Question 1

At the best affordable point, which statement is true?

Accepted Answer

A) The slope of the indifference curve equals the slope of the budget line. 
B) The marginal rate of substitution between two goods equals their absolute price. 
C) The highest affordable indifference curve has the same intercept as the budget line. 
D) Other points on the same indifference curve are affordable but not preferred. 
E) Some income is not spent. 
A) The slope of the indifference curve equals the slope of the budget line. 
B) The marginal rate of substitution between two goods equals their absolute price. 
C) The highest affordable indifference curve has the same intercept as the budget line. 
D) Other points on the same indifference curve are affordable but not preferred. 
E) Some income is not spent.

Question 2

When the iPhone5 was introduced, the demand for iPhone5 protective cases increased. This information tells us that the iPhone5 and iPhone5 protective cases are

Accepted Answer

A) substitutes and their indifference curves are close to straight lines. 
B) substitutes and their indifference curves are close to L-shaped. 
C) complements and their indifference curves are close to L-shaped. 
D) complements and their indifference curves have a constant marginal rate of substitution. 
E) substitutes and their indifference curves have a constant marginal rate of substitution. 
A) substitutes and their indifference curves are close to straight lines. 
B) substitutes and their indifference curves are close to L-shaped. 
C) complements and their indifference curves are close to L-shaped. 
D) complements and their indifference curves have a constant marginal rate of substitution. 
E) substitutes and their indifference curves have a constant marginal rate of substitution.

Question 3

A constant marginal rate of substitution between two goods implies

Accepted Answer

A) the goods are perfect complements. 
B) the goods are imperfect substitutes. 
C) the goods are both inferior. 
D) one good is normal and one good is inferior. 
E) the goods are perfect substitutes. 
A) the goods are perfect complements. 
B) the goods are imperfect substitutes. 
C) the goods are both inferior. 
D) one good is normal and one good is inferior. 
E) the goods are perfect substitutes.

Question 4

Use the information below to answer the following questions.
Fact 9.3.1
Marc has an income of $20 and spends it on two goods, root beer (measured on the vertical axis)and chips (measured on the horizontal axis). The price of root beer is $1 a can. The price of chips is $0.50 a bag. Initially, Marc chooses to consume 10 cans of root beer and 20 bags of chips. Then the price of root beer rises to $1.50 per can and the price of chips falls to $0.25 a bag.
-Refer to Fact 9.3.1. When the price of a bag of chips falls, Marc

Accepted Answer

A) will consume more beer, more chips, and be better off. 
B) will consume less beer, more chips, and be better off. 
C) will consume less beer, more chips, and be worse off. 
D) will consume less beer, less chips, and be worse off. 
E) will consume more beer, less chips, and be better off. 
A) will consume more beer, more chips, and be better off. 
B) will consume less beer, more chips, and be better off. 
C) will consume less beer, more chips, and be worse off. 
D) will consume less beer, less chips, and be worse off. 
E) will consume more beer, less chips, and be better off.

Question 5

An indifference curve slopes downward because

Accepted Answer

A) it shows that people are only happy when they increase consumption of all goods. 
B) it shows that when a person gives up some of good X they must increase their consumption of good Y to remain indifferent. 
C) it shows that when a person gives up some of good X they can afford to increase their consumption of good Y. 
D) it is a demand curve without prices. 
E) the quantity demanded increases as the price falls. 
A) it shows that people are only happy when they increase consumption of all goods. 
B) it shows that when a person gives up some of good X they must increase their consumption of good Y to remain indifferent. 
C) it shows that when a person gives up some of good X they can afford to increase their consumption of good Y. 
D) it is a demand curve without prices. 
E) the quantity demanded increases as the price falls.

Question 6

David has an income of $60 to buy movie tickets and bus tickets. The price of a movie ticket is $12 and the price of a bus ticket is $4. What is David's real income?

Accepted Answer

A) $30 
B) 5 movie tickets or 15 bus tickets 
C) 15 movie tickets or 5 bus tickets 
D) $38 
E) $32 
A) $30 
B) 5 movie tickets or 15 bus tickets 
C) 15 movie tickets or 5 bus tickets 
D) $38 
E) $32

Question 7

The price of one good divided by the price of another good is

Accepted Answer

A) an absolute price. 
B) a relative price. 
C) a marginal price. 
D) a demand price. 
E) a money price. 
A) an absolute price. 
B) a relative price. 
C) a marginal price. 
D) a demand price. 
E) a money price.

