Question 1

At the best affordable point, what is the relationship between the indifference curve and the budget line?

Accepted Answer

A) The budget line and the indifference curve are identical. 
B) The slope of the indifference curve exceeds the slope of the budget line. 
C) The slope of the budget line exceeds the slope of the indifference curve. 
D) The slope of the indifference curve equals the slope of the budget line. 
E) The slope of the indifference curve is one-half the slope of the budget line. 
A) The budget line and the indifference curve are identical. 
B) The slope of the indifference curve exceeds the slope of the budget line. 
C) The slope of the budget line exceeds the slope of the indifference curve. 
D) The slope of the indifference curve equals the slope of the budget line. 
E) The slope of the indifference curve is one-half the slope of the budget line.

Question 2

If income increases, the budget line

Accepted Answer

A) becomes steeper. 
B) becomes flatter. 
C) shifts leftward and parallel to the original budget line. 
D) shifts rightward and parallel to the original budget line. 
E) shifts parallels either leftward or rightward depending on whether the goods measured on the axes are normal or inferior. 
A) becomes steeper. 
B) becomes flatter. 
C) shifts leftward and parallel to the original budget line. 
D) shifts rightward and parallel to the original budget line. 
E) shifts parallels either leftward or rightward depending on whether the goods measured on the axes are normal or inferior.

Question 3

Which statement is true for an inferior good?

Accepted Answer

A) The substitution effect is positive; as price rises, consumption increases. 
B) The income effect is absent; as income increases, consumption remains constant. 
C) The income effect works in the opposite direction to the substitution effect. 
D) The good is of poor workmanship. 
E) The income effect works in the same direction as the substitution effect. 
A) The substitution effect is positive; as price rises, consumption increases. 
B) The income effect is absent; as income increases, consumption remains constant. 
C) The income effect works in the opposite direction to the substitution effect. 
D) The good is of poor workmanship. 
E) The income effect works in the same direction as the substitution effect.

Question 4

Tonya, who is wealth, and Jerome, who is not, both buy orange juice and croissants for lunch at the student cafeteria. Their budget lines are drawn with orange juice on the vertical axis and croissants on the horizontal axis. Choose the correct statement.

Accepted Answer

A) Both of these budget lines have the same y-axis intercepts. 
B) Both of these budget lines have the same x-axis intercepts. 
C) Both of these budget lines have the same slopes. 
D) Both of these budget lines have the same y-axis intercepts and x-axis intercepts. 
E) These budget lines have different slopes, different x-axis intercepts, and different y-axis intercepts. 
A) Both of these budget lines have the same y-axis intercepts. 
B) Both of these budget lines have the same x-axis intercepts. 
C) Both of these budget lines have the same slopes. 
D) Both of these budget lines have the same y-axis intercepts and x-axis intercepts. 
E) These budget lines have different slopes, different x-axis intercepts, and different y-axis intercepts.

Question 5

If the price of the good measured on the horizontal axis falls, the substitution effect is indicated by movement to a

Accepted Answer

A) higher indifference curve. 
B) lower indifference curve. 
C) steeper part of the same indifference curve. 
D) flatter part of the same indifference curve. 
E) flatter part of a higher indifference curve. 
A) higher indifference curve. 
B) lower indifference curve. 
C) steeper part of the same indifference curve. 
D) flatter part of the same indifference curve. 
E) flatter part of a higher indifference curve.

Question 6

Larry consumes only beer (B)and chips (C). The equation of his budget line (with beer measured on the vertical axis)is

Accepted Answer

A) QB = Y/PB - (PC/P
B) QC. 
B) QB = Y - (PC/P
B) QC. 
C) QB = Y/PC - (PB/P
C) QC. 
D) QB = Y/PB - (PC/P
B) QB. 
E) QC = Y/PC - (PB/P
C) QB. 
A) QB = Y/PB - (PC/P
B) QC. 
B) QB = Y - (PC/P
B) QC. 
C) QB = Y/PC - (PB/P
C) QC. 
D) QB = Y/PB - (PC/P
B) QB. 
E) QC = Y/PC - (PB/P
C) QB.

Question 7

Goods that can be bought in any quantity desired are called

Accepted Answer

A) divisible goods. 
B) invisible goods. 
C) inferior goods. 
D) services. 
E) normal goods. 
A) divisible goods. 
B) invisible goods. 
C) inferior goods. 
D) services. 
E) normal goods.

