Question 1

The Permanent Income and Life-Cycle Hypothesis imply that

Accepted Answer

A) consumers generally favor current consumption over future consumption. 
B) the primary determinant of current consumption is permanent income. 
C) the primary determinant of permanent income is current consumption. 
D) consumers are more likely to save if they are uncertain about the future. 
A) consumers generally favor current consumption over future consumption. 
B) the primary determinant of current consumption is permanent income. 
C) the primary determinant of permanent income is current consumption. 
D) consumers are more likely to save if they are uncertain about the future.

Question 2

In a diagram, consumer surplus is always represented by the area:

Accepted Answer

A) between the demand curve and the supply curve. 
B) between the demand curve and the price. 
C) below the demand curve. 
D) above the demand curve. 
A) between the demand curve and the supply curve. 
B) between the demand curve and the price. 
C) below the demand curve. 
D) above the demand curve.

Question 3

If the marginal rate of substitution between future and current consumption is less than one, then this consumer exhibits

Accepted Answer

A) a positive time preference. 
B) a negative time preference. 
C) a neutral time preference. 
D) an increasing preference. 
A) a positive time preference. 
B) a negative time preference. 
C) a neutral time preference. 
D) an increasing preference.

Question 4

Which of the following would be but best item for the local government to tax if its goal was to raise revenue?

Accepted Answer

A) Water supply 
B) Outdoor concert provided by the city 
C) Weather reports on your phone 
D) Leaf collection 
A) Water supply 
B) Outdoor concert provided by the city 
C) Weather reports on your phone 
D) Leaf collection

Question 5

If the opportunity cost of a unit of current consumption is exactly 1 unit of future consumption then you must sacrifice $10 of current consumption to finance

Accepted Answer

A) $9 of future consumption. 
B) $10 of future consumption. 
C) $11 of future consumption. 
D) $1 of future consumption. 
A) $9 of future consumption. 
B) $10 of future consumption. 
C) $11 of future consumption. 
D) $1 of future consumption.

Question 6

Describe in words why the consumer price index overestimates inflation.

Accepted Answer

The CPI assumes the consumer is unable t

Question 7

If the government wanted to curb consumption of alcohol by taxing alcohol without hurting consumer's welfare it would

Accepted Answer

A) raise the tax on alcohol until demand for alcohol became elastic. 
B) need to know the substitution effect but not the income effect of a tax hike. 
C) need to know the income effect but not the substitution effect of a tax hike. 
D) tax until the income effect of the price increase, which would be refunded, is exactly equal to the revenue gained from the tax. 
A) raise the tax on alcohol until demand for alcohol became elastic. 
B) need to know the substitution effect but not the income effect of a tax hike. 
C) need to know the income effect but not the substitution effect of a tax hike. 
D) tax until the income effect of the price increase, which would be refunded, is exactly equal to the revenue gained from the tax.

Question 8

Suppose your university decides to increase parking fees in order to deal with the shortage of parking spaces. Nevertheless, the president of your student body convinces the university to pay back the amount spent on higher parking fees to students in the form of a rebate at the end of the school year. Therefore, the increase in parking fees will

Accepted Answer

A) not solve the parking shortage. 
B) reduce demand for parking and hence alleviate the parking shortage. 
C) will have no effect since it will be offset entirely by the rebate. 
D) make the parking shortage even worse. 
A) not solve the parking shortage. 
B) reduce demand for parking and hence alleviate the parking shortage. 
C) will have no effect since it will be offset entirely by the rebate. 
D) make the parking shortage even worse.

Question 9

Say an individual demand curve was given by P = 50 - 5Q. When the price is $25, consumer surplus is around

Accepted Answer

A) $63. 
B) $188. 
C) $125. 
D) $100. 
A) $63. 
B) $188. 
C) $125. 
D) $100.

Question 10

Suppose you receive Y1 of your income this period and Y2 of your income in the next period. If you can either borrow or lend at an interest rate r, what is the most you can consume in the future period?

