Question 1

Energy drinks and granola bars are normal goods.When the price of energy drinks decreases,the income effect causes

Accepted Answer

A)  the consumer to feel richer,so the consumer buys more granola bars. 
B)  the consumer to feel richer,so the consumer buys fewer granola bars. 
C)  granola bars to be relatively more expensive,so the consumer buys more granola bars. 
D)  granola bars to be relatively less expensive,so the consumer buys fewer granola bars. 
A)  the consumer to feel richer,so the consumer buys more granola bars. 
B)  the consumer to feel richer,so the consumer buys fewer granola bars. 
C)  granola bars to be relatively more expensive,so the consumer buys more granola bars. 
D)  granola bars to be relatively less expensive,so the consumer buys fewer granola bars.

Question 2

Economic studies of lottery winners and people who have inherited large amounts of money show that

Accepted Answer

A)  the income effect likely outweighs the substitution effect for most people. 
B)  the substitution effect likely outweighs the income effect for most people. 
C)  most people view leisure as an inferior good. 
D)  most people's labor supply is unaffected by changes in wealth. 
A)  the income effect likely outweighs the substitution effect for most people. 
B)  the substitution effect likely outweighs the income effect for most people. 
C)  most people view leisure as an inferior good. 
D)  most people's labor supply is unaffected by changes in wealth.

Question 3

Some economists have advocated reducing the taxation of interest and other capital income,arguing that such a policy change would raise the after-tax interest rate that savers can earn and would thereby encourage people to save more.

Accepted Answer

A) True 
 B)False

Question 4

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50,then

Accepted Answer

A)  this is the last candy bar John will purchase since the marginal utility is less than the price. 
B)  the opportunity cost of the candy bar is less than $1.50. 
C)  if John purchases and consumes the candy bar his total satisfaction will go down since the marginal utility is less than the price. 
D)  there is not enough information to determine if John will or will not purchase the candy bar. 
A)  this is the last candy bar John will purchase since the marginal utility is less than the price. 
B)  the opportunity cost of the candy bar is less than $1.50. 
C)  if John purchases and consumes the candy bar his total satisfaction will go down since the marginal utility is less than the price. 
D)  there is not enough information to determine if John will or will not purchase the candy bar.

Question 5

A consumer has preferences over consumption and leisure,both of which are normal goods.When the wage decreases,the consumer chooses to consume less leisure.For this consumer the labor supply curve will

Accepted Answer

A)  slope upward. 
B)  slope backward. 
C)  be horizontal. 
D)  be vertical. 
A)  slope upward. 
B)  slope backward. 
C)  be horizontal. 
D)  be vertical.

Question 6

A decrease in the price of DVD players leads consumers to buy more DVD players.From this information we can conclude that DVD players

Accepted Answer

A)  are normal goods. 
B)  are inferior goods. 
C)  are luxury goods. 
D)  None of the above is correct. 
A)  are normal goods. 
B)  are inferior goods. 
C)  are luxury goods. 
D)  None of the above is correct.

Question 7

A consumer has preferences over two goods: books and movies.The three bundles shown in the table below lie on the same indifference curve for the consumer.
 
Which of the following properties of indifference curves would this consumer's preferences violate?

Accepted Answer

A)  Indifference curves are downward sloping. 
B)  Indifference curves do not cross. 
C)  Indifference curves are bowed inward. 
D)  These bundles do not violate any of the properties of indifference curves. 
A)  Indifference curves are downward sloping. 
B)  Indifference curves do not cross. 
C)  Indifference curves are bowed inward. 
D)  These bundles do not violate any of the properties of indifference curves.

Question 8

Ken consumes two goods,Sprite and potato chips.Sprite costs $1 per can,and he consumes it to the point where the marginal utility he receives from his last Sprite is 3.Potato chips cost $2 per bag,and the relationship between the marginal utility he gets from eating a bag of potato chips and the number of bags he eats per month is as follows:
 
If Ken is maximizing his utility,how many bags of potato chips does he buy each month?

Accepted Answer

A)  2 
B)  3 
C)  4 
D)  5 
A)  2 
B)  3 
C)  4 
D)  5

Question 9

The theory of consumer choice provides the foundation for understanding the

Accepted Answer

A)  structure of a firm. 
B)  profitability of a firm. 
C)  demand for a firm's product. 
D)  supply of a firm's product. 
A)  structure of a firm. 
B)  profitability of a firm. 
C)  demand for a firm's product. 
D)  supply of a firm's product.

Question 10

Figure 21-7  
-Refer to Figure 21-7.When comparing bundle A to bundle E,the consumer

Accepted Answer

A)  prefers bundle A because it contains more donuts. 
B)  prefers bundle E because it lies on a higher indifference curve. 
C)  prefers bundle E because it contains more donuts. 
D)  is indifferent between the two bundles. 
A)  prefers bundle A because it contains more donuts. 
B)  prefers bundle E because it lies on a higher indifference curve. 
C)  prefers bundle E because it contains more donuts. 
D)  is indifferent between the two bundles.

