Question 1

Which measure of elasticity can be weakly linked to Giffen goods?

Accepted Answer

Giffen goods are a special case of an in

Question 2

Jonathan is planning ahead for retirement and must decide how much to spend and how much to save while he's working to have money to spend when he retires. When the income effect dominates the substitution effect, an increase in the interest rate on his savings is likely to:

Accepted Answer

A)  increase his saving 
B)  decrease his saving 
C)  have no effect on his saving 
D)  all of the above are possible 
A)  increase his saving 
B)  decrease his saving 
C)  have no effect on his saving 
D)  all of the above are possible

Question 3

Using the graph shown, construct a demand curve for M&Ms, given an income of $10.

Accepted Answer

The answer of Using the graph shown, construct a demand...

Question 4

Graph 22-9
  
-Refer to Graph 22-9. Assume that the consumer depicted in the graph has an income of $50. Using the information above, which of the following price-quantity combinations would be on her demand curve for marshmallows if the price of chocolate chips is $5?

Accepted Answer

A)  $5, 8 
B)  $5, 4 
C)  $2.50, 8 
D)  $2.50, 4 
A)  $5, 8 
B)  $5, 4 
C)  $2.50, 8 
D)  $2.50, 4

Question 5

The slope of a budget constraint is equal to the relative prices of the two goods.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is a property of indifference curves?

Accepted Answer

A)  indifference curves have positive slopes 
B)  indifference curves that cross are helpful in explaining differences in consumption choices 
C)  indifference curves are bowed in toward the origin 
D)  indifference curves are always linear and downward-sloping 
A)  indifference curves have positive slopes 
B)  indifference curves that cross are helpful in explaining differences in consumption choices 
C)  indifference curves are bowed in toward the origin 
D)  indifference curves are always linear and downward-sloping

Question 7

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 a consumption bundle where the marginal rate of substitution is:

Accepted Answer

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

Question 8

Janet knows that she will ultimately face retirement. Assume that Janet will experience two periods in her life, one in which she works and earns income, and one in which she is retired and earns no income. Janet can earn $250 000 during her work period and nothing in her retirement period. She must both save and consume in her work period, and can earn 10 per cent interest on her savings.
a. Use a graph to demonstrate Janet's budget constraint.
b. On your graph, show Janet at an optimal level of consumption in the work period equal to
$150 000. What is the implied optimal level of consumption in her retirement period?
c. Now, using your graph from part b above, demonstrate how Janet will be affected by an increase in the interest rate on savings to 15 per cent. Discuss the role of income and substitution effects in determining whether Janet will increase or decrease her savings in the work period.

Accepted Answer

a. See graph below.
b. See graph below.

Question 9

When two goods are perfect complements, the indifference curves are:

Accepted Answer

A)  straight lines 
B)  right angles 
C)  intersecting 
D)  upward-sloping 
A)  straight lines 
B)  right angles 
C)  intersecting 
D)  upward-sloping

Question 10

A consumer always prefers to be on a higher indifference curve to a lower indifference curve.

Accepted Answer

A) True 
 B)False

Question 11

Draw indifference curves that reflect the following preferences. For each one, determine whether it satisfies all of the standard properties of indifference curves.
a. pencils with white erasers and pencils with pink erasers
b. left shoes and right shoes
c. potatoes and rice
d. income and polluted water

Accepted Answer

The answer of Draw indifference curves that reflect the following...

Question 12

The highest indifference curve that a consumer can reach is:

Accepted Answer

A)  the one farthest from the origin 
B)  the one that is tangent to the budget constraint 
C)  the one that intersects the budget constraint in at least two places 
D)  all of the above 
A)  the one farthest from the origin 
B)  the one that is tangent to the budget constraint 
C)  the one that intersects the budget constraint in at least two places 
D)  all of the above

Question 13

Graph 22-3
  
-Refer to Graph 22-3. Using the figure in panel (a), what is ratio of the price of X to the price of Y (i.e. PX/PY)?

Accepted Answer

A)  50/1 
B)  5/1 
C)  1/5 
D)  1/50 
A)  50/1 
B)  5/1 
C)  1/5 
D)  1/50

Question 14

Graph 22-3
  
-Refer to Graph 22-3. Suppose that these budget lines exist for the same consumer who faced the same budget constraint in both panels. What can we infer about the prices of the two goods?

