Question 1

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

Accepted Answer

A) maximising behaviour. 
B) economising behaviour. 
C) the price constraint. 
D) the budget constraint. 
A) maximising behaviour. 
B) economising behaviour. 
C) the price constraint. 
D) the budget constraint.

Question 2

Grant has $200 to spend each month on restaurant meals and jazz performances at his neighbourhood jazz club.The price of a typical restaurant meal is $20 and the price of a jazz performance ticket is $10.Grant is maximising his utility by consuming 6 restaurant meals and attending 8 jazz performances.Suppose Grant still has $200 to spend,but the price of restaurant meal rises to $25,while the price of jazz performance ticket drops to $8.Is Grant better off or worse off than he was before the price change? Use a budget constraint/indifference curve graph to illustrate your answer.

Accepted Answer

Initially,when the price of a typical re

Question 3

Table 6-3
  
-Refer to Table 6-3.The table above shows Lee's marginal utility per dollar from consuming ice cream cones and cans of Lemonade.The price of an ice cream cone is $2 and the price of Lemonade is $1.Use this information to select the correct statement.

Accepted Answer

A) We cannot determine how many ice cream cones and cans of Lemonade Lee will consume without knowing what his income is. 
B) To maximise his utility,Lee should consume 1 ice cream cone and 5 cans of Lemonade. 
C) We cannot determine how many ice cream cones and cans of Lemonade will maximise Lee's utility because we are given only the marginal utility per dollar values.We also need to know the marginal utility for each quantity. 
D) If Lee has an unlimited budget,he will maximise his utility by buying only Lemonade. 
A) We cannot determine how many ice cream cones and cans of Lemonade Lee will consume without knowing what his income is. 
B) To maximise his utility,Lee should consume 1 ice cream cone and 5 cans of Lemonade. 
C) We cannot determine how many ice cream cones and cans of Lemonade will maximise Lee's utility because we are given only the marginal utility per dollar values.We also need to know the marginal utility for each quantity. 
D) If Lee has an unlimited budget,he will maximise his utility by buying only Lemonade.

Question 4

Along a downward-sloping linear demand curve

Accepted Answer

A) the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase. 
B) the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant. 
C) the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases. 
D) the marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remains constant. 
A) the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase. 
B) the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant. 
C) the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases. 
D) the marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remains constant.

Question 5

Which of the following is held constant along an indifference curve?

Accepted Answer

A) the prices of the goods in question 
B) the marginal rate of substitution between the two goods in question 
C) the marginal utility derived from consuming any bundle of goods on the indifference curve 
D) the total utility derived from consuming any bundle of goods on the indifference curve 
A) the prices of the goods in question 
B) the marginal rate of substitution between the two goods in question 
C) the marginal utility derived from consuming any bundle of goods on the indifference curve 
D) the total utility derived from consuming any bundle of goods on the indifference curve

Question 6

Table 6-6
   Table 6-6 lists Jay's marginal utilities for burgers and Pepsi.Jay has $7 to spend on these two goods.The price of a burger is $2 and the price of a can of Pepsi is $1.
-Refer to Table 6-6.What is Jay's optimal consumption bundle?

Accepted Answer

A) 1 burger and 2 Pepsis 
B) 2 burgers and 3 Pepsis 
C) 3 burgers and 1 Pepsi 
D) 3 burgers and 2 Pepsis 
A) 1 burger and 2 Pepsis 
B) 2 burgers and 3 Pepsis 
C) 3 burgers and 1 Pepsi 
D) 3 burgers and 2 Pepsis

Question 7

For which of the following products is social influence likely to have the greatest impact?

Accepted Answer

A) toothpaste 
B) restaurants 
C) high-blood pressure medication 
D) school textbook 
A) toothpaste 
B) restaurants 
C) high-blood pressure medication 
D) school textbook

Question 8

Consumers have to make trade-offs in deciding what to consume because

Accepted Answer

A) not all goods give them the same amount of satisfaction. 
B) the prices of goods vary. 
C) they are limited by a budget constraint. 
D) there are not enough of all goods produced. 
A) not all goods give them the same amount of satisfaction. 
B) the prices of goods vary. 
C) they are limited by a budget constraint. 
D) there are not enough of all goods produced.

