Question 1

Figure 21-7  
-Refer to Figure 21-7.Which of the following comparisons is correct regarding the marginal rate of substitution (MRS)of donuts for cake?

Accepted Answer

A)  The MRS is greater between bundles A and B than between bundles B and C. 
B)  The MRS is greater between bundles B and C than between bundles A and B. 
C)  The MRS is the same between bundles A and B and bundles B and C because all three bundles lie on the same indifference curve. 
D)  The MRS is greater between bundles E and B than between bundles B and D. 
A)  The MRS is greater between bundles A and B than between bundles B and C. 
B)  The MRS is greater between bundles B and C than between bundles A and B. 
C)  The MRS is the same between bundles A and B and bundles B and C because all three bundles lie on the same indifference curve. 
D)  The MRS is greater between bundles E and B than between bundles B and D.

Question 2

Assume that a college student spends her income on mac-n-cheese and CDs.The price of one box of mac-n-cheese is $1,and the price of one CD is $12.If she has $100 of income,she could choose to consume

Accepted Answer

A)  15 boxes of mac-n-cheese and 6 CDs. 
B)  20 boxes of mac-n-cheese and 7 CDs. 
C)  10 boxes of mac-n-cheese and 8 CDs. 
D)  30 boxes of mac-n-cheese and 6 CDs. 
A)  15 boxes of mac-n-cheese and 6 CDs. 
B)  20 boxes of mac-n-cheese and 7 CDs. 
C)  10 boxes of mac-n-cheese and 8 CDs. 
D)  30 boxes of mac-n-cheese and 6 CDs.

Question 3

When we derive the demand curve for a good,we should remember that the

Accepted Answer

A)  income effect must be greater than the substitution effect. 
B)  substitution effect must be greater than the income effect. 
C)  substitution effect must be in the same direction as the income effect. 
D)  income effect and the substitution effect may work in the same or in opposite directions. 
A)  income effect must be greater than the substitution effect. 
B)  substitution effect must be greater than the income effect. 
C)  substitution effect must be in the same direction as the income effect. 
D)  income effect and the substitution effect may work in the same or in opposite directions.

Question 4

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.The bundle of wine and cheese that he purchased at the old prices now costs

Accepted Answer

A)  the same amount at the new prices. 
B)  less than Brett's income at the new prices. 
C)  more than Brett's income at the new prices. 
D)  We do not have enough information to answer the question. 
A)  the same amount at the new prices. 
B)  less than Brett's income at the new prices. 
C)  more than Brett's income at the new prices. 
D)  We do not have enough information to answer the question.

Question 5

Bundle A contains 10 units of good X and 5 units of good Y.Bundle B contains 5 units of good X and 10 units of good Y.Bundle C contains 10 units of good X and 10 units of good Y.The consumer is indifferent between bundle A and bundle B.Assume that the consumer's preferences satisfy the four properties of indifference curves.Which of the following statements is correct?

Accepted Answer

A)  The consumer must prefer bundle C to either bundle A or B. 
B)  Bundle A and bundle B lie on the same indifference curve. 
C)  The consumer must prefer bundle B to bundle C. 
D)  Both a)and b)are correct. 
A)  The consumer must prefer bundle C to either bundle A or B. 
B)  Bundle A and bundle B lie on the same indifference curve. 
C)  The consumer must prefer bundle B to bundle C. 
D)  Both a)and b)are correct.

Question 6

Explain the difference between inferior and normal goods.As a developing economy experiences increases in income (measured by GDP),what would you predict to happen to demand for inferior goods?

Accepted Answer

Normal goods are those for which consump

Question 7

A family on a trip budgets $800 for meals and gasoline.If the price of a meal for the family is $50,how many meals can the family buy if they do not buy any gasoline?

Accepted Answer

A)  8 
B)  16 
C)  24 
D)  32 
A)  8 
B)  16 
C)  24 
D)  32

Question 8

Explain the relationship between the budget constraint and indifference curve at a consumer's optimum.

Accepted Answer

Since the budget constraint is tangent t

Question 9

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 simultaneous decrease in the price of X and the price of Y 
B)  an increase in income 
C)  an increase in income and a decrease in the price of Y 
D)  Both a and b are correct. 
A)  a simultaneous decrease in the price of X and the price of Y 
B)  an increase in income 
C)  an increase in income and a decrease in the price of Y 
D)  Both a and b are correct.

Question 10

Figure 21-11  
-Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40.Based on the information available in the graph,which of the following price-quantity combinations would be on her demand curve for marshmallows if the price of chocolate chips is $4?

Accepted Answer

A)  P=$2,Q=3 
B)  P=$2,Q=9 
C)  P=$4,Q=3 
D)  P=$4,Q=9 
A)  P=$2,Q=3 
B)  P=$2,Q=9 
C)  P=$4,Q=3 
D)  P=$4,Q=9

Question 11

Which of the following does not represent a tradeoff facing a consumer?

