Question 1

When two goods are perfect complements,the indifference curves will

Accepted Answer

A)  have a positive slope. 
B)  be right angles. 
C)  have a constant marginal rate of substitution. 
D)  Both b and c are correct. 
A)  have a positive slope. 
B)  be right angles. 
C)  have a constant marginal rate of substitution. 
D)  Both b and c are correct.

Question 2

When the price of a normal good decreases,

Accepted Answer

A)  both the income and substitution effects encourage the consumer to purchase more of the good. 
B)  both the income and substitution effects encourage the consumer to purchase less of the good. 
C)  the income effect encourages the consumer to purchase more of the good,and the substitution effect encourages the consumer to purchase less of the good. 
D)  the income effect encourages the consumer to purchase less of the good,and the substitution effect encourages the consumer to purchase more of the good. 
A)  both the income and substitution effects encourage the consumer to purchase more of the good. 
B)  both the income and substitution effects encourage the consumer to purchase less of the good. 
C)  the income effect encourages the consumer to purchase more of the good,and the substitution effect encourages the consumer to purchase less of the good. 
D)  the income effect encourages the consumer to purchase less of the good,and the substitution effect encourages the consumer to purchase more of the good.

Question 3

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

Accepted Answer

A)  People face trade-offs. 
B)  The cost of something is what you give up to get it. 
C)  Trade can make everyone better off. 
D)  Markets are usually a good way to organize economic activity. 
A)  People face trade-offs. 
B)  The cost of something is what you give up to get it. 
C)  Trade can make everyone better off. 
D)  Markets are usually a good way to organize economic activity.

Question 4

Figure 21-11  
-Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40,the price of a bag of marshmallows is $2,and the price of a bag of chocolate chips is $2.The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?

Accepted Answer

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

Question 5

Figure 21-7  
-Refer to Figure 21-7.Which of the following statements is not correct?

Accepted Answer

A)  Bundles on Indifference Curve 3 are preferred to bundles on Indifference Curve 1. 
B)  The consumer is indifferent between bundles A and E because they contain the same number of donuts. 
C)  The consumer is indifference between bundles B and C. 
D)  The consumer prefers bundle C to bundle D. 
A)  Bundles on Indifference Curve 3 are preferred to bundles on Indifference Curve 1. 
B)  The consumer is indifferent between bundles A and E because they contain the same number of donuts. 
C)  The consumer is indifference between bundles B and C. 
D)  The consumer prefers bundle C to bundle D.

Question 6

Which of the following represents a consumer's optimum?

Accepted Answer

A)  MUx/MUy = Py/Px 
B)  MUx/Py = MUy/Px 
C)  MUx/Px = MUy/Py 
D)  MUy/MUx = Px/Py 
A)  MUx/MUy = Py/Px 
B)  MUx/Py = MUy/Px 
C)  MUx/Px = MUy/Py 
D)  MUy/MUx = Px/Py

Question 7

Higher education is a normal good.If its price falls,

Accepted Answer

A)  the quantity demanded of higher education will fall. 
B)  the substitution and income effects work in opposite directions. 
C)  the income effect is positive. 
D)  higher education will be a Giffen good. 
A)  the quantity demanded of higher education will fall. 
B)  the substitution and income effects work in opposite directions. 
C)  the income effect is positive. 
D)  higher education will be a Giffen good.

Question 8

When the price of a normal good increases,

Accepted Answer

A)  both the income and substitution effects encourage the consumer to purchase more of the good. 
B)  both the income and substitution effects encourage the consumer to purchase less of the good. 
C)  the income effect encourages the consumer to purchase more of the good,and the substitution effect encourages the consumer to purchase less of the good. 
D)  the income effect encourages the consumer to purchase less of the good,and the substitution effect encourages the consumer to purchase more of the good. 
A)  both the income and substitution effects encourage the consumer to purchase more of the good. 
B)  both the income and substitution effects encourage the consumer to purchase less of the good. 
C)  the income effect encourages the consumer to purchase more of the good,and the substitution effect encourages the consumer to purchase less of the good. 
D)  the income effect encourages the consumer to purchase less of the good,and the substitution effect encourages the consumer to purchase more of the good.

Question 9

Bundle L contains 10 units of good X and 20 units of good Y.Bundle M contains 8 units of good X and 21 units of good Y.The consumer is indifferent between bundle L and bundle M.Assume that the consumer's preferences satisfy the four properties of indifference curves.Which of the following correctly expresses the marginal rate of substitution of good X for good Y between these two points?

Accepted Answer

A)  The consumer will give up 1 unit of good X to gain 2 units of good Y. 
B)  The consumer will give up 2 units of good X to gain 1 unit of good Y. 
C)  The price of good X is twice as large as the price of good Y. 
D)  The price of good X is half as large as the price of good Y. 
A)  The consumer will give up 1 unit of good X to gain 2 units of good Y. 
B)  The consumer will give up 2 units of good X to gain 1 unit of good Y. 
C)  The price of good X is twice as large as the price of good Y. 
D)  The price of good X is half as large as the price of good Y.

Question 10

When two goods are perfect complements,the indifference curves are

Accepted Answer

A)  positively sloped. 
B)  negatively sloped. 
C)  straight lines. 
D)  right angles. 
A)  positively sloped. 
B)  negatively sloped. 
C)  straight lines. 
D)  right angles.

Question 11

If goods A and B are perfect substitutes,then the marginal rate of substitution of good A for good B is constant.