Question 8

Use the information below to answer the following questions.
Fact 9.3.1
Marc has an income of $20 and spends it on two goods, root beer (measured on the vertical axis)and chips (measured on the horizontal axis). The price of root beer is $1 a can. The price of chips is $0.50 a bag. Initially, Marc chooses to consume 10 cans of root beer and 20 bags of chips. Then the price of root beer rises to $1.50 per can and the price of chips falls to $0.25 a bag.
-Refer to Fact 9.3.1. Marc's initial marginal rate of substitution was

Accepted Answer

A) not calculable with the information given. 
B) equal to 2 cans of root beer given up for each bag of chips gained. 
C) equal to 1 can of root beer given up for each bag of chips gained. 
D) equal to 10 cans of root beer given up for each bag of chips gained. 
E) equal to 1/2 can of root beer given up for each bag of chips gained. 
A) not calculable with the information given. 
B) equal to 2 cans of root beer given up for each bag of chips gained. 
C) equal to 1 can of root beer given up for each bag of chips gained. 
D) equal to 10 cans of root beer given up for each bag of chips gained. 
E) equal to 1/2 can of root beer given up for each bag of chips gained.

Question 9

Zarina can afford to buy 3 tomatoes and no toothbrushes, or 2 toothbrushes and no tomatoes. The relative price of a toothbrush is

Accepted Answer

A) 2/3 of a tomato. 
B) 3/2 tomatoes. 
C) 6 tomatoes. 
D) 1/6 of a tomato. 
E) impossible to calculate without additional information. 
A) 2/3 of a tomato. 
B) 3/2 tomatoes. 
C) 6 tomatoes. 
D) 1/6 of a tomato. 
E) impossible to calculate without additional information.

Question 10

When speaking of the price of the good measured on the horizontal axis relative to the price of the good measured on the vertical axis, which statement is true?

Accepted Answer

A) The steeper the slope of the budget line, the more expensive the good measured on the horizontal axis. 
B) The steeper the slope of the budget line, the less expensive the good measured on the horizontal axis. 
C) The steeper the slope of the budget line, the more expensive the good measured on the vertical axis. 
D) The slope of the budget line is independent of relative prices. 
E) The flatter the slope of the budget line, the more expensive the good measured on the horizontal axis. 
A) The steeper the slope of the budget line, the more expensive the good measured on the horizontal axis. 
B) The steeper the slope of the budget line, the less expensive the good measured on the horizontal axis. 
C) The steeper the slope of the budget line, the more expensive the good measured on the vertical axis. 
D) The slope of the budget line is independent of relative prices. 
E) The flatter the slope of the budget line, the more expensive the good measured on the horizontal axis.

Question 11

What is the relationship between goods and the income effect?

Accepted Answer

A) An inferior good has a positive income effect. 
B) A normal good has a positive income effect. 
C) An inferior good has no income effect. 
D) A normal good has no income effect. 
E) A normal good has a negative income effect. 
A) An inferior good has a positive income effect. 
B) A normal good has a positive income effect. 
C) An inferior good has no income effect. 
D) A normal good has no income effect. 
E) A normal good has a negative income effect.

Question 12

When the price of a good changes, the change in consumption that leaves the consumer indifferent between the two choices is called the

Accepted Answer

A) normal effect. 
B) substitution effect. 
C) income effect. 
D) price effect. 
E) inferior effect. 
A) normal effect. 
B) substitution effect. 
C) income effect. 
D) price effect. 
E) inferior effect.

Question 13

Use the figure below to answer the following questions.
   
Figure 9.2.1
-Which of the graphs in Figure 9.2.1 shows perfect complements?

Accepted Answer

A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) (c)and (d) 
A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) (c)and (d)

Question 14

A change in the price of the good measured on the vertical axis changes ________ of the budget line.

