Question 1

Other things remaining the same,in the intertemporal consumer choice model a change in the endowment point:

Accepted Answer

A) produces a parallel shift in the consumer's budget line. 
B) alters the relative cost of future and present consumption. 
C) pivots the budget line. 
D) reduces the cost of current consumption. 
A) produces a parallel shift in the consumer's budget line. 
B) alters the relative cost of future and present consumption. 
C) pivots the budget line. 
D) reduces the cost of current consumption.

Question 2

In the model of inter-temporal choice,will a person who initially consumes exactly their income in each period have more or less current consumption after a decrease in the interest rate?

Accepted Answer

The graph below represents a consumer,fa

Question 3

A risk-averse individual who owns a $200,000 house and faces the prospect that the house will burn down with the probability 0.05 in any given year will be willing to pay how much of an annual premium to fully insure against such a loss?

Accepted Answer

A) $5,000 
B) More than $10,000 
C) No more than $5,000 
D) Either more or less than $10,000 depending on whether housing is a normal or inferior good for the individual 
A) $5,000 
B) More than $10,000 
C) No more than $5,000 
D) Either more or less than $10,000 depending on whether housing is a normal or inferior good for the individual

Question 4

A family's preferences toward schooling,before and after a fixed-quantity subsidy,are shown in Figure 5-5.Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring.  
-Refer to Figure 5-5.Public schooling provided in the amount of B0 causes the family to consume _____ of other goods.

Accepted Answer

A) MC 
B) MH 
C) M0 
D) CH 
A) MC 
B) MH 
C) M0 
D) CH

Question 5

Figure 5-2 shows the quantity demanded of a good at various prices.  
-Refer to Figure 5-2.The deadweight loss of an excise subsidy that lowers the price from P1 to P2 is area _____.

Accepted Answer

A) P1ACP2 
B) P1BCP2 
C) ADC 
D) ABC 
A) P1ACP2 
B) P1BCP2 
C) ADC 
D) ABC

Question 6

The expected utility from an investment is defined as _____.

Accepted Answer

A) the summed value of each possible utility weighted by its probability 
B) the expected returns from an investment weighted by its risk. 
C) the expected probability of high returns on an investment 
D) the summed value of each possible rate of return discounted for inflation 
A) the summed value of each possible utility weighted by its probability 
B) the expected returns from an investment weighted by its risk. 
C) the expected probability of high returns on an investment 
D) the summed value of each possible rate of return discounted for inflation

Question 7

The welfare effect of an excise subsidy indicates that:

Accepted Answer

A) the consumer is better off than without the subsidy. 
B) the consumer is indifferent between an excise subsidy and a cash grant. 
C) excise subsidies should not be used by the government. 
D) government officials know what is better for low-income families than the families themselves. 
A) the consumer is better off than without the subsidy. 
B) the consumer is indifferent between an excise subsidy and a cash grant. 
C) excise subsidies should not be used by the government. 
D) government officials know what is better for low-income families than the families themselves.

Question 8

A risk-averse individual _____.

Accepted Answer

A) prefers a sure return to an uncertain prospect generating the same expected return 
B) is indifferent between a sure return and an uncertain prospect generating the same expected return 
C) will forgo a sure return in favor of an uncertain prospect generating the same expected return 
D) will avoid all risky investments no matter what the return 
A) prefers a sure return to an uncertain prospect generating the same expected return 
B) is indifferent between a sure return and an uncertain prospect generating the same expected return 
C) will forgo a sure return in favor of an uncertain prospect generating the same expected return 
D) will avoid all risky investments no matter what the return

Question 9

In a two-year period,suppose Gloria has $10,000 in income in year 1 and $4,300 in income in year 2.In order to maintain her optimal consumption of $8,000 in year 1 and $6,500 in year 2,she can borrow or lend at a rate of 10 percent.If Gloria's income stream changes such that she earns $3,000 in Year 1 and $12,000 in Year 2,the budget line will:

Accepted Answer

A) shift out away from the origin. 
B) pivot about the endowment point. 
C) pivot about the intercept on the axis representing year 2 income. 
D) remain unchanged. 
A) shift out away from the origin. 
B) pivot about the endowment point. 
C) pivot about the intercept on the axis representing year 2 income. 
D) remain unchanged.

Question 10

Figure 5-1 shows the preferences of a consumer for food and other goods.He is initially in equilibrium at point A where the budget line MN is tangent to the indifference curve.
Figure 5-1  
-In Figure 5-1,the total outlay on other goods before the excise subsidy is given by _____.