Question 9

For a demand curve to be upward sloping,the good would have to be an inferior good,and

Accepted Answer

A) the income effect would have to be larger than the substitution effect. 
B) the income effect would have to be smaller than the substitution effect. 
C) the income effect would have to be equal to the substitution effect. 
D) the income effect and the substitution effect would have to be nonexistent. 
A) the income effect would have to be larger than the substitution effect. 
B) the income effect would have to be smaller than the substitution effect. 
C) the income effect would have to be equal to the substitution effect. 
D) the income effect and the substitution effect would have to be nonexistent.

Question 10

A consumer's indifference curves can never cross.

Accepted Answer

A) True 
 B)False

Question 11

Figure 6-7  
-Refer to Figure 6-7.Consider the budget constraint BC1.If the price of DVDs is $20 and the price of CDs is $10,what is the consumer's income?

Accepted Answer

A) $120 
B) $240 
C) $360 
D) $480 
A) $120 
B) $240 
C) $360 
D) $480

Question 12

Figure 6-6  
-Refer to Figure 6-6.If the price of biscotti is $1.50 and the price of a cappuccino is $3.00,what is the slope of the budget constraint?

Accepted Answer

A) -2 
B) -(3.00 - 1.50)/(3.00 + 1.50)= -1/3 
C) -1/2 
D) The slope cannot be determined without the value of income. 
A) -2 
B) -(3.00 - 1.50)/(3.00 + 1.50)= -1/3 
C) -1/2 
D) The slope cannot be determined without the value of income.

Question 13

Which of the following is a common mistake made by consumers?

Accepted Answer

A) taking into account the implicit costs of an activity 
B) ignoring sunk costs 
C) being overly optimistic about their future behaviour 
D) being overly pessimistic about their future behaviour 
A) taking into account the implicit costs of an activity 
B) ignoring sunk costs 
C) being overly optimistic about their future behaviour 
D) being overly pessimistic about their future behaviour

Question 14

The substitution effect of a change in the price of cauliflower is the portion of the change in the quantity of cauliflower demanded that can be attributed to the change in the price of a substitute vegetable such as asparagus.

Accepted Answer

A) True 
 B)False

Question 15

List three reasons why demand for a product will often increase if the product is endorsed by a celebrity.

Accepted Answer

1.Consumers may believe that the celebri

Question 16

The increase in consumption of a good when its price falls is caused by two effects.What are these two effects? Explain the difference between these effects.

Accepted Answer

The two effects are the substitution and

Question 17

A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

Accepted Answer

A) True 
 B)False

Question 18

Farah has $100 to spend each month on bread and chicken.Suppose the price of bread is $4 a loaf and the price of chicken is $5 per pound.
a.Draw her budget constraint and label it BC0.Put bread on the horizontal axis and chicken on the vertical axis.Be sure to identify the intercept values.
b.Suppose Farah is a utility maximiser and she consumes 10 loaves of bread and 12 pounds of chicken.On the same graph you drew in part (a),draw an indifference curve to identify her optimal bundle.Label this bundle 'E.'
c.Is her budget exhausted? Verify your answer.
d.Now suppose Farah's income falls so that she can now devote $80 to the two goods.Prices however remain unchanged.In the same diagram,graph her new budget constraint and label it BC1.Be sure to identify any new intercept values.
e.Following the change in income,can Farah consume the same bundle 'E'? Explain your answer.
f.What must happen to her total utility following the decrease in her income?

