Question 1

If the consumer's income and all prices simultaneously decrease by one-half,then the optimum consumption will

Accepted Answer

A)  shift outward relative to the old optimum. 
B)  move leftward along the old budget constraint. 
C)  shift inward relative to the old optimum. 
D)  not change. 
A)  shift outward relative to the old optimum. 
B)  move leftward along the old budget constraint. 
C)  shift inward relative to the old optimum. 
D)  not change.

Question 2

The labor supply curve may have a backward bending portion because at higher wages the

Accepted Answer

A)  income effect is smaller than the substitution effect. 
B)  income effect is larger than the substitution effect. 
C)  income effect is negative. 
D)  Any of the above could result in a backward-bending supply curve. 
A)  income effect is smaller than the substitution effect. 
B)  income effect is larger than the substitution effect. 
C)  income effect is negative. 
D)  Any of the above could result in a backward-bending supply curve.

Question 3

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Accepted Answer

A) True 
 B)False

Question 4

At a consumer's optimal choice,the consumer chooses the combination of goods such that the ratio of the marginal utilities equals the ratio of the prices.

Accepted Answer

A) True 
 B)False

Question 5

The following diagram shows two budget lines: A and B.  
Which of the following could explain the change in the budget line from A to B?

Accepted Answer

A)  a decrease in income and a decrease in the price of X 
B)  a decrease in income and an increase in the price of X 
C)  an increase in income and a decrease in the price of X 
D)  an increase in income and an increase in the price of X 
A)  a decrease in income and a decrease in the price of X 
B)  a decrease in income and an increase in the price of X 
C)  an increase in income and a decrease in the price of X 
D)  an increase in income and an increase in the price of X

Question 6

Suppose a consumer spends her income on two goods: music CDs and DVDs.The price of a CD is $8,and the price of a DVD is $20.If we graph the budget constraint by placing the quantity of CDs purchased on the horizontal axis,what is the slope of the budget constraint?

Accepted Answer

A)  -5.0 
B)  -2.5 
C)  -0.4 
D)  The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods. 
A)  -5.0 
B)  -2.5 
C)  -0.4 
D)  The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods.

Question 7

Figure 21-3
In each case,the budget constraint moves from BC-1 to BC-2.        
-Refer to Figure 21-3.Which of the graphs in the figure reflects an increase in the price of good Y only?

Accepted Answer

A)  graph a 
B)  graph b 
C)  graph c 
D)  graph d 
A)  graph a 
B)  graph b 
C)  graph c 
D)  graph d

Question 8

Giffen goods have positively-sloped demand curves because they are

Accepted Answer

A)  normal goods for which the income effect outweighs the substitution effect. 
B)  normal goods for which the substitution effect outweighs the income effect. 
C)  inferior goods for which the income effect outweighs the substitution effect. 
D)  inferior goods for which the substitution effect outweighs the income effect. 
A)  normal goods for which the income effect outweighs the substitution effect. 
B)  normal goods for which the substitution effect outweighs the income effect. 
C)  inferior goods for which the income effect outweighs the substitution effect. 
D)  inferior goods for which the substitution effect outweighs the income effect.

Question 9

John is planning ahead for retirement in a two-period world.When John is young he will earn $1 million,and when John is old and retired he will be given $50,000 from Social Security.If the interest rate between the two time periods is 7 percent,what is the slope of John's budget constraint when considering the consumption possibilities between the two periods if consumption when young is graphed on the horizontal axis and consumption when old is graphed on the vertical axis?

Accepted Answer

A)  -0.89 
B)  -1.05 
C)  -1.07 
D)  -1.12 
A)  -0.89 
B)  -1.05 
C)  -1.07 
D)  -1.12

Question 10

Suppose a consumer has an income of $800 per month and that she spends her entire income each month on beer and bratwurst.The price of a pint of beer is $5,and the price of a bratwurst is $4.Which of the following combinations of beers and bratwursts represents a point that would lie to the interior of the consumer's budget constraint?

Accepted Answer

A)  160 beers and 200 bratwursts 
B)  40 beers and 50 bratwursts 
C)  80 beers and 100 bratwursts 
D)  160 beers and 0 bratwursts 
A)  160 beers and 200 bratwursts 
B)  40 beers and 50 bratwursts 
C)  80 beers and 100 bratwursts 
D)  160 beers and 0 bratwursts

Question 11

Figure 21-6  
-Refer to Figure 21-6.Suppose the price of a book is $15,the price of a DVD is $10,the value of A is 5,and the value of B is 7.5.How much income does the consumer have?

Accepted Answer

A)  $150 
B)  $100 
C)  $75 
D)  $37.50 
A)  $150 
B)  $100 
C)  $75 
D)  $37.50

Question 12

As more units of an item are purchased,everything else equal,marginal satisfaction from consuming additional units will tend to

Accepted Answer

A)  decrease at the same rate for all consumers. 
B)  decrease but at different rates for different people. 
C)  increase at the same rate for all consumers. 
D)  increase but at a decreasing rate for all consumers. 
A)  decrease at the same rate for all consumers. 
B)  decrease but at different rates for different people. 
C)  increase at the same rate for all consumers. 
D)  increase but at a decreasing rate for all consumers.

Question 13

The substitution effect of a wage decrease in the work-leisure model results in the worker choosing to

Accepted Answer

A)  work less than before. 
B)  work more than before. 
C)  possibly work more or less than before. 
D)  work more with a higher level of consumption. 
A)  work less than before. 
B)  work more than before. 
C)  possibly work more or less than before. 
D)  work more with a higher level of consumption.