Accepted Answer

A) the slope and y-intercept 
B) the slope and x-intercept 
C) the x- and y-intercepts but not the slope 
D) only the slope 
E) only the y-intercept 
A) the slope and y-intercept 
B) the slope and x-intercept 
C) the x- and y-intercepts but not the slope 
D) only the slope 
E) only the y-intercept

Question 15

If the price of the good measured on the horizontal axis increases, the budget line

Accepted Answer

A) becomes steeper. 
B) shifts leftward and becomes steeper. 
C) shifts leftward and parallel to the original budget line. 
D) shifts rightward and parallel to the original budget line. 
E) becomes flatter. 
A) becomes steeper. 
B) shifts leftward and becomes steeper. 
C) shifts leftward and parallel to the original budget line. 
D) shifts rightward and parallel to the original budget line. 
E) becomes flatter.

Question 16

When price rises, the substitution effect

Accepted Answer

A) always increases consumption. 
B) increases consumption for normal goods only. 
C) decreases consumption for normal goods only. 
D) decreases consumption for inferior goods only. 
E) does none of the above. 
A) always increases consumption. 
B) increases consumption for normal goods only. 
C) decreases consumption for normal goods only. 
D) decreases consumption for inferior goods only. 
E) does none of the above.

Question 17

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

Accepted Answer

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

Question 18

Which of the following statements is false?

Accepted Answer

A) A consumer possesses a preference map. 
B) An indifference curve is a line that shows combinations of goods among which a consumer is indifferent. 
C) A consumer has only one indifference curve. 
D) The marginal rate of substitution is the rate at which a consumer will give up good y to get an additional unit of good x and remain on the same indifference curve. 
E) If the indifference curve is steep, the marginal rate of substitution is high. 
A) A consumer possesses a preference map. 
B) An indifference curve is a line that shows combinations of goods among which a consumer is indifferent. 
C) A consumer has only one indifference curve. 
D) The marginal rate of substitution is the rate at which a consumer will give up good y to get an additional unit of good x and remain on the same indifference curve. 
E) If the indifference curve is steep, the marginal rate of substitution is high.

Question 19

Which one of the following statements about the budget line is false? The budget line

Accepted Answer

A) separates affordable consumption points from unaffordable consumption points. 
B) is based on fixed prices. 
C) is based on fixed income. 
D) is based on fixed quantities. 
E) constrains consumer choices. 
A) separates affordable consumption points from unaffordable consumption points. 
B) is based on fixed prices. 
C) is based on fixed income. 
D) is based on fixed quantities. 
E) constrains consumer choices.

Question 20

When Jim is at his best affordable point, the budget line

Accepted Answer

A) is steeper than the highest attainable indifference curve. 
B) is flatter than the highest attainable indifference curve. 
C) does not touch the highest attainable indifference curve. 
D) is tangent to the highest attainable indifference curve. 
E) intersects the highest attainable indifference curve. 
A) is steeper than the highest attainable indifference curve. 
B) is flatter than the highest attainable indifference curve. 
C) does not touch the highest attainable indifference curve. 
D) is tangent to the highest attainable indifference curve. 
E) intersects the highest attainable indifference curve.

Exam 9: Possibilities, Preferences, and Choices

At the best affordable point, which statement is true?

When the iPhone5 was introduced, the demand for iPhone5 protective cases increased. This information tells us that the iPhone5 and iPhone5 protective cases are

A constant marginal rate of substitution between two goods implies

An indifference curve slopes downward because

David has an income of $60 to buy movie tickets and bus tickets. The price of a movie ticket is $12 and the price of a bus ticket is $4. What is David's real income?

The price of one good divided by the price of another good is

Zarina can afford to buy 3 tomatoes and no toothbrushes, or 2 toothbrushes and no tomatoes. The relative price of a toothbrush is

When speaking of the price of the good measured on the horizontal axis relative to the price of the good measured on the vertical axis, which statement is true?

What is the relationship between goods and the income effect?

When the price of a good changes, the change in consumption that leaves the consumer indifferent between the two choices is called the

Use the figure below to answer the following questions. Figure 9.2.1 -Which of the graphs in Figure 9.2.1 shows perfect complements?

A change in the price of the good measured on the vertical axis changes ________ of the budget line.

If the price of the good measured on the horizontal axis increases, the budget line

When price rises, the substitution effect

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

Which of the following statements is false?

Which one of the following statements about the budget line is false? The budget line

When Jim is at his best affordable point, the budget line

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