Question 1

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

Accepted Answer

A)  shift to a lower indifference curve and the consumer buys fewer granola bars. 
B)  shift to a higher indifference curve and the consumer buys more granola bars. 
C)  movement along the indifference curve and the consumer buys fewer granola bars. 
D)  movement along the indifference curve and the consumer buys more granola bars. 
A)  shift to a lower indifference curve and the consumer buys fewer granola bars. 
B)  shift to a higher indifference curve and the consumer buys more granola bars. 
C)  movement along the indifference curve and the consumer buys fewer granola bars. 
D)  movement along the indifference curve and the consumer buys more granola bars.

Question 2

Which of the following statements is not correct?

Accepted Answer

A)  Reducing taxes on interest income might encourage people to save more. 
B)  Reducing taxes on interest income might reduce saving. 
C)  A price increase will create income and substitution effects that will both always work to reduce consumption of the good. 
D)  Utility is maximized when the marginal rate of substitution between any two goods equals the relative prices of the two goods. 
A)  Reducing taxes on interest income might encourage people to save more. 
B)  Reducing taxes on interest income might reduce saving. 
C)  A price increase will create income and substitution effects that will both always work to reduce consumption of the good. 
D)  Utility is maximized when the marginal rate of substitution between any two goods equals the relative prices of the two goods.

Question 3

Figure 21-7  
-Refer to Figure 21-7.Which of the following statements is correct?

Accepted Answer

A)  Bundle A is preferred equally to bundle E. 
B)  Bundle A is preferred equally to bundle C. 
C)  Bundle B contains more cake than bundle C. 
D)  The bundles along indifference curve Indifference Curve 2 are preferred to those along indifference curve Indifference Curve 3. 
A)  Bundle A is preferred equally to bundle E. 
B)  Bundle A is preferred equally to bundle C. 
C)  Bundle B contains more cake than bundle C. 
D)  The bundles along indifference curve Indifference Curve 2 are preferred to those along indifference curve Indifference Curve 3.

Question 4

Suppose that Stacy's hourly wage increases,and she decides to work fewer hours.For her,the substitution effect of the wage change is

Accepted Answer

A)  only partially offset by the income effect. 
B)  more than offset by the income effect. 
C)  exactly offset by the income effect. 
D)  We do not have enough information with which to answer the question.. 
A)  only partially offset by the income effect. 
B)  more than offset by the income effect. 
C)  exactly offset by the income effect. 
D)  We do not have enough information with which to answer the question..

Question 5

A good is an inferior good if the consumer buys less of it when

Accepted Answer

A)  his income rises. 
B)  the price of the good rises. 
C)  the price of a substitute good falls. 
D)  his income falls. 
A)  his income rises. 
B)  the price of the good rises. 
C)  the price of a substitute good falls. 
D)  his income falls.

Question 6

Figure 21-1  
-Refer to Figure 21-1.A consumer that chooses to spend all of her income could be at which point(s)on the budget constraint?

Accepted Answer

A)  A only 
B)  E only 
C)  B,C,or D only 
D)  A,B,C,or D only 
A)  A only 
B)  E only 
C)  B,C,or D only 
D)  A,B,C,or D only

Question 7

Tom experiences an increase in his wages.The hours of labor that he supplies to the market would increase if

Accepted Answer

A)  the income effect is larger than the substitution effect. 
B)  the substitution effect is larger than the income effect. 
C)  neither the income effect nor the substitution effect apply to Tom's labor-leisure tradeoff. 
D)  Tom views both labor and leisure as inferior goods. 
A)  the income effect is larger than the substitution effect. 
B)  the substitution effect is larger than the income effect. 
C)  neither the income effect nor the substitution effect apply to Tom's labor-leisure tradeoff. 
D)  Tom views both labor and leisure as inferior goods.

Question 8

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the

Accepted Answer

A)  prices of the products. 
B)  amount of each good the consumer is currently consuming. 
C)  consumer's income. 
D)  marginal value product. 
A)  prices of the products. 
B)  amount of each good the consumer is currently consuming. 
C)  consumer's income. 
D)  marginal value product.

Question 9

Figure 21-1  
-Refer to Figure 21-1.Which point in the figure showing a consumer's budget constraint represents the consumer's income divided by the price of a CD?

Accepted Answer

A)  point A 
B)  point C 
C)  point D 
D)  point E 
A)  point A 
B)  point C 
C)  point D 
D)  point E

Question 10

When two goods are perfect complements,the indifference curve is

Accepted Answer

A)  a horizontal straight line. 
B)  bowed outward. 
C)  a downward-sloping straight line. 
D)  a right angle. 
A)  a horizontal straight line. 
B)  bowed outward. 
C)  a downward-sloping straight line. 
D)  a right angle.

Question 11

Violations of the law of demand are assumed to occur

Accepted Answer

A)  regularly. 
B)  only when goods are Giffen goods. 
C)  only when the substitution effect dominates the income effect. 
D)  All of the above are correct. 
A)  regularly. 
B)  only when goods are Giffen goods. 
C)  only when the substitution effect dominates the income effect. 
D)  All of the above are correct.

