Question 1

A Giffen good is a good for which an increase in the price

Accepted Answer

A)  decreases the quantity supplied. 
B)  increases the quantity supplied. 
C)  decreases the quantity demanded. 
D)  increases the quantity demanded. 
A)  decreases the quantity supplied. 
B)  increases the quantity supplied. 
C)  decreases the quantity demanded. 
D)  increases the quantity demanded.

Question 2

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

Accepted Answer

A)  People face trade-offs. 
B)  Governments can sometimes improve market outcomes. 
C)  Trade can make everyone better off. 
D)  Markets are usually a good way to organize economic activity. 
A)  People face trade-offs. 
B)  Governments can sometimes improve market outcomes. 
C)  Trade can make everyone better off. 
D)  Markets are usually a good way to organize economic activity.

Question 3

Scenario 21-3
Scott knows that he will ultimately face retirement. Assume that Scott will experience two periods in his life, one in which he works and earns income, and one in which he is retired and earns no income. Scott can earn $250,000 during his working period and nothing in his retirement period. He must both save and consume in his work period with an interest rate of 10 percent on savings.
-Refer to Scenario 21-3. If the interest rate on savings increases,

Accepted Answer

A)  Scott will decrease his savings in the work period if the income effect is greater than the substitution effect for him. 
B)  Scott will increase his savings in the work period if the income effect is greater than the substitution effect for him. 
C)  Scott will increase his savings in the work period if the substitution effect is greater than the income effect for him. 
D)  Both a and c are correct. 
A)  Scott will decrease his savings in the work period if the income effect is greater than the substitution effect for him. 
B)  Scott will increase his savings in the work period if the income effect is greater than the substitution effect for him. 
C)  Scott will increase his savings in the work period if the substitution effect is greater than the income effect for him. 
D)  Both a and c are correct.

Question 4

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin.  
-Refer to Figure 21-31. If the price of a shirt is $20 and point B is Kevin's optimum, then what is Kevin's income?

Accepted Answer

Kevin's in

Question 5

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 5 slices of pizza and 5 paperback novels?

Accepted Answer

A)  Jack only 
B)  Diane only 
C)  both Jack and Diane 
D)  neither Jack nor Diane 
A)  Jack only 
B)  Diane only 
C)  both Jack and Diane 
D)  neither Jack nor Diane

Question 6

Consider two goods: peanuts and crackers. The slope of the consumer's budget constraint is measured by the

Accepted Answer

A)  consumer's income divided by the price of crackers. 
B)  relative price of peanuts and crackers. 
C)  consumer's marginal rate of substitution. 
D)  number of peanuts purchased divided by the number of crackers purchased. 
A)  consumer's income divided by the price of crackers. 
B)  relative price of peanuts and crackers. 
C)  consumer's marginal rate of substitution. 
D)  number of peanuts purchased divided by the number of crackers purchased.

Question 7

For a typical consumer, most indifference curves are downward sloping.

Accepted Answer

A) True 
 B)False

Question 8

Figure 21-23  
-Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The demand curve can be illustrated as the movement from

Accepted Answer

A)  D to E. 
B)  D to C. 
C)  C to E. 
D)  E to D. 
A)  D to E. 
B)  D to C. 
C)  C to E. 
D)  E to D.

Question 9

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 10

A Giffen good is a good for which

Accepted Answer

A)  a decrease in the price decreases the quantity demanded. 
B)  the income effect outweighs the substitution effect. 
C)  an increase in the price decreases the quantity demanded. 
D)  Both a) and b) are correct. 
A)  a decrease in the price decreases the quantity demanded. 
B)  the income effect outweighs the substitution effect. 
C)  an increase in the price decreases the quantity demanded. 
D)  Both a) and b) are correct.

Question 11

Figure 21-25
The figure pertains to a particular consumer. On the axes, X represents the quantity of good X and Y represents the quantity of good Y.  
-Refer to Figure 21-25. Suppose the price of good X is $8, the price of good Y is $10, and the consumer's income is $360. Then the consumer's optimal choice is to buy

Accepted Answer

A)  15 units of good X and 24 units of good Y. 
B)  20 units of good X and 20 units of good Y. 
C)  30 units of good X and 12 units of good Y. 
D)  40 units of good X and 4 units of good Y. 
A)  15 units of good X and 24 units of good Y. 
B)  20 units of good X and 20 units of good Y. 
C)  30 units of good X and 12 units of good Y. 
D)  40 units of good X and 4 units of good Y.

Question 12

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 13

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 exterior 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 14

Figure 21-5
(a) (b)
    
-Refer to Figure 21-5. Assume that a consumer faces the budget constraint shown in graph (a) in January and the budget constraint shown in graph (b) in February. If the consumer's income has remained constant, then what has happened to prices between January and February?

Accepted Answer

A)  The price of X has fallen, but there could not have been a change in the price of Y. 
B)  The price of Y has fallen, but there could not have been a change in the price of X. 
C)  The price of X has fallen, and the price of Y has risen. 
D)  The price of Y has fallen, and the price of X has risen. 
A)  The price of X has fallen, but there could not have been a change in the price of Y. 
B)  The price of Y has fallen, but there could not have been a change in the price of X. 
C)  The price of X has fallen, and the price of Y has risen. 
D)  The price of Y has fallen, and the price of X has risen.

