Question 1

Figure 21-9  
-Refer to Figure 21-9.Bundle B represents a point where

Accepted Answer

A)  MRSxy > Py/Px. 
B)  MRSxy = Px/Py. 
C)  MRSxy x/Py. 
D)  MRSxy > Px/Py. 
A)  MRSxy > Py/Px. 
B)  MRSxy = Px/Py. 
C)  MRSxy x/Py. 
D)  MRSxy > Px/Py.

Question 2

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.Who can afford to purchase 4 gallons of ice cream and 5 paperback novels?

Accepted Answer

A)  Karen,Tara,and Chelsea 
B)  Karen only 
C)  Karen and Tara but not Chelsea 
D)  none of the women 
A)  Karen,Tara,and Chelsea 
B)  Karen only 
C)  Karen and Tara but not Chelsea 
D)  none of the women

Question 3

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.Who can afford to purchase 5 gallons of ice cream and 8 paperback novels?

Accepted Answer

A)  Karen,Tara,and Chelsea 
B)  Karen only 
C)  Tara and Chelsea but not Karen 
D)  none of the women 
A)  Karen,Tara,and Chelsea 
B)  Karen only 
C)  Tara and Chelsea but not Karen 
D)  none of the women

Question 4

Both Diana and Sarah like jazz music and music by the Beatles.Diana likes music by the Beatles much better than jazz music,whereas Sarah prefers jazz music to music by the Beatles.If we were to graph an indifference curve with cd's by the Beatles on the horizontal axis and jazz cd's on the vertical axis,then

Accepted Answer

A)  Diana and Sarah would have identical indifference curves. 
B)  Diana's indifference curve would be steeper than Sarah's indifference curve. 
C)  Sarah's indifference curve would be steeper than Diana's indifference curve. 
D)  We do not have enough information to compare their indifference curves. 
A)  Diana and Sarah would have identical indifference curves. 
B)  Diana's indifference curve would be steeper than Sarah's indifference curve. 
C)  Sarah's indifference curve would be steeper than Diana's indifference curve. 
D)  We do not have enough information to compare their indifference curves.

Question 5

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 could reflect a decrease in the prices of both goods?

Accepted Answer

A)  graph a 
B)  graph b 
C)  graph c 
D)  None of the above is correct. 
A)  graph a 
B)  graph b 
C)  graph c 
D)  None of the above is correct.

Question 6

The direction of the substitution effect is not influenced by whether the good is normal or inferior.

Accepted Answer

A) True 
 B)False

Question 7

The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer.  
What is the marginal rate of substitution between points A and B?

Accepted Answer

A)  2/5 
B)  1 
C)  5/2 
D)  3 
A)  2/5 
B)  1 
C)  5/2 
D)  3

Question 8

Dave consumes two normal goods,X and Y,and is currently at an optimum.If the price of good X falls,we can predict with certainty that

Accepted Answer

A)  Dave will definitely consume more of both goods since his real income has risen. 
B)  the substitution effect will be positive for good X and negative for good Y. 
C)  may consume more or less of good X and he will definitely consume less of good Y. 
D)  the substitution effect will offset the income effect for good X. 
A)  Dave will definitely consume more of both goods since his real income has risen. 
B)  the substitution effect will be positive for good X and negative for good Y. 
C)  may consume more or less of good X and he will definitely consume less of good Y. 
D)  the substitution effect will offset the income effect for good X.

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 decrease in the price of X 
B)  an increase in the price of Y 
C)  a decrease in the price of Y 
D)  More than one of the above could explain this change. 
A)  a decrease in the price of X 
B)  an increase in the price of Y 
C)  a decrease in the price of Y 
D)  More than one of the above could explain this change.

Question 10

Each of the following are characteristics of an indifference curve map except

Accepted Answer

A)  moving northeast to a new indifference curve will increase utility. 
B)  points on the same indifference curve yield equal utility. 
C)  the axes represent levels of utility for each of the goods. 
D)  indifference curves cannot cross. 
A)  moving northeast to a new indifference curve will increase utility. 
B)  points on the same indifference curve yield equal utility. 
C)  the axes represent levels of utility for each of the goods. 
D)  indifference curves cannot cross.

Question 11

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 much does he spend on potato chips each month?

Accepted Answer

A)  $2 
B)  $6 
C)  $8 
D)  $12 
A)  $2 
B)  $6 
C)  $8 
D)  $12

Question 12

Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis.Suppose that you have $100 today and expect to receive $100 one year from today.Your money market account pays an annual interest rate of 25%,and you may borrow money at that interest rate.Suppose now that the interest rate increases to 40%.What happens to the slope of your budget constraint relative to when the interest rate was $25%? The slope

Accepted Answer

A)  becomes steeper. 
B)  becomes flatter. 
C)  doesn't change because the budget constraint shifts in parallel to the original budget constraint. 
D)  doesn't change because the budget constraint shifts out parallel to the original budget constraint. 
A)  becomes steeper. 
B)  becomes flatter. 
C)  doesn't change because the budget constraint shifts in parallel to the original budget constraint. 
D)  doesn't change because the budget constraint shifts out parallel to the original budget constraint.

Question 13

The theory of consumer choice examines

Accepted Answer

A)  the determination of output in competitive markets. 
B)  the tradeoffs inherent in decisions made by consumers. 
C)  how consumers select inputs into manufacturing production processes. 
D)  the determination of prices in competitive markets. 
A)  the determination of output in competitive markets. 
B)  the tradeoffs inherent in decisions made by consumers. 
C)  how consumers select inputs into manufacturing production processes. 
D)  the determination of prices in competitive markets.