Accepted Answer

A) True 
 B)False

Question 12

Karen,Tara,and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days.Ice cream costs $5 per gallon,and paperback novels cost $8 each.Karen has a budget of $80,Tara has a budget of $60,and Chelsea has a budget of $40 to spend on ice cream and paperback novels.Which of the following statements is correct?

Accepted Answer

A)  Each woman faces the same budget constraint. 
B)  The slope of the budget constraint is the same for each woman. 
C)  The area underneath the budget constraint is larger for Chelsea than for Karen. 
D)  All of the above are correct. 
A)  Each woman faces the same budget constraint. 
B)  The slope of the budget constraint is the same for each woman. 
C)  The area underneath the budget constraint is larger for Chelsea than for Karen. 
D)  All of the above are correct.

Question 13

A consumer has preferences over two goods,X and Y.Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves)and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis.At the consumer's current consumption bundle,the consumer is spending all available income,and the marginal rate of substitution is greater than the slope of the budget constraint.We can conclude that the consumer

Accepted Answer

A)  is currently maximizing satisfaction. 
B)  could increase satisfaction by consuming more X and less Y. 
C)  could increase satisfaction by consuming less X and more Y. 
D)  could purchase more X and more Y and increase total satisfaction. 
A)  is currently maximizing satisfaction. 
B)  could increase satisfaction by consuming more X and less Y. 
C)  could increase satisfaction by consuming less X and more Y. 
D)  could purchase more X and more Y and increase total satisfaction.

Question 14

Assume that a person consumes two goods,Coke and Snickers.Use a graph to demonstrate how the consumer adjusts his/her 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

@#IMG-DLM& If Coke is a normal good,the consumptio

Question 15

If income increases and prices are unchanged,the consumer's budget constraint

Accepted Answer

A)  remains the same. 
B)  shifts outward. 
C)  shifts inward. 
D)  rotates outward along the horizontal axis. 
A)  remains the same. 
B)  shifts outward. 
C)  shifts inward. 
D)  rotates outward along the horizontal axis.

Question 16

Suppose the only two goods that Brett consumes are wine and cheese.When wine sells for $10 a bottle and cheese sell for $10 a pound,he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100.One day the price of wine falls to $5 a bottle,and the price of cheese increases to $20 a pound,while his income does not change.If you illustrate wine on the vertical axis and cheese on the horizontal axis,then

Accepted Answer

A)  the slope of Brett's budget has not changed. 
B)  the slope of Brett's budget constraint is flatter at the new prices. 
C)  the slope of Brett's budget constraint is steeper at the new prices. 
D)  Brett's budget constraint has shifted in a parallel fashion to the budget constraint with the old prices. 
A)  the slope of Brett's budget has not changed. 
B)  the slope of Brett's budget constraint is flatter at the new prices. 
C)  the slope of Brett's budget constraint is steeper at the new prices. 
D)  Brett's budget constraint has shifted in a parallel fashion to the budget constraint with the old prices.

Question 17

The goal of the consumer is to

Accepted Answer

A)  maximize utility. 
B)  minimize expenses. 
C)  spend more income in the current time period than in the future. 
D)  All of the above are the goals of the consumer. 
A)  maximize utility. 
B)  minimize expenses. 
C)  spend more income in the current time period than in the future. 
D)  All of the above are the goals of the consumer.

Question 18

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution is called the

Accepted Answer

A)  income effect. 
B)  substitution effect. 
C)  Giffen good effect. 
D)  inferior good effect. 
A)  income effect. 
B)  substitution effect. 
C)  Giffen good effect. 
D)  inferior good effect.

Question 19

Which of the following is an example of a Giffen good?

Accepted Answer

A)  potatoes during the Irish potato famine 
B)  rice in the Chinese province of Hunan 
C)  fish in Japan 
D)  Both a and b are correct. 
A)  potatoes during the Irish potato famine 
B)  rice in the Chinese province of Hunan 
C)  fish in Japan 
D)  Both a and b are correct.

Question 20

Mark spends his weekly income on gin and cocktail olives.The price of gin has risen from $7 to $9 per bottle,the price of cocktail olives has fallen from $6 to $5 per jar,and Mark's income has stayed fixed at $46 per week.If you illustrate gin on the vertical axis and cocktail olives on the horizontal axis,then the budget constraint

Accepted Answer

A)  is steeper after the price changes. 
B)  is flatter after the price changes. 
C)  is the same after the price changes. 
D)  shifts in a parallel fashion to the old budget constraint after the price changes. 
A)  is steeper after the price changes. 
B)  is flatter after the price changes. 
C)  is the same after the price changes. 
D)  shifts in a parallel fashion to the old budget constraint after the price changes.

Exam 21: The Theory of Consumer Choice

When two goods are perfect complements,the indifference curves will

When the price of a normal good decreases,

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

Figure 21-11 -Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40,the price of a bag of marshmallows is $2,and the price of a bag of chocolate chips is $2.The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?

Figure 21-7 -Refer to Figure 21-7.Which of the following statements is not correct?

Which of the following represents a consumer's optimum?

Higher education is a normal good.If its price falls,

When the price of a normal good increases,

When two goods are perfect complements,the indifference curves are

If goods A and B are perfect substitutes,then the marginal rate of substitution of good A for good B is constant.

If income increases and prices are unchanged,the consumer's budget constraint

The goal of the consumer is to

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution is called the

Which of the following is an example of a Giffen good?

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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