Question 14

Scenario 21-3
Diane knows that she will ultimately face retirement.Assume that Diane 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.Diane can earn $250,000 during her working period and nothing in her retirement period.She must both save and consume in her work period with an interest rate of 10 percent on savings.
-Refer to Scenario 21-3.Assume that Diane decides to consume $100,000 in the work period.How much money will she have available for consumption in her retirement period?

Accepted Answer

A)  $100,000 
B)  $110,000 
C)  $150,000 
D)  $165,000 
A)  $100,000 
B)  $110,000 
C)  $150,000 
D)  $165,000

Question 15

When the indifference curve is tangent to the budget constraint,

Accepted Answer

A)  a consumer cannot be made better off without increasing her income. 
B)  the consumer is likely to be at a sub-optimal level of consumption. 
C)  income is at its optimum for a consumer. 
D)  indifference curves are likely to intersect. 
A)  a consumer cannot be made better off without increasing her income. 
B)  the consumer is likely to be at a sub-optimal level of consumption. 
C)  income is at its optimum for a consumer. 
D)  indifference curves are likely to intersect.

Question 16

Assume that a college student purchases only coffee and Snickers bars.If both coffee and Snickers bars are normal goods,then the income effect associated with a decrease in the price of a Snickers bar will result in

Accepted Answer

A)  a decrease in the consumption of Snickers bars and an increase in the consumption of coffee. 
B)  a decrease in the consumption of Snickers bars and a decrease in the consumption of coffee. 
C)  an increase in the consumption of Snickers bars and a decrease in the consumption of coffee. 
D)  an increase in the consumption of Snickers bars and an increase in the consumption of coffee. 
A)  a decrease in the consumption of Snickers bars and an increase in the consumption of coffee. 
B)  a decrease in the consumption of Snickers bars and a decrease in the consumption of coffee. 
C)  an increase in the consumption of Snickers bars and a decrease in the consumption of coffee. 
D)  an increase in the consumption of Snickers bars and an increase in the consumption of coffee.

Question 17

At the consumer's optimum

Accepted Answer

A)  the budget constraint will have a slope of MUx/Px. 
B)  it is still possible for the consumer to increase his consumption of both goods. 
C)  the indifference curve will intersect the budget constraint at the midpoint of the budget constraint. 
D)  the slope of the indifference curve is equal to the slope of the budget constraint. 
A)  the budget constraint will have a slope of MUx/Px. 
B)  it is still possible for the consumer to increase his consumption of both goods. 
C)  the indifference curve will intersect the budget constraint at the midpoint of the budget constraint. 
D)  the slope of the indifference curve is equal to the slope of the budget constraint.

Question 18

Giffen goods have positively-sloped demand curves because they are

Accepted Answer

A)  inferior goods with no substitution effect. 
B)  normal goods with no substitution effect. 
C)  inferior goods for which the substitution effect outweighs the income effect. 
D)  inferior goods for which the income effect outweighs the substitution effect. 
A)  inferior goods with no substitution effect. 
B)  normal goods with no substitution effect. 
C)  inferior goods for which the substitution effect outweighs the income effect. 
D)  inferior goods for which the income effect outweighs the substitution effect.

Question 19

If the price of bread is zero,the budget constraint between bread (on the vertical axis)and cheese (on the horizontal axis)would

Accepted Answer

A)  be vertical. 
B)  coincide with the vertical axis. 
C)  coincide with the horizontal axis. 
D)  be horizontal. 
A)  be vertical. 
B)  coincide with the vertical axis. 
C)  coincide with the horizontal axis. 
D)  be horizontal.

Question 20

Jane is maximizing total utility while consuming food and clothing.Her marginal utility from food is 50,and her marginal utility from clothing is 25.If clothing is priced at $10 per unit,the price of food per unit must be

Accepted Answer

A)  $2. 
B)  $2.50. 
C)  $5. 
D)  $20. 
A)  $2. 
B)  $2.50. 
C)  $5. 
D)  $20.

Exam 21: The Theory of Consumer Choice

If the consumer's income and all prices simultaneously decrease by one-half,then the optimum consumption will

The labor supply curve may have a backward bending portion because at higher wages the

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

At a consumer's optimal choice,the consumer chooses the combination of goods such that the ratio of the marginal utilities equals the ratio of the prices.

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

Suppose a consumer spends her income on two goods: music CDs and DVDs.The price of a CD is $8,and the price of a DVD is $20.If we graph the budget constraint by placing the quantity of CDs purchased on the horizontal axis,what is the slope of the budget constraint?

Figure 21-3 In each case,the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3.Which of the graphs in the figure reflects an increase in the price of good Y only?

Giffen goods have positively-sloped demand curves because they are

Figure 21-6 -Refer to Figure 21-6.Suppose the price of a book is $15,the price of a DVD is $10,the value of A is 5,and the value of B is 7.5.How much income does the consumer have?

As more units of an item are purchased,everything else equal,marginal satisfaction from consuming additional units will tend to

The substitution effect of a wage decrease in the work-leisure model results in the worker choosing to

When the indifference curve is tangent to the budget constraint,

Assume that a college student purchases only coffee and Snickers bars.If both coffee and Snickers bars are normal goods,then the income effect associated with a decrease in the price of a Snickers bar will result in

At the consumer's optimum

Giffen goods have positively-sloped demand curves because they are

If the price of bread is zero,the budget constraint between bread (on the vertical axis)and cheese (on the horizontal axis)would

Jane is maximizing total utility while consuming food and clothing.Her marginal utility from food is 50,and her marginal utility from clothing is 25.If clothing is priced at $10 per unit,the price of food per unit must be

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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