Question 11

Draw a budget constraint that is consistent with the following prices and income.
Income = 200
PY = 50
PX = 25
a.
Demonstrate how your original budget constraint would change if income increases to 500.
b.
Demonstrate how your original budget constraint would change if PY decreases to 20.
c.
Demonstrate how your original budget constraint would change if PX increases to 40.

Accepted Answer

Question 12

Indifference curves tend to be bowed inward because of diminishing

Accepted Answer

A)  marginal rates of substitution. 
B)  demand for the good as prices rise. 
C)  income. 
D)  Both a and b are correct. 
A)  marginal rates of substitution. 
B)  demand for the good as prices rise. 
C)  income. 
D)  Both a and b are correct.

Question 13

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

Question 14

When a consumer spends less time enjoying leisure and more time working,she has

Accepted Answer

A)  lower income and therefore cannot afford more consumption. 
B)  lower income and therefore can afford more consumption. 
C)  higher income and therefore cannot afford more consumption. 
D)  higher income and therefore can afford more consumption. 
A)  lower income and therefore cannot afford more consumption. 
B)  lower income and therefore can afford more consumption. 
C)  higher income and therefore cannot afford more consumption. 
D)  higher income and therefore can afford more consumption.

Question 15

Figure 21-10  
-Refer to Figure 21-10.Assume that the consumer depicted in the figure has an income of $20.The price of Skittles is $2 and the price of M&M's is $4.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 16

The indifference curves for perfect substitutes are straight lines.

Accepted Answer

A) True 
 B)False

Question 17

Pepsi and pizza are normal goods.When the price of pizza rises,the substitution effect causes Pepsi to be relatively

Accepted Answer

A)  more expensive,so the consumer buys more Pepsi. 
B)  more expensive,so the consumer buys less Pepsi. 
C)  less expensive,so the consumer buys more Pepsi. 
D)  less expensive,so the consumer buys less Pepsi. 
A)  more expensive,so the consumer buys more Pepsi. 
B)  more expensive,so the consumer buys less Pepsi. 
C)  less expensive,so the consumer buys more Pepsi. 
D)  less expensive,so the consumer buys less Pepsi.

Question 18

Figure 21-9  
-Refer to Figure 21-9.Given the budget constraint depicted in the graph,the consumer will choose bundle

Accepted Answer

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

Question 19

The following diagram shows a budget constraint for a particular consumer.  
If the price of X is $5,what is the price of Y?

Accepted Answer

A)  $2 
B)  $10 
C)  $30 
D)  $300 
A)  $2 
B)  $10 
C)  $30 
D)  $300

Question 20

The substitution effect of an increase in the interest rate will result in an increase in

Accepted Answer

A)  consumption when young and increase in savings when young. 
B)  consumption when old and an increase in savings when young. 
C)  consumption when young and an increase in savings when old. 
D)  savings when old and an increase in consumption when old. 
A)  consumption when young and increase in savings when young. 
B)  consumption when old and an increase in savings when young. 
C)  consumption when young and an increase in savings when old. 
D)  savings when old and an increase in consumption when old.

Exam 21: The Theory of Consumer Choice

Energy drinks and granola bars are normal goods.When the price of energy drinks decreases,the income effect causes

Economic studies of lottery winners and people who have inherited large amounts of money show that

Some economists have advocated reducing the taxation of interest and other capital income,arguing that such a policy change would raise the after-tax interest rate that savers can earn and would thereby encourage people to save more.

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50,then

A consumer has preferences over consumption and leisure,both of which are normal goods.When the wage decreases,the consumer chooses to consume less leisure.For this consumer the labor supply curve will

A decrease in the price of DVD players leads consumers to buy more DVD players.From this information we can conclude that DVD players

A consumer has preferences over two goods: books and movies.The three bundles shown in the table below lie on the same indifference curve for the consumer. Which of the following properties of indifference curves would this consumer's preferences violate?

The theory of consumer choice provides the foundation for understanding the

Figure 21-7 -Refer to Figure 21-7.When comparing bundle A to bundle E,the consumer

Indifference curves tend to be bowed inward because of diminishing

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 a consumer spends less time enjoying leisure and more time working,she has

Figure 21-10 -Refer to Figure 21-10.Assume that the consumer depicted in the figure has an income of $20.The price of Skittles is $2 and the price of M&M's is $4.This consumer will choose a consumption bundle where the marginal rate of substitution is

The indifference curves for perfect substitutes are straight lines.

Pepsi and pizza are normal goods.When the price of pizza rises,the substitution effect causes Pepsi to be relatively

Figure 21-9 -Refer to Figure 21-9.Given the budget constraint depicted in the graph,the consumer will choose bundle

The following diagram shows a budget constraint for a particular consumer. If the price of X is $5,what is the price of Y?

The substitution effect of an increase in the interest rate will result in an increase in

Ten Principles of 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

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

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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