Question 1

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 2

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 3

Which of the following is a consequence of subsidizing consumers using a per-unit excise subsidy for the purchase of some good or service as opposed to a lump-sum payment of an equal amount?

Accepted Answer

A) Consumers will not necessarily be better off according to their own preferences. 
B) The deadweight loss from over-consumption of the good or service is avoided. 
C) Consumers will move to a higher indifference curve. 
D) Consumers' purchase decisions will be based on their true valuation of the good. 
A) Consumers will not necessarily be better off according to their own preferences. 
B) The deadweight loss from over-consumption of the good or service is avoided. 
C) Consumers will move to a higher indifference curve. 
D) Consumers' purchase decisions will be based on their true valuation of the good.

Question 4

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.
In Figure 5-1,the total outlay on food before the excise subsidy is given by _____.

Accepted Answer

A) KC 
B) 0G 
C) 0H 
D) 0J 
A) KC 
B) 0G 
C) 0H 
D) 0J

Question 5

Suppose consumption in year 2 (C2)is on the horizontal axis and consumption in year 1 (C1)is on the vertical axis.An increase in the interest rate:

Accepted Answer

A) makes borrowers better off and lenders worse off. 
B) causes more people to shift their consumption from year 2 to year 1. 
C) causes the budget line to rotate outward along the horizontal axis. 
D) will reduce savings in year 2. 
A) makes borrowers better off and lenders worse off. 
B) causes more people to shift their consumption from year 2 to year 1. 
C) causes the budget line to rotate outward along the horizontal axis. 
D) will reduce savings in year 2.

Question 6

Being a member of the government-sponsored MediSave scheme entitles employees to a lump-sum payment in cash towards medical expenses.This scheme would:

Accepted Answer

A) increase employment. 
B) make workers better off. 
C) not change workers' welfare. 
D) cause average wages to fall. 
A) increase employment. 
B) make workers better off. 
C) not change workers' welfare. 
D) cause average wages to fall.

Question 7

A reduction in an individual's future income will cause:

Accepted Answer

A) consumption to fall in both time periods because consumption in both years are normal goods. 
B) a fall in consumption in the future period but not the current period since the price of future consumption relative to current consumption did not change. 
C) consumption to fall in the future period and rise in the current period as the consumer substitutes more current consumption for the future consumption. 
D) an increase in current consumption if interest rates are high enough to induce consumption. 
A) consumption to fall in both time periods because consumption in both years are normal goods. 
B) a fall in consumption in the future period but not the current period since the price of future consumption relative to current consumption did not change. 
C) consumption to fall in the future period and rise in the current period as the consumer substitutes more current consumption for the future consumption. 
D) an increase in current consumption if interest rates are high enough to induce consumption.

Question 8

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 9

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 10

Brenda starts a business for $150,000 that gives her a 50% chance of losing and a 50% chance of gaining an expected annual return of $75,000.John is content with a job that pays him $75,000 per year with near certainty;there is only about a 1% chance of losing his job each year.Suppose risk is on the horizontal axis and return on the vertical axis,Brenda's indifference curve for risk and return:

Accepted Answer

A) is flatter than John's. 
B) is steeper than John's. 
C) has the same slope as John's. 
D) is horizontal. 
A) is flatter than John's. 
B) is steeper than John's. 
C) has the same slope as John's. 
D) is horizontal.

Question 11

Consider the income and consumption of an individual between two time periods.If consumption in period 2 (C2)is on the horizontal axis,consumption in period 1 (C1)is on the vertical axis,and the interest rate is 11 percent,the slope of the budget constraint must be _____.

Accepted Answer

A) 0.11 
B) 0.9 
C) 1.11 
D) 11 
A) 0.11 
B) 0.9 
C) 1.11 
D) 11

Question 12

Figure 5-4 shows a family's preferences for public and private healthcare.Refer to Figure 5-4.Suppose the government offers a fixed quantity subsidy of healthcare valued at $B0.The new budget line becomes _____.

Accepted Answer

A) MAS 
B) MATN 
C) MN 
D) AS 
A) MAS 
B) MATN 
C) MN 
D) AS

Question 13

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 14

Describe the relationship among total utility,marginal utility,and preferences toward risk.

Accepted Answer

Marginal utility is the slope (or deriva

Question 15

Use the following figure to answer the question:  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

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

A risk-averse individual _____.

Which of the following is a consequence of subsidizing consumers using a per-unit excise subsidy for the purchase of some good or service as opposed to a lump-sum payment of an equal amount?

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. In Figure 5-1,the total outlay on food before the excise subsidy is given by _____.

Suppose consumption in year 2 (C₂)is on the horizontal axis and consumption in year 1 (C₁)is on the vertical axis.An increase in the interest rate:

Being a member of the government-sponsored MediSave scheme entitles employees to a lump-sum payment in cash towards medical expenses.This scheme would:

A reduction in an individual's future income will cause:

Which of the following is true of an excise subsidy?

Consider the income and consumption of an individual between two time periods.If consumption in period 2 (C₂)is on the horizontal axis,consumption in period 1 (C₁)is on the vertical axis,and the interest rate is 11 percent,the slope of the budget constraint must be _____.

Figure 5-4 shows a family's preferences for public and private healthcare.Refer to Figure 5-4.Suppose the government offers a fixed quantity subsidy of healthcare valued at $B0.The new budget line becomes _____.

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:

Describe the relationship among total utility,marginal utility,and preferences toward risk.

Use the following figure to answer the question: 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 _____.

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

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

A risk-averse individual _____.

Which of the following is a consequence of subsidizing consumers using a per-unit excise subsidy for the purchase of some good or service as opposed to a lump-sum payment of an equal amount?

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. In Figure 5-1,the total outlay on food before the excise subsidy is given by _____.

Suppose consumption in year 2 (C2)is on the horizontal axis and consumption in year 1 (C1)is on the vertical axis.An increase in the interest rate:

Being a member of the government-sponsored MediSave scheme entitles employees to a lump-sum payment in cash towards medical expenses.This scheme would:

A reduction in an individual's future income will cause:

Which of the following is true of an excise subsidy?

Consider the income and consumption of an individual between two time periods.If consumption in period 2 (C2)is on the horizontal axis,consumption in period 1 (C1)is on the vertical axis,and the interest rate is 11 percent,the slope of the budget constraint must be _____.

Figure 5-4 shows a family's preferences for public and private healthcare.Refer to Figure 5-4.Suppose the government offers a fixed quantity subsidy of healthcare valued at $B0.The new budget line becomes _____.

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:

Describe the relationship among total utility,marginal utility,and preferences toward risk.

Use the following figure to answer the question: 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 _____.

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

Suppose consumption in year 2 (C₂)is on the horizontal axis and consumption in year 1 (C₁)is on the vertical axis.An increase in the interest rate:

Consider the income and consumption of an individual between two time periods.If consumption in period 2 (C₂)is on the horizontal axis,consumption in period 1 (C₁)is on the vertical axis,and the interest rate is 11 percent,the slope of the budget constraint must be _____.

Use the following figure to answer the question: 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 _____.