Accepted Answer

A)  choosing to purchase more of all goods 
B)  choosing to spend more leisure time and less working time 
C)  choosing to spend more now and consume less in the future 
D)  choosing to purchase less of one good in order to purchase more of another good 
A)  choosing to purchase more of all goods 
B)  choosing to spend more leisure time and less working time 
C)  choosing to spend more now and consume less in the future 
D)  choosing to purchase less of one good in order to purchase more of another good

Question 12

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

Question 13

Figure 21-8      
-Refer to Figure 21-8.Which of the graphs shown may represent indifference curves?

Accepted Answer

A)  graph a 
B)  graph b 
C)  graph c 
D)  All of the above are correct. 
A)  graph a 
B)  graph b 
C)  graph c 
D)  All of the above are correct.

Question 14

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 less 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 15

Figure 21-11  
-Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40.If the price of chocolate chips is $4 and the price of marshmallows is $4,the optimizing consumer would choose to purchase

Accepted Answer

A)  9 marshmallows and 6 chocolate chips. 
B)  10 marshmallows and 10 chocolate chips. 
C)  5 marshmallows and 5 chocolate chips. 
D)  3 marshmallows and 9 chocolate chips. 
A)  9 marshmallows and 6 chocolate chips. 
B)  10 marshmallows and 10 chocolate chips. 
C)  5 marshmallows and 5 chocolate chips. 
D)  3 marshmallows and 9 chocolate chips.

Question 16

If we observe that a consumer's budget constraint has shifted inward,we can assume that the consumer will buy

Accepted Answer

A)  fewer normal goods and more inferior goods. 
B)  more normal goods and fewer inferior goods. 
C)  more normal goods and more inferior goods. 
D)  fewer normal goods and fewer inferior goods. 
A)  fewer normal goods and more inferior goods. 
B)  more normal goods and fewer inferior goods. 
C)  more normal goods and more inferior goods. 
D)  fewer normal goods and fewer inferior goods.

Question 17

Assume that a consumer's indifference curve is a downward-sloping straight line.As the consumer moves from left to right along the horizontal axis,the consumer's marginal rate of substitution

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains constant. 
D)  increases,then decreases. 
A)  increases. 
B)  decreases. 
C)  remains constant. 
D)  increases,then decreases.

Question 18

Figure 21-7  
-Refer to Figure 21-7.When comparing bundle B to bundle C,the consumer

Accepted Answer

A)  prefers bundle B because it contains more donuts. 
B)  is indifferent between the two bundles. 
C)  prefers bundle C because it contains more cake. 
D)  In order to compare bundle B to bundle C,we must know the prices of cake and donuts. 
A)  prefers bundle B because it contains more donuts. 
B)  is indifferent between the two bundles. 
C)  prefers bundle C because it contains more cake. 
D)  In order to compare bundle B to bundle C,we must know the prices of cake and donuts.

Question 19

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.If the interest rate on savings increases,it is possible that

Accepted Answer

A)  Diane will decrease her savings in the work period. 
B)  Diane will increase her savings in the work period. 
C)  Diane will not change her consumption in the work period. 
D)  All of the above are possible. 
A)  Diane will decrease her savings in the work period. 
B)  Diane will increase her savings in the work period. 
C)  Diane will not change her consumption in the work period. 
D)  All of the above are possible.

Question 20

If we observe that Rae's budget constraint has shifted inward,then we know for certain that

Accepted Answer

A)  her income must have decreased. 
B)  she will be indifferent between goods X and Y. 
C)  the price of one or both of the goods must have increased. 
D)  her utility will decrease. 
A)  her income must have decreased. 
B)  she will be indifferent between goods X and Y. 
C)  the price of one or both of the goods must have increased. 
D)  her utility will decrease.

Exam 21: The Theory of Consumer Choice

Figure 21-7 -Refer to Figure 21-7.Which of the following comparisons is correct regarding the marginal rate of substitution (MRS)of donuts for cake?

Assume that a college student spends her income on mac-n-cheese and CDs.The price of one box of mac-n-cheese is $1,and the price of one CD is $12.If she has $100 of income,she could choose to consume

When we derive the demand curve for a good,we should remember that the

Explain the difference between inferior and normal goods.As a developing economy experiences increases in income (measured by GDP),what would you predict to happen to demand for inferior goods?

A family on a trip budgets $800 for meals and gasoline.If the price of a meal for the family is $50,how many meals can the family buy if they do not buy any gasoline?

Explain the relationship between the budget constraint and indifference curve at a consumer's optimum.

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?

Figure 21-11 -Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40.Based on the information available in the graph,which of the following price-quantity combinations would be on her demand curve for marshmallows if the price of chocolate chips is $4?

Which of the following does not represent a tradeoff facing a consumer?

Figure 21-8 -Refer to Figure 21-8.Which of the graphs shown may represent indifference curves?

Figure 21-11 -Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40.If the price of chocolate chips is $4 and the price of marshmallows is $4,the optimizing consumer would choose to purchase

If we observe that a consumer's budget constraint has shifted inward,we can assume that the consumer will buy

Assume that a consumer's indifference curve is a downward-sloping straight line.As the consumer moves from left to right along the horizontal axis,the consumer's marginal rate of substitution

Figure 21-7 -Refer to Figure 21-7.When comparing bundle B to bundle C,the consumer

If we observe that Rae's budget constraint has shifted inward,then we know for certain that

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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