Question 1

One consumption bundle is revealed preferred to a second bundle if:

Accepted Answer

A)  a consumer voluntarily chooses it over the second bundle. 
B)  surveys reveal that consumers are more likely to choose it than the second bundle. 
C)  it is cheaper than the second bundle. 
D)  it lies on a higher indifference curve than the second bundle. 
A)  a consumer voluntarily chooses it over the second bundle. 
B)  surveys reveal that consumers are more likely to choose it than the second bundle. 
C)  it is cheaper than the second bundle. 
D)  it lies on a higher indifference curve than the second bundle.

Question 2

An affordable consumption bundle is an interior choice if:

Accepted Answer

A)  it lies below the budget line. 
B)  for each good, there are affordable bundles containing a little bit more of that good and a little bit less of it. 
C)  for each good, there are no other affordable bundles containing a little bit more of that good and a little bit less of it. 
D)  it exhausts the consumer's income. 
A)  it lies below the budget line. 
B)  for each good, there are affordable bundles containing a little bit more of that good and a little bit less of it. 
C)  for each good, there are no other affordable bundles containing a little bit more of that good and a little bit less of it. 
D)  it exhausts the consumer's income.

Question 3

Which of the following statements is true?

Accepted Answer

A)  Corner solutions always satisfy the tangency condition. 
B)  Interior solutions may or may not satisfy the tangency condition. 
C)  Interior solutions always satisfy the tangency condition. 
D)  Whenever the consumer purchases good X but not good Y, then MRSXY ≤ PX/PY at the chosen bundle. 
A)  Corner solutions always satisfy the tangency condition. 
B)  Interior solutions may or may not satisfy the tangency condition. 
C)  Interior solutions always satisfy the tangency condition. 
D)  Whenever the consumer purchases good X but not good Y, then MRSXY ≤ PX/PY at the chosen bundle.

Question 4

Using a carefully-labeled diagram,explain an Engel curve for a good that is initially a normal good,but eventually becomes an inferior good.

Accepted Answer

An Engel curve shows the relationship be

Question 5

If electricity is measured on the horizontal axis,and the price of electricity becomes more expensive beyond 500 kilowatts,we draw:

Accepted Answer

A)  an indifference curve that becomes flatter at 500 kilowatts. 
B)  a budget constraint that is kinked at 500 kilowatts. 
C)  a budget constraint that becomes steeper at 500 kilowatts. 
D)  an Engle curve that becomes negatively-sloped at 500 kilowatts. 
A)  an indifference curve that becomes flatter at 500 kilowatts. 
B)  a budget constraint that is kinked at 500 kilowatts. 
C)  a budget constraint that becomes steeper at 500 kilowatts. 
D)  an Engle curve that becomes negatively-sloped at 500 kilowatts.

Question 6

If a good is normal,then the Engel curve:

Accepted Answer

A)  slopes upward. 
B)  slopes downward. 
C)  is vertical. 
D)  is horizontal. 
A)  slopes upward. 
B)  slopes downward. 
C)  is vertical. 
D)  is horizontal.

Question 7

An increase in a consumer's income will cause the budget line to:

Accepted Answer

A)  shift outward. 
B)  shift inward. 
C)  become steeper. 
D)  become flatter. 
A)  shift outward. 
B)  shift inward. 
C)  become steeper. 
D)  become flatter.

Question 8

Refer to Figure 5.1.In which graph does a shift from BL1 to BL2 represent an increase in the consumer's income?

Accepted Answer

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

Question 9

The price of CDs is $15 and the price of pizzas is $10.Derek spends all of his income buying 2 CDs and 6 pizzas per week (and nothing else).Determine Derek's income,draw his budget line and represent his utility-maximizing point using an indifference curve.

Accepted Answer

(2 CDs × $15)+ (6 Pizzas × $10

Question 10

A consumer's budget constraint is:

Accepted Answer

A)  a positively-sloped line. 
B)  a negatively-sloped line. 
C)  convex. 
D)  a vertical line at the level of the consumer's income. 
A)  a positively-sloped line. 
B)  a negatively-sloped line. 
C)  convex. 
D)  a vertical line at the level of the consumer's income.

Question 11

If the income-consumption path slopes upward,then:

Accepted Answer

A)  both goods are normal goods. 
B)  both goods are inferior goods. 
C)  the goods are substitutes. 
D)  the goods are complements. 
A)  both goods are normal goods. 
B)  both goods are inferior goods. 
C)  the goods are substitutes. 
D)  the goods are complements.

Question 12

If an increase in the price of one good causes the demand curve for another good to shift to the right,then the two goods are:

Accepted Answer

A)  substitutes. 
B)  complements. 
C)  normal. 
D)  unrelated. 
A)  substitutes. 
B)  complements. 
C)  normal. 
D)  unrelated.

Question 13

A curve that shows how the best available consumption bundle changes as income changes (holding the consumer's preferences and all other prices fixed)is called:

Accepted Answer

A)  a price-consumption curve. 
B)  an individual demand curve. 
C)  an income-consumption curve. 
D)  a budget line. 
A)  a price-consumption curve. 
B)  an individual demand curve. 
C)  an income-consumption curve. 
D)  a budget line.

Question 14

When indifference curves have ________ marginal rates of substitution,any interior choice that satisfies the tangency condition is the best affordable choice.