Accepted Answer

A) 0M 
B) 0N 
C) 0E 
D) 0G 
A) 0M 
B) 0N 
C) 0E 
D) 0G

Question 11

The U.S.government in effect subsidizes health care of workers by:

Accepted Answer

A) relaxing health care regulations. 
B) having lower tax rates on wages and salaries. 
C) not taxing health care benefits. 
D) reducing taxes on firms and small businesses. 
A) relaxing health care regulations. 
B) having lower tax rates on wages and salaries. 
C) not taxing health care benefits. 
D) reducing taxes on firms and small businesses.

Question 12

Phil and Jane,and their son Dylan,have $10,000 in savings which they would like to invest.Phil wants to use the money to open a diner although he has only a 30% chance of getting the same returns as Jane who prefers investing the money in Treasury bills.Jane prefers to invest in T-bills since they are less risky.Their son,Dylan,is indifferent between the diner and Treasury bills as long as he gets a new car.How would you represent their preferences towards risk and return on an indifference map?

Accepted Answer

Phil prefers an uncertain outcome to a c

Question 13

An increase in the price per unit for trash disposal from zero to a positive quantity causes the budget line to change from:

Accepted Answer

A) a vertical line to a horizontal line. 
B) having a zero slope to a negative slope. 
C) having a negative slope to a positive slope. 
D) a horizontal line to a vertical line. 
A) a vertical line to a horizontal line. 
B) having a zero slope to a negative slope. 
C) having a negative slope to a positive slope. 
D) a horizontal line to a vertical line.

Question 14

In an attempt to encourage the use of solar energy,the government pays a part of the price of solar panels to the producer and allows consumers to buy as many panels as they wish at the subsidized price.This is an example of a(n)_____.

Accepted Answer

A) excise subsidy 
B) fixed-quantity subsidy 
C) voucher program 
D) lump-sum transfer 
A) excise subsidy 
B) fixed-quantity subsidy 
C) voucher program 
D) lump-sum transfer

Question 15

Which of the following is true of an excise subsidy?

Accepted Answer

A) An excise subsidy has a positive substitution effect but negative income effect on the consumption of the subsidized good. 
B) An excise subsidy increases consumption of the subsidized good more than a cash transfer of equal-cost. 
C) An excise subsidy leaves the well-being of the subsidy recipient unchanged. 
D) An excise subsidy causes consumption of nonsubsidized goods to increase. 
A) An excise subsidy has a positive substitution effect but negative income effect on the consumption of the subsidized good. 
B) An excise subsidy increases consumption of the subsidized good more than a cash transfer of equal-cost. 
C) An excise subsidy leaves the well-being of the subsidy recipient unchanged. 
D) An excise subsidy causes consumption of nonsubsidized goods to increase.

Question 16

Unlike an equivalent-sized cash transfer,an excise subsidy on good X:

Accepted Answer

A) has an income effect. 
B) leaves the consumer better off. 
C) has a substitution effect. 
D) increases consumption of composite goods. 
A) has an income effect. 
B) leaves the consumer better off. 
C) has a substitution effect. 
D) increases consumption of composite goods.

Question 17

Figure 5-3 shows a family's preferences for housing and other goods.  
-Refer to Figure 5-3.Suppose the government offered public housing that provided exactly B0 units of housing services to a low-income family.The public housing unit:

Accepted Answer

A) is provided by the government at a cost of $TB. 
B) allows the family to reach a higher indifference curve but causes the family to consume more housing than an equal-sized cash transfer. 
C) increases the level of housing consumption by the same amount as an equal-sized cash transfer. 
D) causes the family to consume less housing than before the fixed-quantity subsidy. 
A) is provided by the government at a cost of $TB. 
B) allows the family to reach a higher indifference curve but causes the family to consume more housing than an equal-sized cash transfer. 
C) increases the level of housing consumption by the same amount as an equal-sized cash transfer. 
D) causes the family to consume less housing than before the fixed-quantity subsidy.

Question 18

For a risk-neutral individual,with return on the X-axis and total utility on the Y-axis,slope of the total utility curve:

Accepted Answer

A) increases at an increasing rate. 
B) has a constant slope. 
C) increases at a decreasing rate. 
D) decreases at an increasing rate. 
A) increases at an increasing rate. 
B) has a constant slope. 
C) increases at a decreasing rate. 
D) decreases at an increasing rate.

Question 19

A family's preferences toward schooling,before and after a fixed-quantity subsidy,are shown in Figure 5-5.Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring.  
-Refer to Figure 5-5.After the fixed-quantity subsidy has been introduced,the family consumes:

Accepted Answer

A) its optimum level of other goods. 
B) less than its optimum quantity of schooling. 
C) more than its optimum quantity of schooling. 
D) less than its optimum quantity of other goods. 
A) its optimum level of other goods. 
B) less than its optimum quantity of schooling. 
C) more than its optimum quantity of schooling. 
D) less than its optimum quantity of other goods.