Question 12

The substitution effect from an increase in wages is evident in a

Accepted Answer

A)  decrease in labor demand. 
B)  desire to consume less leisure. 
C)  desire to consume more leisure. 
D)  backward-bending labor supply curve. 
A)  decrease in labor demand. 
B)  desire to consume less leisure. 
C)  desire to consume more leisure. 
D)  backward-bending labor supply curve.

Question 13

Using indifference curves and budget constraints,graphically illustrate the substitution and income effect that would result from a change in the price of a normal good.

Accepted Answer

@#IMG-DLM& The graph above illustrates a

Question 14

Jonathan is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires.When the substitution effect dominates the income effect,an increase in the interest rate on savings will cause him to

Accepted Answer

A)  increase his savings rate. 
B)  decrease his savings rate. 
C)  continue saving at the same rate. 
D)  Any of the above are possible. 
A)  increase his savings rate. 
B)  decrease his savings rate. 
C)  continue saving at the same rate. 
D)  Any of the above are possible.

Question 15

The slope of an indifference curve is

Accepted Answer

A)  the rate of change of consumer's preferences. 
B)  the marginal rate of preference. 
C)  the marginal rate of substitution. 
D)  always equal to the slope of the budget constraint. 
A)  the rate of change of consumer's preferences. 
B)  the marginal rate of preference. 
C)  the marginal rate of substitution. 
D)  always equal to the slope of the budget constraint.

Question 16

The marginal rate of substitution is

Accepted Answer

A)  the slope of a budget constraint. 
B)  always constant. 
C)  the slope of an indifference curve. 
D)  the point at which the budget constraint and the indifference curve are tangent. 
A)  the slope of a budget constraint. 
B)  always constant. 
C)  the slope of an indifference curve. 
D)  the point at which the budget constraint and the indifference curve are tangent.

Question 17

When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs

Accepted Answer

A)  along the highest attainable indifference curve. 
B)  where the indifference curve is tangent to the budget constraint. 
C)  where the marginal utility per dollar spent is the same for both X and Y. 
D)  All of the above are correct. 
A)  along the highest attainable indifference curve. 
B)  where the indifference curve is tangent to the budget constraint. 
C)  where the marginal utility per dollar spent is the same for both X and Y. 
D)  All of the above are correct.

Question 18

Figure 21-7  
-Refer to Figure 21-7.A person that chooses to consume bundle C is likely to

Accepted Answer

A)  receive higher total satisfaction at bundle C than at bundle A. 
B)  spend more on bundle C than bundle A. 
C)  receive higher marginal utility from cake than from donuts. 
D)  receive higher marginal utility from donuts than from cake. 
A)  receive higher total satisfaction at bundle C than at bundle A. 
B)  spend more on bundle C than bundle A. 
C)  receive higher marginal utility from cake than from donuts. 
D)  receive higher marginal utility from donuts than from cake.

Question 19

Consumer theory provides the foundation for understanding demand curves because

Accepted Answer

A)  each point on a demand curve represents an optimal choice point. 
B)  consumers purchase more inferior goods than normal goods. 
C)  increases in income cause the budget constraint to rotate inward along one axis,which changes the consumer's purchases. 
D)  increases in income cause the budget constraint to rotate outward along one axis,which changes the consumer's purchases. 
A)  each point on a demand curve represents an optimal choice point. 
B)  consumers purchase more inferior goods than normal goods. 
C)  increases in income cause the budget constraint to rotate inward along one axis,which changes the consumer's purchases. 
D)  increases in income cause the budget constraint to rotate outward along one axis,which changes the consumer's purchases.

Question 20

If a good is a Giffen good,then

Accepted Answer

A)  the supply curve slopes down. 
B)  the demand curve slopes up. 
C)  the demand curve is horizontal. 
D)  there is no optimal level of consumption for the consumer. 
A)  the supply curve slopes down. 
B)  the demand curve slopes up. 
C)  the demand curve is horizontal. 
D)  there is no optimal level of consumption for the consumer.

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 a

Which of the following statements is not correct?

Figure 21-7 -Refer to Figure 21-7.Which of the following statements is correct?

Suppose that Stacy's hourly wage increases,and she decides to work fewer hours.For her,the substitution effect of the wage change is

A good is an inferior good if the consumer buys less of it when

Figure 21-1 -Refer to Figure 21-1.A consumer that chooses to spend all of her income could be at which point(s)on the budget constraint?

Tom experiences an increase in his wages.The hours of labor that he supplies to the market would increase if

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the

Figure 21-1 -Refer to Figure 21-1.Which point in the figure showing a consumer's budget constraint represents the consumer's income divided by the price of a CD?

When two goods are perfect complements,the indifference curve is

Violations of the law of demand are assumed to occur

The substitution effect from an increase in wages is evident in a

Using indifference curves and budget constraints,graphically illustrate the substitution and income effect that would result from a change in the price of a normal good.

Jonathan is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires.When the substitution effect dominates the income effect,an increase in the interest rate on savings will cause him to

The slope of an indifference curve is

The marginal rate of substitution is

When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs

Figure 21-7 -Refer to Figure 21-7.A person that chooses to consume bundle C is likely to

Consumer theory provides the foundation for understanding demand curves because

If a good is a Giffen good,then

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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