Question 1

If the price of an inferior good rises, the income effect

Accepted Answer

A) will have an uncertain effect on consumption of the good, and the substitution effect will decrease consumption. 
B) will decrease consumption of the good, and the substitution effect will decrease consumption. 
C) and the substitution effect will both increase consumption of the good. 
D) and the substitution effect will both decrease consumption of the good. 
E) will increase consumption of the good and the substitution effect will decrease consumption. 
A) will have an uncertain effect on consumption of the good, and the substitution effect will decrease consumption. 
B) will decrease consumption of the good, and the substitution effect will decrease consumption. 
C) and the substitution effect will both increase consumption of the good. 
D) and the substitution effect will both decrease consumption of the good. 
E) will increase consumption of the good and the substitution effect will decrease consumption.

Question 2

Use the information below to answer the following questions.
Fact 9.3.2 Boom Time for "Gently Used" Clothes
Most retailers are blaming the economy for their poor sales, but one store chain that sells used name-brand children's clothes, toys, and furniture is boldly declaring that an economic downturn can actually be a boon for its business. Last year, the company took in $20 million in sales, up 5% from the previous year. Sales are already up 5% this year.
Source: CNN, April 17, 2008
-Refer to Fact 9.3.2.If the price of used clothing falls and income remains the same, the substitution effect ________ the quantity of used clothing bought and the income effect ________ the quantity of used clothing bought.

Accepted Answer

A) increases; decreases 
B) increases; increases 
C) decreases; increases 
D) decreases; decreases 
E) does not change; increases 
A) increases; decreases 
B) increases; increases 
C) decreases; increases 
D) decreases; decreases 
E) does not change; increases

Question 3

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 4

Use the figure below to answer the following questions.
   
Figure 9.1.1
-Shelly's budget line is shown in Figure 9.1.1 Which point is unaffordable given her income and current prices?

Accepted Answer

A) A and B 
B) B only 
C) C only 
D) C and D only 
E) All points are unattainable. 
A) A and B 
B) B only 
C) C only 
D) C and D only 
E) All points are unattainable.

Question 5

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 6

A change in income 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 7

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 8

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.

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

Which of the following is not relevant when calculating the budget line?

Accepted Answer

A) the price of good X 
B) income 
C) the price of good Y 
D) preferences 
E) the relative price of good X in terms of good Y 
A) the price of good X 
B) income 
C) the price of good Y 
D) preferences 
E) the relative price of good X in terms of good Y

Question 11

Leah consumes at a point on her budget line where her marginal rate of substitution is less than the magnitude of the slope of her budget line.As Leah moves along her budget line toward her best affordable point, she will move

Accepted Answer

A) down and left. 
B) down and right. 
C) up and left. 
D) up and right. 
E) straight up. 
A) down and left. 
B) down and right. 
C) up and left. 
D) up and right. 
E) straight up.

Question 12

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 13

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 14

Junkfood Jill spends all of her income on jellybeans and Jolt cola.Suppose that Jill's income is $30, the price of a bag of jellybeans is $6, and the price of a bottle of Jolt cola is $2.Which of the following combinations of jellybeans and Jolt cola lies inside Jill's budget line?

Accepted Answer

A) 2 bags of jellybeans and 8 bottles of Jolt 
B) 5 bags of jellybeans and 0 bottles of Jolt 
C) 4 bags of jellybeans and 4 bottles of Jolt 
D) 3 bags of jellybeans and 6 bottles of Jolt 
E) 5 bags of jellybeans and 15 bottles of Jolt 
A) 2 bags of jellybeans and 8 bottles of Jolt 
B) 5 bags of jellybeans and 0 bottles of Jolt 
C) 4 bags of jellybeans and 4 bottles of Jolt 
D) 3 bags of jellybeans and 6 bottles of Jolt 
E) 5 bags of jellybeans and 15 bottles of Jolt

Question 15

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 substitution effect is illustrated by the move from point

Accepted Answer

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

Question 16

A consumer choosing between apples and oranges is at her best affordable point.Then the price of apples decreases.If both apples and oranges are normal goods, which one of the following statements is true about her new best affordable point?