Accepted Answer

A)  the price of Y in panel a is higher than the price of Y in panel b 
B)  the prices of both X and Y are lower in panel a 
C)  the price of X in panel a is higher than the price of X in panel b 
D)  none of the above are true 
A)  the price of Y in panel a is higher than the price of Y in panel b 
B)  the prices of both X and Y are lower in panel a 
C)  the price of X in panel a is higher than the price of X in panel b 
D)  none of the above are true

Question 15

The backward bending portion of an individual labour supply curve is indicative of:

Accepted Answer

A)  a desire to increase work effort (hours) as wage rate rises 
B)  dominant income effects at higher levels of income 
C)  dominant income effects at lower levels of income 
D)  a desire to reduce work effort (hours) as wage rate falls 
A)  a desire to increase work effort (hours) as wage rate rises 
B)  dominant income effects at higher levels of income 
C)  dominant income effects at lower levels of income 
D)  a desire to reduce work effort (hours) as wage rate falls

Question 16

An increase in income will cause the budget constraint to shift outward and will allow the consumer to be able to choose between two possible optimum choices.

Accepted Answer

A) True 
 B)False

Question 17

When goods are not easy to substitute for each other, the indifference curves are less bowed, and when goods are easy to substitute, the indifference curves are very bowed.

Accepted Answer

A) True 
 B)False

Question 18

Graphically demonstrate the conditions associated with a consumer optimum. Carefully label all curves and axes.

Accepted Answer

The answer of Graphically demonstrate the conditions associated with a...

Question 19

Amy purchases only coffee and croissants. If coffee is an inferior good and croissants are normal goods, the income effect associated with an increase in the price of croissants will result in a(n):

Accepted Answer

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

Question 20

A consumer who doesn't spend all of her income:

Accepted Answer

A)  would be at a point inside her budget constraint 
B)  would not be consuming positive quantities of all goods 
C)  must be consuming at a point where her budget constraint touches one of the axes 
D)  would be at a point outside of her budget constraint 
A)  would be at a point inside her budget constraint 
B)  would not be consuming positive quantities of all goods 
C)  must be consuming at a point where her budget constraint touches one of the axes 
D)  would be at a point outside of her budget constraint

Exam 22: The Theory of Consumer Choice

Which measure of elasticity can be weakly linked to Giffen goods?

Jonathan is planning ahead for retirement and must decide how much to spend and how much to save while he's working to have money to spend when he retires. When the income effect dominates the substitution effect, an increase in the interest rate on his savings is likely to:

Using the graph shown, construct a demand curve for M&Ms, given an income of $10.

Graph 22-9 -Refer to Graph 22-9. Assume that the consumer depicted in the graph has an income of $50. Using the information above, which of the following price-quantity combinations would be on her demand curve for marshmallows if the price of chocolate chips is $5?

The slope of a budget constraint is equal to the relative prices of the two goods.

Which of the following is a property of indifference curves?

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 a consumption bundle where the marginal rate of substitution is:

When two goods are perfect complements, the indifference curves are:

A consumer always prefers to be on a higher indifference curve to a lower indifference curve.

The highest indifference curve that a consumer can reach is:

Graph 22-3 -Refer to Graph 22-3. Using the figure in panel (a), what is ratio of the price of X to the price of Y (i.e. PX/PY)?

Graph 22-3 -Refer to Graph 22-3. Suppose that these budget lines exist for the same consumer who faced the same budget constraint in both panels. What can we infer about the prices of the two goods?

The backward bending portion of an individual labour supply curve is indicative of:

An increase in income will cause the budget constraint to shift outward and will allow the consumer to be able to choose between two possible optimum choices.

When goods are not easy to substitute for each other, the indifference curves are less bowed, and when goods are easy to substitute, the indifference curves are very bowed.

Graphically demonstrate the conditions associated with a consumer optimum. Carefully label all curves and axes.

Amy purchases only coffee and croissants. If coffee is an inferior good and croissants are normal goods, the income effect associated with an increase in the price of croissants will result in a(n):

A consumer who doesn't spend all of her income:

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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