Question 1

When the price of a good rises:

Accepted Answer

A)  demand falls 
B)  quantity demanded falls 
C)  quantity supplied falls 
D)  quantity demanded rises 
A)  demand falls 
B)  quantity demanded falls 
C)  quantity supplied falls 
D)  quantity demanded rises

Question 2

Consider the following graphs depicting budget constraints, then answer the questions below.
   a. Which panel shows a decrease in the price of X?
b. Which panel shows an increase in the price of Y?
c. Which panel shows an increase in the consumers income, if prices remain unchanged?

Accepted Answer

a. panel b

Question 3

What is a Giffen good and does it conform to the law of demand. If not, why do economists still describe the law of demand as a law?

Accepted Answer

Giffen goods are a special case of an in

Question 4

Second-hand clothing is an example of a normal good.

Accepted Answer

A) True 
 B)False

Question 5

The theory of consumer choice describes how people make decisions.

Accepted Answer

A) True 
 B)False

Question 6

A person consumes two goods: Coke and Snickers. Use a graph to demonstrate how the consumer adjusts his optimal consumption bundle when the price of Coke decreases. Carefully label all curves and axes.
What will happen to consumption if Coke is a normal good?
What will happen to consumption if Coke is an inferior good? (Remember to explain the possible change when the income effect dominates and when the substitution effect dominates).

Accepted Answer

If Coke is a normal good, the consumptio

Question 7

The point at which the indifference curve is tangent to the budget constraint is called an optimum.

Accepted Answer

A) True 
 B)False

Question 8

Because a consumer prefers more consumption to less, higher indifference curves are preferred to lower ones.

Accepted Answer

A) True 
 B)False

Question 9

Giffen goods are very shared.

Accepted Answer

A) True 
 B)False

Question 10

The marginal rate of substitution is also known as the slope of the budget constraint.

Accepted Answer

A) True 
 B)False

Question 11

Graph 22-1
  
-Refer to Graph 22-1. All of the points identified on the graph shown represent possible consumption options with the exception of:

Accepted Answer

A)  none 
B)  C 
C)  D 
D)  E 
A)  none 
B)  C 
C)  D 
D)  E

Question 12

Graph 22-2
  
-Refer to Graph 22-2. Which of the graphs shown reflects a decrease in the price of good X only?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 13

Graph 22-1
  
-Refer to Graph 22-1. Which of the points on the graph shown reflects the choice of a consumer who chooses not to spend her entire income?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 14

One reason an individual labour supply curve may be backward-sloping is that: (i) work hours decline as technology raises worker productivity
(ii) a raise may prompt a person to devote more time to leisure than to work
(iii) a wage fall may cause a person to not work as hard

Accepted Answer

A)  (i) 
B)  (i) and (ii) 
C)  (i) and (iii) 
D)  (ii) and (iii) 
A)  (i) 
B)  (i) and (ii) 
C)  (i) and (iii) 
D)  (ii) and (iii)

Question 15

When a consumer experiences a price increase for a strongly inferior good, it is possible that the:

Accepted Answer

A)  demand curve will be upward-sloping 
B)  supply curve will be downward-sloping 
C)  income effect will not occur 
D)  budget constraint will rotate outward from the origin 
A)  demand curve will be upward-sloping 
B)  supply curve will be downward-sloping 
C)  income effect will not occur 
D)  budget constraint will rotate outward from the origin

Question 16

Which of the following is not a property of indifference curves? (i) indifference curves do not cross
(ii) indifference curves are bowed inward toward the origin
(iii) lower indifference curves are preferable to higher indifference curves

Accepted Answer

A)  (i) only 
B)  (i) and (ii) 
C)  (i) and (iii) 
D)  (ii) and (iii) 
A)  (i) only 
B)  (i) and (ii) 
C)  (i) and (iii) 
D)  (ii) and (iii)

Question 17

When two goods are perfect substitutes they will have:

Accepted Answer

A)  indifference curves with a positive slope 
B)  indifference curves that cross 
C)  linear indifference curves 
D)  indifference curves that are right angles 
A)  indifference curves with a positive slope 
B)  indifference curves that cross 
C)  linear indifference curves 
D)  indifference curves that are right angles

Question 18

When indifference curves are bowed inward toward the origin:

Accepted Answer

A)  people are less inclined to trade away goods that they have an abundance of 
B)  people can only increase satisfaction by consuming more of all commodities 
C)  it is unlikely that consumers will be willing to engage in trade 
D)  the marginal rate of substitution decreases as a consumer moves down an indifference curve 
A)  people are less inclined to trade away goods that they have an abundance of 
B)  people can only increase satisfaction by consuming more of all commodities 
C)  it is unlikely that consumers will be willing to engage in trade 
D)  the marginal rate of substitution decreases as a consumer moves down an indifference curve

Question 19

Indifference curves are downward-sloping and linear.

Accepted Answer

A) True 
 B)False

Question 20

For Giffen goods, the income effect dominates the substitution effect.

Accepted Answer

A) True 
 B)False

Exam 22: The Theory of Consumer Choice

When the price of a good rises:

Consider the following graphs depicting budget constraints, then answer the questions below. a. Which panel shows a decrease in the price of X? b. Which panel shows an increase in the price of Y? c. Which panel shows an increase in the consumers income, if prices remain unchanged?

What is a Giffen good and does it conform to the law of demand. If not, why do economists still describe the law of demand as a law?

Second-hand clothing is an example of a normal good.

The theory of consumer choice describes how people make decisions.

The point at which the indifference curve is tangent to the budget constraint is called an optimum.

Because a consumer prefers more consumption to less, higher indifference curves are preferred to lower ones.

Giffen goods are very shared.

The marginal rate of substitution is also known as the slope of the budget constraint.

Graph 22-1 -Refer to Graph 22-1. All of the points identified on the graph shown represent possible consumption options with the exception of:

Graph 22-2 -Refer to Graph 22-2. Which of the graphs shown reflects a decrease in the price of good X only?

Graph 22-1 -Refer to Graph 22-1. Which of the points on the graph shown reflects the choice of a consumer who chooses not to spend her entire income?

One reason an individual labour supply curve may be backward-sloping is that: (i) work hours decline as technology raises worker productivity (ii) a raise may prompt a person to devote more time to leisure than to work (iii) a wage fall may cause a person to not work as hard

When a consumer experiences a price increase for a strongly inferior good, it is possible that the:

Which of the following is not a property of indifference curves? (i) indifference curves do not cross (ii) indifference curves are bowed inward toward the origin (iii) lower indifference curves are preferable to higher indifference curves

When two goods are perfect substitutes they will have:

When indifference curves are bowed inward toward the origin:

Indifference curves are downward-sloping and linear.

For Giffen goods, the income effect dominates the substitution effect.

Ten Lessons From 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

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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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