constraint

Accepted Answer

A) the relative price of commodities represented on the axes 
B) the level of income of the consumer 
C) the endowment of productive resources 
D) the preferences of a consumer 
A) the relative price of commodities represented on the axes 
B) the level of income of the consumer 
C) the endowment of productive resources 
D) the preferences of a consumer

Question 13

Figure 21-5
  
-Refer to Figure 21-5.When would it be possible for the consumer to reach I2

Accepted Answer

A) if the price of Y increased 
B) if the price of X increased 
C) if his income increased 
D) if his preferences changed 
A) if the price of Y increased 
B) if the price of X increased 
C) if his income increased 
D) if his preferences changed

Question 14

The slope at any point on an indifference curve equals the absolute price at which one consumer is willing to substitute one good for the other.

Accepted Answer

A) True 
 B)False

Question 15

Figure 21-8
  
-Refer to Figure 21-8.Assume that the consumer depicted has an income of $120.If the price of a bag of chocolate chips is $12 and the price of a bag of marshmallows is $12,what would the optimizing consumer choose to purchase

Accepted Answer

A) 3 bags of marshmallows and 9 bags of chocolate chips 
B) 5 bags of marshmallows and 5 bags of chocolate chips 
C) 8 bags of marshmallows and 6 bags of chocolate chips 
D) 10 bags of marshmallows and 10 bags of chocolate chips 
A) 3 bags of marshmallows and 9 bags of chocolate chips 
B) 5 bags of marshmallows and 5 bags of chocolate chips 
C) 8 bags of marshmallows and 6 bags of chocolate chips 
D) 10 bags of marshmallows and 10 bags of chocolate chips

Question 16

When a consumer experiences a price increase for an inferior good,which situation is possible

Accepted Answer

A) The income effect is greater than the substitution effect, and the demand curve will be downward sloping. 
B) The income effect is greater than the substitution effect, and the demand curve will be upward sloping. 
C) The income effect is less than the substitution effect, and the demand curve will be upward sloping. 
D) The income effect is less than the substitution effect, and the demand curve will be downward sloping. 
A) The income effect is greater than the substitution effect, and the demand curve will be downward sloping. 
B) The income effect is greater than the substitution effect, and the demand curve will be upward sloping. 
C) The income effect is less than the substitution effect, and the demand curve will be upward sloping. 
D) The income effect is less than the substitution effect, and the demand curve will be downward sloping.

Question 17

A Giffen good is one for which the quantity demanded rises as the price rises.What does the income effect do to cause this

Accepted Answer

A) It reinforces, but it is smaller than the substitution effect. 
B) It reinforces, and it is greater than the substitution effect. 
C) It counteracts, but it is smaller than the substitution effect. 
D) It counteracts, and it is greater than the substitution effect. 
A) It reinforces, but it is smaller than the substitution effect. 
B) It reinforces, and it is greater than the substitution effect. 
C) It counteracts, but it is smaller than the substitution effect. 
D) It counteracts, and it is greater than the substitution effect.

Question 18

Janet knows that she will ultimately face retirement.Assume that Janet will experience two periods in her life,one in which she works and earns income and one in which she is retired and earns no income.Janet can earn $250,000 during her working period and nothing in her retirement period.She must both save and consume in her work period and can earn 10 percent interest on her savings.
a.Use a graph to demonstrate Janet's budget constraint.
b.On your graph,show Janet at an optimal level of consumption in the work period of $150,000.What is the implied optimal level of consumption in her retirement period
c.Now,using your graph from part b,demonstrate how Janet will be affected by an increase in the interest rate on savings to 15 percent.Discuss the role of income and substitution effects in determining whether Janet will increase or decrease her savings in the work period.

