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

Susie wins $2 million in her state's lottery. If Susie keeps working after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Accepted Answer

A) True 
 B)False

Question 3

In the work-leisure model, suppose consumption and leisure are both normal goods. The income effect of a wage increase results in the worker choosing to

Accepted Answer

A)  work less than before. 
B)  work more than before. 
C)  possibly work more or less than before. 
D)  work more with a higher level of consumption. 
A)  work less than before. 
B)  work more than before. 
C)  possibly work more or less than before. 
D)  work more with a higher level of consumption.

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 Kevin's income is $2,520 and point B is his optimum, then what is the price of a shirt?

Accepted Answer

The price

Question 5

Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

Accepted Answer

A)  $10 
B)  $5 
C)  $4 
D)  $2 
A)  $10 
B)  $5 
C)  $4 
D)  $2

Question 6

Figure 21-9  
-Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good X?

Accepted Answer

A)  $20 
B)  $6 
C)  $3 
D)  $0.33 
A)  $20 
B)  $6 
C)  $3 
D)  $0.33

Question 7

Ryan 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 labor­leisure tradeoff. 
D)  Ryan 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 labor­leisure tradeoff. 
D)  Ryan views both labor and leisure as inferior goods.

Question 8

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin.  
-Refer to Figure 21-31. For Kevin, are sweaters and shirts substitutes, complements, or neither?

Accepted Answer

Kevin purchases 28 sweaters at

Question 9

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 10

The opportunity cost of current household consumption is the

Accepted Answer

A)  wage rate. 
B)  market interest rate. 
C)  price of the goods consumed. 
D)  explicit cost of consumption. 
A)  wage rate. 
B)  market interest rate. 
C)  price of the goods consumed. 
D)  explicit cost of consumption.

Question 11

Jordan 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 income effect dominates the substitution effect, an increase in the interest rate on savings will cause him to

Accepted Answer

A)  decrease his savings rate. 
B)  increase his savings rate. 
C)  continue saving at the current rate. 
D)  Any of the above could be correct. 
A)  decrease his savings rate. 
B)  increase his savings rate. 
C)  continue saving at the current rate. 
D)  Any of the above could be correct.

Question 12

On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then

Accepted Answer

A)  a pineapple costs six times as much as a pencil. 
B)  the opportunity cost of a pineapple is 6 pencils. 
C)  the opportunity cost of a pencil is one-sixth of a pineapple. 
D)  All of the above are correct. 
A)  a pineapple costs six times as much as a pencil. 
B)  the opportunity cost of a pineapple is 6 pencils. 
C)  the opportunity cost of a pencil is one-sixth of a pineapple. 
D)  All of the above are correct.

Question 13

The following diagram shows a budget constraint for a particular consumer.   If the price of X is $5, what is the consumer's income?

Accepted Answer

A)  $10 
B)  $30 
C)  $150 
D)  $300 
A)  $10 
B)  $30 
C)  $150 
D)  $300

Question 14

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of Ramen noodles, by itself, will result in

Accepted Answer

A)  a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles. 
B)  a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles. 
C)  an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles. 
D)  an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles. 
A)  a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles. 
B)  a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles. 
C)  an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles. 
D)  an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.

Question 15

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

Accepted Answer

A) True 
 B)False

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. Suppose Kevin is optimally purchasing 21 shirts and 28 sweaters, and he is spending $1,680 on sweaters. What is the price of a shirt?

Accepted Answer

Given that Kevin is optimally purchasing

Question 17

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 18

Figure 21-8  
-Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is

Accepted Answer

A)  AB. 
B)  BC. 
C)  CD. 
D)  DE. 
A)  AB. 
B)  BC. 
C)  CD. 
D)  DE.

Question 19

Suppose the only two goods that Lorenzo 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. If you illustrate wine on the vertical axis and cheese on the horizontal axis, then

Accepted Answer

A)  the slope of Lorenzo's budget has not changed. 
B)  the slope of Lorenzo's budget constraint is flatter at the new prices. 
C)  the slope of Lorenzo's budget constraint is steeper at the new prices. 
D)  Lorenzo's budget constraint has shifted in a parallel fashion to the budget constraint with the old prices. 
A)  the slope of Lorenzo's budget has not changed. 
B)  the slope of Lorenzo's budget constraint is flatter at the new prices. 
C)  the slope of Lorenzo's budget constraint is steeper at the new prices. 
D)  Lorenzo's budget constraint has shifted in a parallel fashion to the budget constraint with the old prices.

Question 20

The theory of consumer choice provides the foundation for understanding the

Accepted Answer

A)  structure of a firm. 
B)  profitability of a firm. 
C)  demand for a firm's product. 
D)  supply of a firm's product. 
A)  structure of a firm. 
B)  profitability of a firm. 
C)  demand for a firm's product. 
D)  supply of a firm's product.

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

Susie wins $2 million in her state's lottery. If Susie keeps working after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

In the work-leisure model, suppose consumption and leisure are both normal goods. The income effect of a wage increase results in the worker choosing to

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If Kevin's income is $2,520 and point B is his optimum, then what is the price of a shirt?

Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

Figure 21-9 -Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good X?

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

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. For Kevin, are sweaters and shirts substitutes, complements, or neither?

Violations of the law of demand are assumed to occur

The opportunity cost of current household consumption is the

Jordan 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 income effect dominates the substitution effect, an increase in the interest rate on savings will cause him to

On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then

The following diagram shows a budget constraint for a particular consumer. If the price of X is $5, what is the consumer's income?

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of Ramen noodles, by itself, will result in

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. Suppose Kevin is optimally purchasing 21 shirts and 28 sweaters, and he is spending $1,680 on sweaters. What is the price of a shirt?

Figure 21-8 -Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is

The theory of consumer choice provides the foundation for understanding the

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

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

Susie wins $2 million in her state's lottery. If Susie keeps working after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

In the work-leisure model, suppose consumption and leisure are both normal goods. The income effect of a wage increase results in the worker choosing to

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If Kevin's income is $2,520 and point B is his optimum, then what is the price of a shirt?

Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

Figure 21-9 -Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good X?

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

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. For Kevin, are sweaters and shirts substitutes, complements, or neither?

Violations of the law of demand are assumed to occur

The opportunity cost of current household consumption is the

Jordan 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 income effect dominates the substitution effect, an increase in the interest rate on savings will cause him to

On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then

The following diagram shows a budget constraint for a particular consumer. If the price of X is $5, what is the consumer's income?

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of Ramen noodles, by itself, will result in

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. Suppose Kevin is optimally purchasing 21 shirts and 28 sweaters, and he is spending $1,680 on sweaters. What is the price of a shirt?

Figure 21-8 -Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is

The theory of consumer choice provides the foundation for understanding the

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