Accepted Answer

A)  constant 
B)  increasing 
C)  declining 
D)  positive 
A)  constant 
B)  increasing 
C)  declining 
D)  positive

Question 15

If the price of the good measured on the horizontal axis is subject to volume discounts,then:

Accepted Answer

A)  the budget line will get steeper as the consumer moves along it from left to right. 
B)  the budget line will get flatter as the consumer moves along it from left to right. 
C)  the indifference curve will get steeper as the consumer moves along it from left to right. 
D)  the indifference curve will get flatter as the consumer moves along it from left to right. 
A)  the budget line will get steeper as the consumer moves along it from left to right. 
B)  the budget line will get flatter as the consumer moves along it from left to right. 
C)  the indifference curve will get steeper as the consumer moves along it from left to right. 
D)  the indifference curve will get flatter as the consumer moves along it from left to right.

Question 16

Which of the following goods is given in the textbook as an example of a good whose price is subject to volume discounts?

Accepted Answer

A)  Electricity 
B)  Pizza 
C)  Gasoline 
D)  Yogurt 
A)  Electricity 
B)  Pizza 
C)  Gasoline 
D)  Yogurt

Question 17

A curve that describes the relationship between income and the amount of a good consumed (holding the consumer's preferences and all other prices fixed)is called:

Accepted Answer

A)  a price-consumption curve. 
B)  the Engel curve. 
C)  an income-consumption curve. 
D)  a budget line. 
A)  a price-consumption curve. 
B)  the Engel curve. 
C)  an income-consumption curve. 
D)  a budget line.

Question 18

Boundary solutions arise when:

Accepted Answer

A)  a good provides a consumer with little value per dollar relative to other alternatives. 
B)  a consumer has a very low level of income. 
C)  indifference curves are convex. 
D)  indifference curves exhibit increasing MRS. 
A)  a good provides a consumer with little value per dollar relative to other alternatives. 
B)  a consumer has a very low level of income. 
C)  indifference curves are convex. 
D)  indifference curves exhibit increasing MRS.

Question 19

Refer to Figure 5.5.Which diagram shows the income-consumption curve resulting from a decrease in income?

Accepted Answer

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

Question 20

When the consumer has found the best affordable bundle of goods:

Accepted Answer

A)  the area above the indifference curve that runs through the consumer's best bundle does not overlap with the area below the budget line. 
B)  the area above the indifference curve that runs through the consumer's best bundle does not overlap with the area above the budget line. 
C)  the area above the indifference curve that runs through the consumer's best bundle should overlap with the area below the budget line. 
D)  the area above the indifference curve that runs through any bundle other than the consumer's best bundle does not overlap with the area below the budget line. 
A)  the area above the indifference curve that runs through the consumer's best bundle does not overlap with the area below the budget line. 
B)  the area above the indifference curve that runs through the consumer's best bundle does not overlap with the area above the budget line. 
C)  the area above the indifference curve that runs through the consumer's best bundle should overlap with the area below the budget line. 
D)  the area above the indifference curve that runs through any bundle other than the consumer's best bundle does not overlap with the area below the budget line.

Exam 5: Constraints, Choices, and Demand

One consumption bundle is revealed preferred to a second bundle if:

An affordable consumption bundle is an interior choice if:

Which of the following statements is true?

Using a carefully-labeled diagram,explain an Engel curve for a good that is initially a normal good,but eventually becomes an inferior good.

If electricity is measured on the horizontal axis,and the price of electricity becomes more expensive beyond 500 kilowatts,we draw:

If a good is normal,then the Engel curve:

An increase in a consumer's income will cause the budget line to:

Refer to Figure 5.1.In which graph does a shift from BL1 to BL2 represent an increase in the consumer's income?

The price of CDs is $15 and the price of pizzas is $10.Derek spends all of his income buying 2 CDs and 6 pizzas per week (and nothing else).Determine Derek's income,draw his budget line and represent his utility-maximizing point using an indifference curve.

A consumer's budget constraint is:

If the income-consumption path slopes upward,then:

If an increase in the price of one good causes the demand curve for another good to shift to the right,then the two goods are:

A curve that shows how the best available consumption bundle changes as income changes (holding the consumer's preferences and all other prices fixed)is called:

When indifference curves have ________ marginal rates of substitution,any interior choice that satisfies the tangency condition is the best affordable choice.

If the price of the good measured on the horizontal axis is subject to volume discounts,then:

Which of the following goods is given in the textbook as an example of a good whose price is subject to volume discounts?

A curve that describes the relationship between income and the amount of a good consumed (holding the consumer's preferences and all other prices fixed)is called:

Boundary solutions arise when:

Refer to Figure 5.5.Which diagram shows the income-consumption curve resulting from a decrease in income?

When the consumer has found the best affordable bundle of goods:

Introduction

Supply and Demand

Balancing Benefits and Costs

Consumer Preferences

Demand and Welfare

Technology and Production

Cost

Profit Maximization

Choices Involving Time

Choices Involving Risk

Choices Involving Strategy

Behavioral Economics

Equilibrium and Efficiency

Market Intervention

General Equilibrium, Efficiency, and Equity

Monopoly

Pricing Policies

Oligopoly

Externalities and Public Goods

Asymmetric Information

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