Question 8

Use the information below to answer the following questions.
Fact 9.2.1 You May Be Paid More (or Less)Than You Think
It's so hard to put a price on happiness, isn't it?
 But if you've ever had to choose between a jobs you like and a better-paying one that you like less, you probably wished some economist would tell you how much job satisfaction is worth. Trust in management is by far the biggest component to consider. Say you get a new boss and your trust in management goes up a bit (say, up 1 point on a 10-point scale). That's like getting a 36 percent pay raise. In other words, that increased level of trust will boost your level of overall satisfaction in life by about the same amount as a 36 percent raise would.
Source: CNN, March 29, 2006
-Refer to Fact 9.2.1. What is the marginal rate of substitution?

Accepted Answer

A) 3.6 
B) 1 
C) 36 
D) 10 
E) 10 + 36 
A) 3.6 
B) 1 
C) 36 
D) 10 
E) 10 + 36

Question 9

Use the figure below to answer the following questions.
   
Figure 9.3.1
-Consider the budget line and indifference curve in Figure 9.3.1. At the best affordable point, the marginal rate of substitution is

Accepted Answer

A) 1/2. 
B) 2. 
C) 4/3. 
D) 3/4. 
E) 4. 
A) 1/2. 
B) 2. 
C) 4/3. 
D) 3/4. 
E) 4.

Question 10

The budget line depends on

Accepted Answer

A) income only. 
B) prices only. 
C) income and prices. 
D) preferences only. 
E) preferences and prices. 
A) income only. 
B) prices only. 
C) income and prices. 
D) preferences only. 
E) preferences and prices.

Question 11

The magnitude of the slope of an indifference curve is

Accepted Answer

A) the marginal rate of substitution. 
B) the marginal rate of transformation. 
C) the marginal propensity to consume. 
D) the marginal propensity to substitute. 
E) the relative price of good Y. 
A) the marginal rate of substitution. 
B) the marginal rate of transformation. 
C) the marginal propensity to consume. 
D) the marginal propensity to substitute. 
E) the relative price of good Y.

Question 12

An indifference curve is

Accepted Answer

A) the boundary between what can be produced and what cannot be produced. 
B) the boundary between what a consumer can afford and what he cannot afford. 
C) a curve that shows combinations of goods among which a consumer is indifferent. 
D) the boundary between normal goods and inferior goods. 
E) a line with a positive slope. 
A) the boundary between what can be produced and what cannot be produced. 
B) the boundary between what a consumer can afford and what he cannot afford. 
C) a curve that shows combinations of goods among which a consumer is indifferent. 
D) the boundary between normal goods and inferior goods. 
E) a line with a positive slope.

Question 13

Use the figure below to answer the following questions.
   
Figure 9.3.3
-Consider an initial budget line labelled RT in Figure 9.3.3. If the budget line becomes RS, the income effect is illustrated by the move from point

Accepted Answer

A) A to B. 
B) A to C. 
C) B to D. 
D) C to B. 
E) D to A. 
A) A to B. 
B) A to C. 
C) B to D. 
D) C to B. 
E) D to A.

Question 14

Marie-Louise has an income of $10 to buy peanuts and popcorn. The price of a bag of peanuts is $1 and the price of a bag of popcorn is $2. What is Marie-Louise's real income in terms of popcorn?

Accepted Answer

A) 1/2 bag of popcorn 
B) 1 bag of popcorn 
C) 2 bags of popcorn 
D) 5 bags of popcorn 
E) 10 bags of popcorn 
A) 1/2 bag of popcorn 
B) 1 bag of popcorn 
C) 2 bags of popcorn 
D) 5 bags of popcorn 
E) 10 bags of popcorn

Question 15

Bill consumes apples and bananas. Apples are measured on the vertical axis and bananas are measured on the horizontal axis. Bill's income doubles, the price of apples doubles, and the price of bananas triples. Bill's budget line

Accepted Answer

A) remains unchanged. 
B) shifts rightward and the slope does not change. 
C) shifts rightward and becomes steeper. 
D) shifts rightward and becomes flatter. 
E) becomes steeper. 
A) remains unchanged. 
B) shifts rightward and the slope does not change. 
C) shifts rightward and becomes steeper. 
D) shifts rightward and becomes flatter. 
E) becomes steeper.

Question 16

Use the figure below to answer the following questions.
   
