Question 1

A budget constraint shows the bundles of consumption that make the consumer happy.

Accepted Answer

A) True 
 B)False

Question 2

Graph 22-3
  
-Refer to Graph 22-3. Using the figure in panel (a), if income is equal to $120, the price of good Y is:

Accepted Answer

A)  $1.20 
B)  $2.40 
C)  $12.00 
D)  $24.00 
A)  $1.20 
B)  $2.40 
C)  $12.00 
D)  $24.00

Question 3

Consumers are able to select the prices that they pay for commodities. In this sense, a consumer has some control over the budget constraint he/she faces.

Accepted Answer

A) True 
 B)False

Question 4

Graph 22-6
  
-Refer to Graph 22-6. If a consumer is at point D they could:

Accepted Answer

A)  increase their consumption of X and increase their consumption of Y and be better off 
B)  increase their consumption of X and reduce their consumption of Y and be better off 
C)  reduce their consumption of X and increase their consumption of Y and be better off 
D)  reduce their consumption of X and reduce their consumption of Y and be better off 
A)  increase their consumption of X and increase their consumption of Y and be better off 
B)  increase their consumption of X and reduce their consumption of Y and be better off 
C)  reduce their consumption of X and increase their consumption of Y and be better off 
D)  reduce their consumption of X and reduce their consumption of Y and be better off

Question 5

When a consumer's consumption of one good is reduced, consumption of the other good must be reduced to keep the consumer equally happy due to opportunity costs.

Accepted Answer

A) True 
 B)False

Question 6

Amy buys sushi and miso for lunch. Her weekly budget for lunch is $24. If the price of sushi is $0.50 a piece and the price of miso is $1.20 a cup, then during the week Amy could choose to consume:

Accepted Answer

A)  48 sushi pieces and 20 cups of miso 
B)  36 sushi pieces and 15 cups of miso 
C)  24 sushi pieces and 10 cups of miso 
D)  10 sushi pieces and 24 cups of miso 
A)  48 sushi pieces and 20 cups of miso 
B)  36 sushi pieces and 15 cups of miso 
C)  24 sushi pieces and 10 cups of miso 
D)  10 sushi pieces and 24 cups of miso

Question 7

The theory of consumer choice provides the foundation for understanding:

Accepted Answer

A)  the structure of production 
B)  the effect of advertising on brand preferences 
C)  product demand 
D)  the most efficient pricing strategy for firms 
A)  the structure of production 
B)  the effect of advertising on brand preferences 
C)  product demand 
D)  the most efficient pricing strategy for firms

Question 8

The slope of the budget constraint is determined by the:

Accepted Answer

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

Question 9

To reach a higher indifference curve a consumer must either obtain an income increase or be offered the goods at lower prices.

Accepted Answer

A) True 
 B)False

Question 10

Graph 22-7
  
-Refer to Graph 22-7. Assume that the consumer depicted in the graph has an income of $10. The price of Skittles is $1 and the price of M&Ms is $2. This consumer will choose to optimise by consuming:

Accepted Answer

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

Question 11

Photographic negative film has to be developed by using chemicals in precise, fixed proportions. This means that film and developing chemicals are:

Accepted Answer

A)  perfect complements 
B)  Giffen goods 
C)  perfect substitutes 
D)  obsolete because everyone uses digital cameras 
A)  perfect complements 
B)  Giffen goods 
C)  perfect substitutes 
D)  obsolete because everyone uses digital cameras

Question 12

The marginal rate of substitution is the rate at which a consumer is willing to trade one good for another.

Accepted Answer

A) True 
 B)False

Question 13

Select the true statements that follow. When the indifference curve is tangent to the budget constraint, a consumer: (i) cannot be made better off without increasing his or her income
(ii) is consuming the best combination of two goods that are attainable
(iii) must be on a linear indifference curve

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 14

Graph 22-6
  
-Refer to Graph 22-6. It will be possible for the consumer to reach I2 if:

Accepted Answer

A)  the price of Y decreases 
B)  the price of X decreases 
C)  income increases 
D)  all of the above are correct 
A)  the price of Y decreases 
B)  the price of X decreases 
C)  income increases 
D)  all of the above are correct

Question 15

Use a graph to demonstrate how an individual labour supply curve is derived. Is it possible to generate a labour supply curve that is downward-sloping for all wage rates? Explain what conditions must be satisfied for this to occur.

Accepted Answer

The answer of Use a graph to demonstrate how an...