Accepted Answer

A) Y1(1 + r) + Y2 
B) Y2(1 + r) + Y1 
C) Y1/(1 + r) + Y2 
D) Y2/(1 + r) + Y1 
A) Y1(1 + r) + Y2 
B) Y2(1 + r) + Y1 
C) Y1/(1 + r) + Y2 
D) Y2/(1 + r) + Y1

Question 11

If you wear your favorite clothes first and eat your favorite food before the food you prefer less you most likely have a

Accepted Answer

A) positive time preference. 
B) a negative time preference. 
C) a neutral time preference. 
D) time preference that varies depending on whether you are eating or dressing. 
A) positive time preference. 
B) a negative time preference. 
C) a neutral time preference. 
D) time preference that varies depending on whether you are eating or dressing.

Question 12

If $100 today is worth $150 to you in the future, then you exhibit

Accepted Answer

A) a positive time preference. 
B) a negative time preference. 
C) a neutral time preference. 
D) a negative marginal rate of substitution. 
A) a positive time preference. 
B) a negative time preference. 
C) a neutral time preference. 
D) a negative marginal rate of substitution.

Question 13

A decrease in the interest rate will

Accepted Answer

A) produce an increase in current savings. 
B) produce an increase in current consumption. 
C) produce a decrease in current savings. 
D) depend on the particular consumer's preferences. 
A) produce an increase in current savings. 
B) produce an increase in current consumption. 
C) produce a decrease in current savings. 
D) depend on the particular consumer's preferences.

Question 14

Suppose an individual demand curve is given by P = 100 - 5Q, where P is the price of smoothies and Q is the quantity she consumes. Assuming her income per week is $1,000 and the current price of smoothies is $5 each, by how much will her consumer surplus decline if the price of smoothies increased to $10 each?

Accepted Answer

A) $92.5 
B) $810 
C) $950 
D) $25 
A) $92.5 
B) $810 
C) $950 
D) $25

Question 15

When people choose to wait for a kiss that they have won from a favorite movie star, they are clearly

Accepted Answer

A) exhibiting a negative time preference and anticipation value. 
B) exhibiting a positive time preference with anticipation value. 
C) exhibiting a zero time preference. 
D) irrational by rational choice standards. 
A) exhibiting a negative time preference and anticipation value. 
B) exhibiting a positive time preference with anticipation value. 
C) exhibiting a zero time preference. 
D) irrational by rational choice standards.

Question 16

You have $20,000 of current income and $45,000 of future income. The interest rate between the current and future period is 2 percent. What is the maximum amount you could consume in the future?

Accepted Answer

A) 65,400 
B) 69,000 
C) 20,400 
D) 65,000 
A) 65,400 
B) 69,000 
C) 20,400 
D) 65,000

Question 17

When a product depicted on the horizontal axis of a typical indifference curve model of behavior is taxed

Accepted Answer

A) the budget line becomes steeper. 
B) the budget line becomes flatter. 
C) the indifference curve of the consumer shifts right. 
D) all the indifference curves of the consumer become steeper. 
A) the budget line becomes steeper. 
B) the budget line becomes flatter. 
C) the indifference curve of the consumer shifts right. 
D) all the indifference curves of the consumer become steeper.

Question 18

Differences in time preferences depend on

Accepted Answer

A) uncertainty regarding the future. 
B) social preference. 
C) differences in the relative size of expected future incomes. 
D) the time. 
A) uncertainty regarding the future. 
B) social preference. 
C) differences in the relative size of expected future incomes. 
D) the time.

Question 19

The horizontal intercept of the intertemporal budget constraint is referred to as

Accepted Answer

A) the present value of lifetime income. 
B) the current value of future income. 
C) the future value of lifetime income. 
D) the future value of present income. 
A) the present value of lifetime income. 
B) the current value of future income. 
C) the future value of lifetime income. 
D) the future value of present income.

Question 20

Budget A consists mostly of food, health care and an apartment and Budget B is made up largely of Food, Entertainment, and Travel. If inflation is estimated by the consumer price index which includes all the items listed above and travel and healthcare had the biggest jump in prices, which of the following is true?