Figure 9.3.4
Original equilibrium at A, new equilibrium at B
-Refer to Figure 9.3.4. Which graphs show the case where good Y is an inferior good?

Accepted Answer

A) (a)and (b) 
B) (c)and (d) 
C) (a)and (c) 
D) (b)and (d) 
E) none of the graphs 
A) (a)and (b) 
B) (c)and (d) 
C) (a)and (c) 
D) (b)and (d) 
E) none of the graphs

Question 17

If income decreases, the budget line

Accepted Answer

A) becomes steeper. 
B) becomes flatter. 
C) shifts leftward and parallel to the original budget line. 
D) shifts rightward and parallel to the original budget line. 
E) shifts parallel either leftward or rightward depending on whether the goods measured on the axes are normal or inferior. 
A) becomes steeper. 
B) becomes flatter. 
C) shifts leftward and parallel to the original budget line. 
D) shifts rightward and parallel to the original budget line. 
E) shifts parallel either leftward or rightward depending on whether the goods measured on the axes are normal or inferior.

Question 18

Which one of the following statements is false?

Accepted Answer

A) Indifference curves are negatively sloped. 
B) A preference map consists of a series of indifference curves. 
C) Indifference curves are bowed out from the origin. 
D) The marginal rate of substitution is the magnitude of the slope of an indifference curve. 
E) The marginal rate of substitution increases as a consumer moves up along an indifference curve for ordinary goods. 
A) Indifference curves are negatively sloped. 
B) A preference map consists of a series of indifference curves. 
C) Indifference curves are bowed out from the origin. 
D) The marginal rate of substitution is the magnitude of the slope of an indifference curve. 
E) The marginal rate of substitution increases as a consumer moves up along an indifference curve for ordinary goods.

Question 19

Suppose all prices double and income also doubles. Which statement is true?

Accepted Answer

A) The budget line does not change. 
B) The slope of the budget line increases. 
C) The slope of the budget line decreases. 
D) The budget line shifts rightward. 
E) The budget line shifts leftward. 
A) The budget line does not change. 
B) The slope of the budget line increases. 
C) The slope of the budget line decreases. 
D) The budget line shifts rightward. 
E) The budget line shifts leftward.

Question 20

Real income in terms of a good is defined as

Accepted Answer

A) income divided by the quantity consumed of a good. 
B) the income of a producer of that good. 
C) the price of one good divided by the price of another good. 
D) dollar income. 
E) income divided by the price of a good. 
A) income divided by the quantity consumed of a good. 
B) the income of a producer of that good. 
C) the price of one good divided by the price of another good. 
D) dollar income. 
E) income divided by the price of a good.

Exam 9: Possibilities, Preferences, and Choices

At the best affordable point, what is the relationship between the indifference curve and the budget line?

If income increases, the budget line

Which statement is true for an inferior good?

Tonya, who is wealth, and Jerome, who is not, both buy orange juice and croissants for lunch at the student cafeteria. Their budget lines are drawn with orange juice on the vertical axis and croissants on the horizontal axis. Choose the correct statement.

If the price of the good measured on the horizontal axis falls, the substitution effect is indicated by movement to a

Larry consumes only beer (B)and chips (C). The equation of his budget line (with beer measured on the vertical axis)is

Goods that can be bought in any quantity desired are called

Use the figure below to answer the following questions. Figure 9.3.1 -Consider the budget line and indifference curve in Figure 9.3.1. At the best affordable point, the marginal rate of substitution is

The budget line depends on

The magnitude of the slope of an indifference curve is

An indifference curve is

Use the figure below to answer the following questions. Figure 9.3.3 -Consider an initial budget line labelled RT in Figure 9.3.3. If the budget line becomes RS, the income effect is illustrated by the move from point

Marie-Louise has an income of $10 to buy peanuts and popcorn. The price of a bag of peanuts is $1 and the price of a bag of popcorn is $2. What is Marie-Louise's real income in terms of popcorn?

Bill consumes apples and bananas. Apples are measured on the vertical axis and bananas are measured on the horizontal axis. Bill's income doubles, the price of apples doubles, and the price of bananas triples. Bill's budget line

Use the figure below to answer the following questions. Figure 9.3.4 Original equilibrium at A, new equilibrium at B -Refer to Figure 9.3.4. Which graphs show the case where good Y is an inferior good?

If income decreases, the budget line

Which one of the following statements is false?

Suppose all prices double and income also doubles. Which statement is true?

Real income in terms of a good is defined as

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