Accepted Answer

A) She will consume more apples and more oranges. 
B) She will consume more apples and fewer oranges. 
C) She will consume fewer apples and more oranges. 
D) She will consume fewer apples and fewer oranges. 
E) She will consume more apples, and we do not know whether she will consume more or less oranges. 
A) She will consume more apples and more oranges. 
B) She will consume more apples and fewer oranges. 
C) She will consume fewer apples and more oranges. 
D) She will consume fewer apples and fewer oranges. 
E) She will consume more apples, and we do not know whether she will consume more or less oranges.

Question 17

Which one of the following is true at the best affordable choice of a consumer?

Accepted Answer

A) Marginal rate of substitution exceeds the slope of the budget line. 
B) Marginal rate of substitution is less than the relative price of the good measured on the x-axis. 
C) All income is spent. 
D) The consumption choice is outside the budget line. 
E) Other consumption points along the consumer's budget line lie on higher indifference curves. 
A) Marginal rate of substitution exceeds the slope of the budget line. 
B) Marginal rate of substitution is less than the relative price of the good measured on the x-axis. 
C) All income is spent. 
D) The consumption choice is outside the budget line. 
E) Other consumption points along the consumer's budget line lie on higher indifference curves.

Question 18

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 19

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 20

A consumer considers Coke and Pepsi to be perfect substitutes for each other.What would the consumer's indifference curves for these two goods look like?

Accepted Answer

A) L-shaped 
B) horizontal along the entire length 
C) vertical along the entire length 
D) upward sloping 
E) downward sloping with a constant slope 
A) L-shaped 
B) horizontal along the entire length 
C) vertical along the entire length 
D) upward sloping 
E) downward sloping with a constant slope

If the price of an inferior good rises, the income effect

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

Use the figure below to answer the following questions. Figure 9.1.1 -Shelly's budget line is shown in Figure 9.1.1 Which point is unaffordable given her income and current prices?

If income decreases, the budget line

A change in income changes ________ of the budget line.

Which one of the following statements is false?

Real income in terms of a good is defined as

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

Which of the following is not relevant when calculating the budget line?

Leah consumes at a point on her budget line where her marginal rate of substitution is less than the magnitude of the slope of her budget line.As Leah moves along her budget line toward her best affordable point, she will move

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?

The budget line depends on

Junkfood Jill spends all of her income on jellybeans and Jolt cola.Suppose that Jill's income is $30, the price of a bag of jellybeans is $6, and the price of a bottle of Jolt cola is $2.Which of the following combinations of jellybeans and Jolt cola lies inside Jill's budget line?

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 substitution effect is illustrated by the move from point

A consumer choosing between apples and oranges is at her best affordable point.Then the price of apples decreases.If both apples and oranges are normal goods, which one of the following statements is true about her new best affordable point?

Which one of the following is true at the best affordable choice of a consumer?

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

A consumer considers Coke and Pepsi to be perfect substitutes for each other.What would the consumer's indifference curves for these two goods look like?

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Filters

Exam 9: Possibilities, Preferences, and Choices

If the price of an inferior good rises, the income effect

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

Use the figure below to answer the following questions. Figure 9.1.1 -Shelly's budget line is shown in Figure 9.1.1 Which point is unaffordable given her income and current prices?

If income decreases, the budget line

A change in income changes ________ of the budget line.

Which one of the following statements is false?

Real income in terms of a good is defined as

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

Which of the following is not relevant when calculating the budget line?

Leah consumes at a point on her budget line where her marginal rate of substitution is less than the magnitude of the slope of her budget line.As Leah moves along her budget line toward her best affordable point, she will move

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?

The budget line depends on

Junkfood Jill spends all of her income on jellybeans and Jolt cola.Suppose that Jill's income is $30, the price of a bag of jellybeans is $6, and the price of a bottle of Jolt cola is $2.Which of the following combinations of jellybeans and Jolt cola lies inside Jill's budget line?

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 substitution effect is illustrated by the move from point

A consumer choosing between apples and oranges is at her best affordable point.Then the price of apples decreases.If both apples and oranges are normal goods, which one of the following statements is true about her new best affordable point?

Which one of the following is true at the best affordable choice of a consumer?

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

A consumer considers Coke and Pepsi to be perfect substitutes for each other.What would the consumer's indifference curves for these two goods look like?

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Filters