Accepted Answer

A) Budget A will likely have a less accurate estimate than budget B 
B) Inflation will be equally biased for both budgets 
C) Budget B will likely have a less accurate measurement than budget A 
D) There should be no bias in this case because of the simple budget components 
A) Budget A will likely have a less accurate estimate than budget B 
B) Inflation will be equally biased for both budgets 
C) Budget B will likely have a less accurate measurement than budget A 
D) There should be no bias in this case because of the simple budget components

The Permanent Income and Life-Cycle Hypothesis imply that

In a diagram, consumer surplus is always represented by the area:

If the marginal rate of substitution between future and current consumption is less than one, then this consumer exhibits

Which of the following would be but best item for the local government to tax if its goal was to raise revenue?

If the opportunity cost of a unit of current consumption is exactly 1 unit of future consumption then you must sacrifice $10 of current consumption to finance

Describe in words why the consumer price index overestimates inflation.

If the government wanted to curb consumption of alcohol by taxing alcohol without hurting consumer's welfare it would

Say an individual demand curve was given by P = 50 - 5Q. When the price is $25, consumer surplus is around

Suppose you receive Y1 of your income this period and Y2 of your income in the next period. If you can either borrow or lend at an interest rate r, what is the most you can consume in the future period?

If you wear your favorite clothes first and eat your favorite food before the food you prefer less you most likely have a

If $100 today is worth $150 to you in the future, then you exhibit

A decrease in the interest rate will

When people choose to wait for a kiss that they have won from a favorite movie star, they are clearly

You have $20,000 of current income and $45,000 of future income. The interest rate between the current and future period is 2 percent. What is the maximum amount you could consume in the future?

When a product depicted on the horizontal axis of a typical indifference curve model of behavior is taxed

Differences in time preferences depend on

The horizontal intercept of the intertemporal budget constraint is referred to as

Thinking Like an Economist

Supply and Demand

Rational Consumer Choice

Individual and Market Demand

The Economics of Information and Choice Under Uncertainty

Departures From Standard Rational Choice Models With and Without Regret

Production

Costs

Perfect Competition

Monopoly

A Game-Theoretic Approach to Strategic Behavior

Oligopoly and Monopolistic Competition

Labor

Capital

Externalities, Property Rights, and the Coase Theorem

General Equilibrium and Market Efficiency

Government

Filters

Exam 5: Applications of Rational Choice and Demand Theories

The Permanent Income and Life-Cycle Hypothesis imply that

In a diagram, consumer surplus is always represented by the area:

If the marginal rate of substitution between future and current consumption is less than one, then this consumer exhibits

Which of the following would be but best item for the local government to tax if its goal was to raise revenue?

If the opportunity cost of a unit of current consumption is exactly 1 unit of future consumption then you must sacrifice $10 of current consumption to finance

Describe in words why the consumer price index overestimates inflation.

If the government wanted to curb consumption of alcohol by taxing alcohol without hurting consumer's welfare it would

Say an individual demand curve was given by P = 50 - 5Q. When the price is $25, consumer surplus is around

Suppose you receive Y1 of your income this period and Y2 of your income in the next period. If you can either borrow or lend at an interest rate r, what is the most you can consume in the future period?

If you wear your favorite clothes first and eat your favorite food before the food you prefer less you most likely have a

If $100 today is worth $150 to you in the future, then you exhibit

A decrease in the interest rate will

When people choose to wait for a kiss that they have won from a favorite movie star, they are clearly

You have $20,000 of current income and $45,000 of future income. The interest rate between the current and future period is 2 percent. What is the maximum amount you could consume in the future?

When a product depicted on the horizontal axis of a typical indifference curve model of behavior is taxed

Differences in time preferences depend on

The horizontal intercept of the intertemporal budget constraint is referred to as

Thinking Like an Economist

Supply and Demand

Rational Consumer Choice

Individual and Market Demand

The Economics of Information and Choice Under Uncertainty

Departures From Standard Rational Choice Models With and Without Regret

Production

Costs

Perfect Competition

Monopoly

A Game-Theoretic Approach to Strategic Behavior

Oligopoly and Monopolistic Competition

Labor

Capital

Externalities, Property Rights, and the Coase Theorem

General Equilibrium and Market Efficiency

Government

Filters