Question 20

An individual who is considering consumption between two time periods (year 1 and year 2)has an endowment of $20,000 in year 1 and $15,000 in year 2.If the interest rate is 5 percent,what is the maximum approximate amount that can be spent on consumption in year 1?

Accepted Answer

A) $35,000 
B) $20,000 
C) $35,750 
D) $34,250 
A) $35,000 
B) $20,000 
C) $35,750 
D) $34,250

Other things remaining the same,in the intertemporal consumer choice model a change in the endowment point:

In the model of inter-temporal choice,will a person who initially consumes exactly their income in each period have more or less current consumption after a decrease in the interest rate?

A risk-averse individual who owns a $200,000 house and faces the prospect that the house will burn down with the probability 0.05 in any given year will be willing to pay how much of an annual premium to fully insure against such a loss?

Figure 5-2 shows the quantity demanded of a good at various prices. -Refer to Figure 5-2.The deadweight loss of an excise subsidy that lowers the price from P₁ to P₂ is area _____.

The expected utility from an investment is defined as _____.

The welfare effect of an excise subsidy indicates that:

A risk-averse individual _____.

Figure 5-1 shows the preferences of a consumer for food and other goods.He is initially in equilibrium at point A where the budget line MN is tangent to the indifference curve. Figure 5-1 -In Figure 5-1,the total outlay on other goods before the excise subsidy is given by _____.

The U.S.government in effect subsidizes health care of workers by:

An increase in the price per unit for trash disposal from zero to a positive quantity causes the budget line to change from:

In an attempt to encourage the use of solar energy,the government pays a part of the price of solar panels to the producer and allows consumers to buy as many panels as they wish at the subsidized price.This is an example of a(n)_____.

Which of the following is true of an excise subsidy?

Unlike an equivalent-sized cash transfer,an excise subsidy on good X:

Figure 5-3 shows a family's preferences for housing and other goods. -Refer to Figure 5-3.Suppose the government offered public housing that provided exactly B0 units of housing services to a low-income family.The public housing unit:

For a risk-neutral individual,with return on the X-axis and total utility on the Y-axis,slope of the total utility curve:

An individual who is considering consumption between two time periods (year 1 and year 2)has an endowment of $20,000 in year 1 and $15,000 in year 2.If the interest rate is 5 percent,what is the maximum approximate amount that can be spent on consumption in year 1?

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

Exam 5: Using Consumer Choice Theory

Other things remaining the same,in the intertemporal consumer choice model a change in the endowment point:

In the model of inter-temporal choice,will a person who initially consumes exactly their income in each period have more or less current consumption after a decrease in the interest rate?

A risk-averse individual who owns a $200,000 house and faces the prospect that the house will burn down with the probability 0.05 in any given year will be willing to pay how much of an annual premium to fully insure against such a loss?

Figure 5-2 shows the quantity demanded of a good at various prices. -Refer to Figure 5-2.The deadweight loss of an excise subsidy that lowers the price from P1 to P2 is area _____.

The expected utility from an investment is defined as _____.

The welfare effect of an excise subsidy indicates that:

A risk-averse individual _____.

Figure 5-1 shows the preferences of a consumer for food and other goods.He is initially in equilibrium at point A where the budget line MN is tangent to the indifference curve. Figure 5-1 -In Figure 5-1,the total outlay on other goods before the excise subsidy is given by _____.

The U.S.government in effect subsidizes health care of workers by:

An increase in the price per unit for trash disposal from zero to a positive quantity causes the budget line to change from:

In an attempt to encourage the use of solar energy,the government pays a part of the price of solar panels to the producer and allows consumers to buy as many panels as they wish at the subsidized price.This is an example of a(n)_____.

Which of the following is true of an excise subsidy?

Unlike an equivalent-sized cash transfer,an excise subsidy on good X:

Figure 5-3 shows a family's preferences for housing and other goods. -Refer to Figure 5-3.Suppose the government offered public housing that provided exactly B0 units of housing services to a low-income family.The public housing unit:

For a risk-neutral individual,with return on the X-axis and total utility on the Y-axis,slope of the total utility curve:

An individual who is considering consumption between two time periods (year 1 and year 2)has an endowment of $20,000 in year 1 and $15,000 in year 2.If the interest rate is 5 percent,what is the maximum approximate amount that can be spent on consumption in year 1?

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

Figure 5-2 shows the quantity demanded of a good at various prices. -Refer to Figure 5-2.The deadweight loss of an excise subsidy that lowers the price from P₁ to P₂ is area _____.