Question 14

A decrease in a consumer's income

Accepted Answer

A)  increases the slope of the consumer's budget constraint. 
B)  has no effect on the consumer's budget constraint. 
C)  decreases the slope of the consumer's budget constraint. 
D)  has no effect on the slope of the consumer's budget constraint. 
A)  increases the slope of the consumer's budget constraint. 
B)  has no effect on the consumer's budget constraint. 
C)  decreases the slope of the consumer's budget constraint. 
D)  has no effect on the slope of the consumer's budget constraint.

Question 15

The relationship between the marginal utility that Wendy gets from eating hamburgers and the number of hamburgers she eats per month is as follows:
 
Wendy receives 3 units of utility from the last dollar spent on each of the other goods she consumes.If hamburgers cost $4 each,how many hamburgers will she consume per month if she maximizes utility?

Accepted Answer

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

Question 16

The substitution effect of a price change is depicted by a

Accepted Answer

A)  movement along the budget constraint holding satisfaction constant. 
B)  shift in the budget constraint at the old prices. 
C)  movement along the consumer's new indifference curve at the new prices. 
D)  movement along the original indifference curve to the point where the marginal rate of substitution equals the price ratio for the new set of prices. 
A)  movement along the budget constraint holding satisfaction constant. 
B)  shift in the budget constraint at the old prices. 
C)  movement along the consumer's new indifference curve at the new prices. 
D)  movement along the original indifference curve to the point where the marginal rate of substitution equals the price ratio for the new set of prices.

Question 17

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 consumption bundle

Accepted Answer

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

Question 18

Which of the following is a property of indifference curves?

Accepted Answer

A)  Indifference curves usually intersect. 
B)  Indifference curves have positive slopes. 
C)  Indifference curves are downward sloping and always linear. 
D)  Indifference curves are bowed in toward the origin. 
A)  Indifference curves usually intersect. 
B)  Indifference curves have positive slopes. 
C)  Indifference curves are downward sloping and always linear. 
D)  Indifference curves are bowed in toward the origin.

Question 19

Consider the indifference curve map and budget constraint for two goods,beef and potatoes.Suppose the good on the horizontal axis,potatoes,is a Giffen good.Beef is measured on the vertical axis and is a normal good.When the price of potatoes increases,

Accepted Answer

A)  the substitution effect causes an increase in the consumption of potatoes,and the income effect causes a decrease in the consumption of potatoes.The substitution effect is less than the income effect. 
B)  the substitution effect causes a decrease in the consumption of potatoes,and the income effect causes an increase in the consumption of potatoes.The substitution effect is greater than the income effect. 
C)  the substitution effect causes an increase in the consumption of potatoes,and the income effect causes a decrease in the consumption of potatoes.The substitution effect is greater than the income effect. 
D)  the substitution effect causes a decrease in the consumption of potatoes,and the income effect causes an increase in the consumption of potatoes.The substitution effect is less than the income effect. 
A)  the substitution effect causes an increase in the consumption of potatoes,and the income effect causes a decrease in the consumption of potatoes.The substitution effect is less than the income effect. 
B)  the substitution effect causes a decrease in the consumption of potatoes,and the income effect causes an increase in the consumption of potatoes.The substitution effect is greater than the income effect. 
C)  the substitution effect causes an increase in the consumption of potatoes,and the income effect causes a decrease in the consumption of potatoes.The substitution effect is greater than the income effect. 
D)  the substitution effect causes a decrease in the consumption of potatoes,and the income effect causes an increase in the consumption of potatoes.The substitution effect is less than the income effect.

Question 20

Which of the following is not correct?

Accepted Answer

A)  An increase in income shifts a consumer's budget constraint outward. 
B)  An increase in the price of good X causes a consumer's budget constraint to rotate inward along the X axis. 
C)  A decrease in the price of good Y causes a consumer's budget constraint to rotate outward along the Y axis. 
D)  Changes in income affect the slope of the budget constraint as well as its location on a graph. 
A)  An increase in income shifts a consumer's budget constraint outward. 
B)  An increase in the price of good X causes a consumer's budget constraint to rotate inward along the X axis. 
C)  A decrease in the price of good Y causes a consumer's budget constraint to rotate outward along the Y axis. 
D)  Changes in income affect the slope of the budget constraint as well as its location on a graph.

Exam 21: The Theory of Consumer Choice

Figure 21-9 -Refer to Figure 21-9.Bundle B represents a point where

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 could reflect a decrease in the prices of both goods?

The direction of the substitution effect is not influenced by whether the good is normal or inferior.

The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer. What is the marginal rate of substitution between points A and B?

Dave consumes two normal goods,X and Y,and is currently at an optimum.If the price of good X falls,we can predict with certainty that

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?

Each of the following are characteristics of an indifference curve map except

The theory of consumer choice examines

A decrease in a consumer's income

The substitution effect of a price change is depicted by a

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 consumption bundle

Which of the following is a property of indifference curves?

Consider the indifference curve map and budget constraint for two goods,beef and potatoes.Suppose the good on the horizontal axis,potatoes,is a Giffen good.Beef is measured on the vertical axis and is a normal good.When the price of potatoes increases,

Which of the following is not correct?

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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