Question 16

Graph 22-4
  
-Refer to Graph 22-4. Which of the following statements is NOT true for a consumer who moves from point B to point A?

Accepted Answer

A)  the consumer is equally well-off 
B)  the consumer is willing to sacrifice croissants to obtain coffee 
C)  the marginal rate of substitution at points A and B differ 
D)  the consumer is better off since point A is higher than point B 
A)  the consumer is equally well-off 
B)  the consumer is willing to sacrifice croissants to obtain coffee 
C)  the marginal rate of substitution at points A and B differ 
D)  the consumer is better off since point A is higher than point B

Question 17

The point where the highest attainable indifference curve and the budget constraint are tangent is called:

Accepted Answer

A)  equilibrium 
B)  maximum 
C)  efficiency point 
D)  optimum 
A)  equilibrium 
B)  maximum 
C)  efficiency point 
D)  optimum

Question 18

Graph 22-2
  
-Refer to Graph 22-2. Which of the graphs shown reflects an increase in the price of good Y?

Accepted Answer

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

Question 19

When a consumer experiences a change in price, what two effects do economists consider?

Accepted Answer

A)  the preference effect and the budget effect 
B)  the income effect and the substitution effect 
C)  the price effect and the preference effect 
D)  the complement effect and the substitute effect 
A)  the preference effect and the budget effect 
B)  the income effect and the substitution effect 
C)  the price effect and the preference effect 
D)  the complement effect and the substitute effect

Question 20

Amy purchases only coffee and croissants. If both coffee and croissants are normal goods, the income effect associated with a decrease in the price of croissants will result in a(n):

Accepted Answer

A)  increase in the consumption of croissants and a decrease in the consumption of coffee 
B)  decrease in the consumption of croissants and a decrease in the consumption of coffee 
C)  increase in the consumption of croissants and an increase in the consumption of coffee 
D)  decrease in the consumption of croissants and an increase in the consumption of coffee 
A)  increase in the consumption of croissants and a decrease in the consumption of coffee 
B)  decrease in the consumption of croissants and a decrease in the consumption of coffee 
C)  increase in the consumption of croissants and an increase in the consumption of coffee 
D)  decrease in the consumption of croissants and an increase in the consumption of coffee

Exam 22: The Theory of Consumer Choice

A budget constraint shows the bundles of consumption that make the consumer happy.

Graph 22-3 -Refer to Graph 22-3. Using the figure in panel (a), if income is equal to $120, the price of good Y is:

Consumers are able to select the prices that they pay for commodities. In this sense, a consumer has some control over the budget constraint he/she faces.

Graph 22-6 -Refer to Graph 22-6. If a consumer is at point D they could:

When a consumer's consumption of one good is reduced, consumption of the other good must be reduced to keep the consumer equally happy due to opportunity costs.

Amy buys sushi and miso for lunch. Her weekly budget for lunch is $24. If the price of sushi is $0.50 a piece and the price of miso is $1.20 a cup, then during the week Amy could choose to consume:

The theory of consumer choice provides the foundation for understanding:

The slope of the budget constraint is determined by the:

To reach a higher indifference curve a consumer must either obtain an income increase or be offered the goods at lower prices.

Graph 22-7 -Refer to Graph 22-7. Assume that the consumer depicted in the graph has an income of $10. The price of Skittles is $1 and the price of M&Ms is $2. This consumer will choose to optimise by consuming:

Photographic negative film has to be developed by using chemicals in precise, fixed proportions. This means that film and developing chemicals are:

The marginal rate of substitution is the rate at which a consumer is willing to trade one good for another.

Graph 22-6 -Refer to Graph 22-6. It will be possible for the consumer to reach I2 if:

Use a graph to demonstrate how an individual labour supply curve is derived. Is it possible to generate a labour supply curve that is downward-sloping for all wage rates? Explain what conditions must be satisfied for this to occur.

Graph 22-4 -Refer to Graph 22-4. Which of the following statements is NOT true for a consumer who moves from point B to point A?

The point where the highest attainable indifference curve and the budget constraint are tangent is called:

Graph 22-2 -Refer to Graph 22-2. Which of the graphs shown reflects an increase in the price of good Y?

When a consumer experiences a change in price, what two effects do economists consider?

Amy purchases only coffee and croissants. If both coffee and croissants are normal goods, the income effect associated with a decrease in the price of croissants will result in a(n):

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

Filters

Graph 22-6 -Refer to Graph 22-6. It will be possible for the consumer to reach I₂ if: