Question 1

The rate at which a consumer is willing to exchange one good for another, and maintain a constant level of satisfaction, is called the:

Accepted Answer

A)  marginal rate of substitution 
B)  relative price ratio 
C)  relative expenditure ratio 
D)  value of marginal product 
A)  marginal rate of substitution 
B)  relative price ratio 
C)  relative expenditure ratio 
D)  value of marginal product

Question 2

When leisure is a normal good, the income effect from an increase in wages is manifest in a(n):

Accepted Answer

A)  desire to consume more leisure 
B)  desire to consume less leisure 
C)  upward-sloping labour supply curve 
D)  shift in labour demand 
A)  desire to consume more leisure 
B)  desire to consume less leisure 
C)  upward-sloping labour supply curve 
D)  shift in labour demand

Question 3

When two goods are perfect substitutes, the marginal rate of substitution:

Accepted Answer

A)  increases as the abundance of one good increases 
B)  increases as the scarcity of one good increases 
C)  decreases as the scarcity of one good increases 
D)  is constant 
A)  increases as the abundance of one good increases 
B)  increases as the scarcity of one good increases 
C)  decreases as the scarcity of one good increases 
D)  is constant

Question 4

Which of the following statements about welfare assistance packages is true? An individual who receives food stamps: (i) may be indifferent between food stamps and a cash transfer of equal dollar value
(ii) always be better off with a cash transfer of equal dollar value
(iii) would always choose to spend less money on food with a cash transfer of equal dollar value

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 5

The income effect is the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve.

Accepted Answer

A) True 
 B)False

Question 6

If a consumer wants less of a good when his income rises, it is an inferior good.

Accepted Answer

A) True 
 B)False

Question 7

As a general rule, the theory of consumer choice provides insight into the behaviour of:

Accepted Answer

A)  individuals who make unconstrained choices 
B)  individuals who make constrained choices 
C)  individuals who are unaware of how to maximise their wellbeing 
D)  irrational consumers 
A)  individuals who make unconstrained choices 
B)  individuals who make constrained choices 
C)  individuals who are unaware of how to maximise their wellbeing 
D)  irrational consumers

Question 8

A budget constraint shows the consumption bundles that the consumer can afford, given his income and the prices of the goods.

Accepted Answer

A) True 
 B)False

Question 9

Indifference curves can be used to rank all possible bundles of commodities.

Accepted Answer

A) True 
 B)False

Question 10

Consumer preferences are typically represented by:

Accepted Answer

A)  budget constraints 
B)  cost curves 
C)  supply curves 
D)  indifference curves 
A)  budget constraints 
B)  cost curves 
C)  supply curves 
D)  indifference curves

Question 11

Graph 22-5
  
-Refer to Graph 22-5. Which of the graphs shown represent(s) indifference curves?

Accepted Answer

A)  panel a 
B)  panel b 
C)  panel c 
D)  all of the above 
A)  panel a 
B)  panel b 
C)  panel c 
D)  all of the above

Question 12

The income and substitution effects work in opposite directions.

Accepted Answer

A) True 
 B)False

Question 13

Graph 22-4
  
-Refer to Graph 22-4. Which of the following statements is true for a consumer who moves from point C to point D?

Accepted Answer

A)  the consumer is indifferent between point C and point D 
B)  the consumer is likely to place a higher relative value on croissants at point C than at point D 
C)  it is difficult to compare the level of consumer satisfaction between points D and C 
D)  the consumer is definitely worse off 
A)  the consumer is indifferent between point C and point D 
B)  the consumer is likely to place a higher relative value on croissants at point C than at point D 
C)  it is difficult to compare the level of consumer satisfaction between points D and C 
D)  the consumer is definitely worse off

Question 14

An increase in income changes the slope of the budget constraint towards the cheaper good.

Accepted Answer

A) True 
 B)False

Question 15

The reason people consume less than they desire to is because their spending is constrained by their values.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is true? (i) consumers cannot consume at points outside their budget constraint
(ii) optimising consumers spend half of their income on each of two goods
(iii) consumers can consume at points inside their budget constraint

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

An upward-sloping individual labour supply curve is indicative of:

Accepted Answer

A)  dominant substitution effects 
B)  dominant income effects 
C)  individuals that reduce work effort (hours) as income rises 
D)  an upward-sloping demand for leisure 
A)  dominant substitution effects 
B)  dominant income effects 
C)  individuals that reduce work effort (hours) as income rises 
D)  an upward-sloping demand for leisure

Question 18

Suppose you win a 'grocery-grab' at your local supermarket. This gives you 10 minutes to take as many groceries off the shelves as you can for free. Have you escaped the problem of scarcity in this situation?

Accepted Answer

No, while the usual constraints of incom

Question 19

A budget constraint:

Accepted Answer

A)  represents the bundles of consumption that makes a consumer equally happy 
B)  shows the consumption bundles that a consumer can afford 
C)  reflects the desire by consumers to increase their income 
D)  shows the prices that a consumer chooses to pay for products he consumes 
A)  represents the bundles of consumption that makes a consumer equally happy 
B)  shows the consumption bundles that a consumer can afford 
C)  reflects the desire by consumers to increase their income 
D)  shows the prices that a consumer chooses to pay for products he consumes

Question 20

Explain the relationship between the budget constraint and an indifference curve at consumer optimum.

Accepted Answer

Since the budget constraint is tangent t

Exam 22: The Theory of Consumer Choice

The rate at which a consumer is willing to exchange one good for another, and maintain a constant level of satisfaction, is called the:

When leisure is a normal good, the income effect from an increase in wages is manifest in a(n):

When two goods are perfect substitutes, the marginal rate of substitution:

The income effect is the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve.

If a consumer wants less of a good when his income rises, it is an inferior good.

As a general rule, the theory of consumer choice provides insight into the behaviour of:

A budget constraint shows the consumption bundles that the consumer can afford, given his income and the prices of the goods.

Indifference curves can be used to rank all possible bundles of commodities.

Consumer preferences are typically represented by:

Graph 22-5 -Refer to Graph 22-5. Which of the graphs shown represent(s) indifference curves?

The income and substitution effects work in opposite directions.

Graph 22-4 -Refer to Graph 22-4. Which of the following statements is true for a consumer who moves from point C to point D?

An increase in income changes the slope of the budget constraint towards the cheaper good.

The reason people consume less than they desire to is because their spending is constrained by their values.

Which of the following statements is true? (i) consumers cannot consume at points outside their budget constraint (ii) optimising consumers spend half of their income on each of two goods (iii) consumers can consume at points inside their budget constraint

An upward-sloping individual labour supply curve is indicative of:

Suppose you win a 'grocery-grab' at your local supermarket. This gives you 10 minutes to take as many groceries off the shelves as you can for free. Have you escaped the problem of scarcity in this situation?

A budget constraint:

Explain the relationship between the budget constraint and an indifference curve at consumer optimum.

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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