Question 15

Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs. If the price of a CD is $9, the price of a DVD is $18, and she is currently consuming 10 CDs and 5 DVDs, what is the consumer's income?

Accepted Answer

A)  $90 
B)  $180 
C)  $270 
D)  $360 
A)  $90 
B)  $180 
C)  $270 
D)  $360

Question 16

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin.  
-Refer to Figure 21-31. If the price of a shirt is $36 and point A is Kevin's optimum, then what is Kevin's income?

Accepted Answer

Kevin's in

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

A consumer spends all of her income on goods x and y. At her optimum,

Accepted Answer

A)  her valuation of the two goods exceeds the market's valuation of the two goods. 
B)  her marginal rate of substitution between good x and good y exceeds the ratio of the price of good x to the price of good y. 
C)  the slope of her budget constraint is equal to the slope of the highest indifference curve that she can reach while remaining within her budget. 
D)  her expenditure on good x is equal to her expenditure on good y. 
A)  her valuation of the two goods exceeds the market's valuation of the two goods. 
B)  her marginal rate of substitution between good x and good y exceeds the ratio of the price of good x to the price of good y. 
C)  the slope of her budget constraint is equal to the slope of the highest indifference curve that she can reach while remaining within her budget. 
D)  her expenditure on good x is equal to her expenditure on good y.

Question 19

Figure 21-5
(a) (b)
    
-Refer to Figure 21-5. In graph (b), if income is equal to $420, then the price of good X is

Accepted Answer

A)  $1. 
B)  $3. 
C)  $10. 
D)  $30. 
A)  $1. 
B)  $3. 
C)  $10. 
D)  $30.

Question 20

Scenario 21-2
Lawrence has recently graduated from college with a degree in journalism and economics. He has decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Lawrence is typically awake for 112 hours each week (he sleeps an average of 8 hours each day). For each hour Lawrence spends writing, he can earn $75. Lawrence is such a good writer that he can get paid for as many hours of writing as he chooses to work.
-Refer to Scenario 21-2. If Lawrence's wage increases to $90 per hour of writing, which of the following points would fall on his budget constraint?

Accepted Answer

A)  75 hours of leisure, $2,775 of consumption 
B)  80 hours of leisure, $2,400 of consumption 
C)  85 hours of leisure, $2,430 of consumption 
D)  90 hours of leisure, $1,650 of consumption 
A)  75 hours of leisure, $2,775 of consumption 
B)  80 hours of leisure, $2,400 of consumption 
C)  85 hours of leisure, $2,430 of consumption 
D)  90 hours of leisure, $1,650 of consumption

A Giffen good is a good for which an increase in the price

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If the price of a shirt is $20 and point B is Kevin's optimum, then what is Kevin's income?

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 5 slices of pizza and 5 paperback novels?

Consider two goods: peanuts and crackers. The slope of the consumer's budget constraint is measured by the

For a typical consumer, most indifference curves are downward sloping.

Figure 21-23 -Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The demand curve can be illustrated as the movement from

Which of the following statements is not correct?

A Giffen good is a good for which

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

Figure 21-5 (a) (b) -Refer to Figure 21-5. Assume that a consumer faces the budget constraint shown in graph (a) in January and the budget constraint shown in graph (b) in February. If the consumer's income has remained constant, then what has happened to prices between January and February?

Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs. If the price of a CD is $9, the price of a DVD is $18, and she is currently consuming 10 CDs and 5 DVDs, what is the consumer's income?

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If the price of a shirt is $36 and point A is Kevin's optimum, then what is Kevin's income?

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

A consumer spends all of her income on goods x and y. At her optimum,

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (b), if income is equal to $420, then the price of good X is

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

Filters

Exam 21: The Theory of Consumer Choice

A Giffen good is a good for which an increase in the price

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If the price of a shirt is $20 and point B is Kevin's optimum, then what is Kevin's income?

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 5 slices of pizza and 5 paperback novels?

Consider two goods: peanuts and crackers. The slope of the consumer's budget constraint is measured by the

For a typical consumer, most indifference curves are downward sloping.

Figure 21-23 -Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The demand curve can be illustrated as the movement from

Which of the following statements is not correct?

A Giffen good is a good for which

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

Figure 21-5 (a) (b) -Refer to Figure 21-5. Assume that a consumer faces the budget constraint shown in graph (a) in January and the budget constraint shown in graph (b) in February. If the consumer's income has remained constant, then what has happened to prices between January and February?

Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs. If the price of a CD is $9, the price of a DVD is $18, and she is currently consuming 10 CDs and 5 DVDs, what is the consumer's income?

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If the price of a shirt is $36 and point A is Kevin's optimum, then what is Kevin's income?

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

A consumer spends all of her income on goods x and y. At her optimum,

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (b), if income is equal to $420, then the price of good X is

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

Filters