Accepted Answer

a.See the figure below
b.See the figure

Question 19

A sunk cost is

Accepted Answer

A) another term that means opportunity cost. 
B) a term used to describe the cost of capital that the owners of a firm sink into their business. 
C) the highest valued alternative that must be given up to engage in an activity. 
D) a cost that has already been paid and cannot be recovered. 
A) another term that means opportunity cost. 
B) a term used to describe the cost of capital that the owners of a firm sink into their business. 
C) the highest valued alternative that must be given up to engage in an activity. 
D) a cost that has already been paid and cannot be recovered.

Question 20

The demand curve for an inferior good can never be downward sloping.

Accepted Answer

A) True 
 B)False

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

Table 6-3 -Refer to Table 6-3.The table above shows Lee's marginal utility per dollar from consuming ice cream cones and cans of Lemonade.The price of an ice cream cone is $2 and the price of Lemonade is $1.Use this information to select the correct statement.

Along a downward-sloping linear demand curve

Which of the following is held constant along an indifference curve?

Table 6-6 Table 6-6 lists Jay's marginal utilities for burgers and Pepsi.Jay has $7 to spend on these two goods.The price of a burger is $2 and the price of a can of Pepsi is $1. -Refer to Table 6-6.What is Jay's optimal consumption bundle?

For which of the following products is social influence likely to have the greatest impact?

Consumers have to make trade-offs in deciding what to consume because

For a demand curve to be upward sloping,the good would have to be an inferior good,and

A consumer's indifference curves can never cross.

Figure 6-7 -Refer to Figure 6-7.Consider the budget constraint BC₁.If the price of DVDs is $20 and the price of CDs is $10,what is the consumer's income?

Figure 6-6 -Refer to Figure 6-6.If the price of biscotti is $1.50 and the price of a cappuccino is $3.00,what is the slope of the budget constraint?

Which of the following is a common mistake made by consumers?

The substitution effect of a change in the price of cauliflower is the portion of the change in the quantity of cauliflower demanded that can be attributed to the change in the price of a substitute vegetable such as asparagus.

List three reasons why demand for a product will often increase if the product is endorsed by a celebrity.

The increase in consumption of a good when its price falls is caused by two effects.What are these two effects? Explain the difference between these effects.

A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

A sunk cost is

The demand curve for an inferior good can never be downward sloping.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Technology, Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

The Markets for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Exam 6: Consumer Choice and Behavioural Economics

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

Table 6-3 -Refer to Table 6-3.The table above shows Lee's marginal utility per dollar from consuming ice cream cones and cans of Lemonade.The price of an ice cream cone is $2 and the price of Lemonade is $1.Use this information to select the correct statement.

Along a downward-sloping linear demand curve

Which of the following is held constant along an indifference curve?

Table 6-6 Table 6-6 lists Jay's marginal utilities for burgers and Pepsi.Jay has $7 to spend on these two goods.The price of a burger is $2 and the price of a can of Pepsi is $1. -Refer to Table 6-6.What is Jay's optimal consumption bundle?

For which of the following products is social influence likely to have the greatest impact?

Consumers have to make trade-offs in deciding what to consume because

For a demand curve to be upward sloping,the good would have to be an inferior good,and

A consumer's indifference curves can never cross.

Figure 6-7 -Refer to Figure 6-7.Consider the budget constraint BC1.If the price of DVDs is $20 and the price of CDs is $10,what is the consumer's income?

Figure 6-6 -Refer to Figure 6-6.If the price of biscotti is $1.50 and the price of a cappuccino is $3.00,what is the slope of the budget constraint?

Which of the following is a common mistake made by consumers?

The substitution effect of a change in the price of cauliflower is the portion of the change in the quantity of cauliflower demanded that can be attributed to the change in the price of a substitute vegetable such as asparagus.

List three reasons why demand for a product will often increase if the product is endorsed by a celebrity.

The increase in consumption of a good when its price falls is caused by two effects.What are these two effects? Explain the difference between these effects.

A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

A sunk cost is

The demand curve for an inferior good can never be downward sloping.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Technology, Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

The Markets for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Figure 6-7 -Refer to Figure 6-7.Consider the budget constraint BC₁.If the price of DVDs is $20 and the price of CDs is $10,what is the consumer's income?