Accepted Answer

a.See graph below.
b.See graph below.Jan

Question 19

Delilah knows that she will ultimately face retirement.Assume that Delilah will experience two periods in her life,one in which she works and earns income and one in which she is retired and earns no income.Delilah can earn $250,000 during her working period and nothing in her retirement period.She must both save and consume in her work period with an interest rate of 10 percent on savings.Assume that Delilah decides to consume $150,000 in the work period.How much will she consume in her retirement period

Accepted Answer

A) $100,000 
B) $110,000 
C) $125,000 
D) $250,000 
A) $100,000 
B) $110,000 
C) $125,000 
D) $250,000

Question 20

Figure 21-7
  
-Refer to Figure 21-7.Which effect would cause the shift from point B to point A

Accepted Answer

A) the substitution effect of an increase in the price of potato chips 
B) the income effect of an increase in the price of potato chips 
C) the substitution effect of a decrease in the price of potato chips 
D) the income effect of a decrease in the price of potato chips 
A) the substitution effect of an increase in the price of potato chips 
B) the income effect of an increase in the price of potato chips 
C) the substitution effect of a decrease in the price of potato chips 
D) the income effect of a decrease in the price of potato chips

What does utility measure

Figure 21-3 -Refer to Figure 21-3.In graph (a),if income is equal to $210,what is the price of good Y

In the work-leisure model,the income effect of a wage increase is when the worker chooses which option

A slightly bowed inward set of indifference curves represents the two goods as which of the following types

Assume that a college student purchases only coffee and almonds.If both coffee and almonds are normal goods,what will the income effect associated with a decrease in the price of almonds result in

Higher indifference curves are preferred to lower ones as long as which circumstance applies

What does the backward-bending portion of an individual labour supply curve indicate

For normal goods like cola and pizza,what happens due to the income effect when the price of pizza falls

For normal goods like cola and pizza,what is a likely result of the substitution effect when the price of pizza falls

Figure 21-3 -Refer to Figure 21-3.In graph (a),if income is equal to $180,what is the price of good X

Figure 21-7 -Refer to Figure 21-7.If the consumer is currently at point A,what effect is represented by a movement to point B as a result of a decrease in the price of potato chips

What determines the slope of the budget constraint

Figure 21-5 -Refer to Figure 21-5.When would it be possible for the consumer to reach I2

The slope at any point on an indifference curve equals the absolute price at which one consumer is willing to substitute one good for the other.

Figure 21-8 -Refer to Figure 21-8.Assume that the consumer depicted has an income of $120.If the price of a bag of chocolate chips is $12 and the price of a bag of marshmallows is $12,what would the optimizing consumer choose to purchase

When a consumer experiences a price increase for an inferior good,which situation is possible

A Giffen good is one for which the quantity demanded rises as the price rises.What does the income effect do to cause this

Figure 21-7 -Refer to Figure 21-7.Which effect would cause the shift from point B 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 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 of Microeconomics

Filters

Exam 21: The Theory of Consumer Choice

What does utility measure

Figure 21-3 -Refer to Figure 21-3.In graph (a),if income is equal to $210,what is the price of good Y

In the work-leisure model,the income effect of a wage increase is when the worker chooses which option

A slightly bowed inward set of indifference curves represents the two goods as which of the following types

Assume that a college student purchases only coffee and almonds.If both coffee and almonds are normal goods,what will the income effect associated with a decrease in the price of almonds result in

Higher indifference curves are preferred to lower ones as long as which circumstance applies

What does the backward-bending portion of an individual labour supply curve indicate

For normal goods like cola and pizza,what happens due to the income effect when the price of pizza falls

For normal goods like cola and pizza,what is a likely result of the substitution effect when the price of pizza falls

Figure 21-3 -Refer to Figure 21-3.In graph (a),if income is equal to $180,what is the price of good X

Figure 21-7 -Refer to Figure 21-7.If the consumer is currently at point A,what effect is represented by a movement to point B as a result of a decrease in the price of potato chips

What determines the slope of the budget constraint

Figure 21-5 -Refer to Figure 21-5.When would it be possible for the consumer to reach I2

The slope at any point on an indifference curve equals the absolute price at which one consumer is willing to substitute one good for the other.

Figure 21-8 -Refer to Figure 21-8.Assume that the consumer depicted has an income of $120.If the price of a bag of chocolate chips is $12 and the price of a bag of marshmallows is $12,what would the optimizing consumer choose to purchase

When a consumer experiences a price increase for an inferior good,which situation is possible

A Giffen good is one for which the quantity demanded rises as the price rises.What does the income effect do to cause this

Figure 21-7 -Refer to Figure 21-7.Which effect would cause the shift from point B 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 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 of Microeconomics

Filters