Question 1

For a typical consumer, most indifference curves are downward sloping.

Accepted Answer

A) True 
 B)False

Question 2

A consumer chooses an optimal consumption point where the

Accepted Answer

A)  marginal rate of substitution is maximized. 
B)  rate at which the consumer is willing to trade one good for another equals the price ratio. 
C)  price ratio is minimized. 
D)  All of the above are correct. 
A)  marginal rate of substitution is maximized. 
B)  rate at which the consumer is willing to trade one good for another equals the price ratio. 
C)  price ratio is minimized. 
D)  All of the above are correct.

Question 3

Giffen goods are

Accepted Answer

A)  normal goods for which the income effect dominates the substitution effect. 
B)  normal goods for which the substitution effect dominates the income effect. 
C)  inferior goods for which the income effect dominates the substitution effect. 
D)  inferior goods for which the substitution effect dominates the income effect. 
A)  normal goods for which the income effect dominates the substitution effect. 
B)  normal goods for which the substitution effect dominates the income effect. 
C)  inferior goods for which the income effect dominates the substitution effect. 
D)  inferior goods for which the substitution effect dominates the income effect.

Question 4

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 5 slices of pizza and 3 paperback novels?

Accepted Answer

A)  Jack only 
B)  Diane only 
C)  both Jack and Diane 
D)  neither Jack nor Diane 
A)  Jack only 
B)  Diane only 
C)  both Jack and Diane 
D)  neither Jack nor Diane

Question 5

An optimizing consumer will select the consumption bundle in which the

Accepted Answer

A)  ratio of total utilities is equal to the relative price ratio. 
B)  ratio of income to price equals the marginal rate of substitution. 
C)  marginal rate of substitution is equal to the relative price ratio of the goods. 
D)  marginal rate of substitution is equal to marginal utility. 
A)  ratio of total utilities is equal to the relative price ratio. 
B)  ratio of income to price equals the marginal rate of substitution. 
C)  marginal rate of substitution is equal to the relative price ratio of the goods. 
D)  marginal rate of substitution is equal to marginal utility.

Question 6

If goods A and B are perfect substitutes, then the marginal rate of substitution of good A for good B is constant.

Accepted Answer

A) True 
 B)False

Question 7

A decrease in a consumer's income

Accepted Answer

A)  increases the slope of the consumer's budget constraint. 
B)  has no effect on the consumer's budget constraint. 
C)  decreases the slope of the consumer's budget constraint. 
D)  has no effect on the slope of the consumer's budget constraint. 
A)  increases the slope of the consumer's budget constraint. 
B)  has no effect on the consumer's budget constraint. 
C)  decreases the slope of the consumer's budget constraint. 
D)  has no effect on the slope of the consumer's budget constraint.

Question 8

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 9

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin.  
-Refer to Figure 21-31. If the price of a shirt is $36 and point A is Kevin's optimum, then what is Kevin's income?

Accepted Answer

Kevin's in

Question 10

The theory of consumer choice is to demand as the theory of

Accepted Answer

A)  public goods is to supply. 
B)  oligopoly is to supply. 
C)  the competitive firm is to supply. 
D)  comparative advantage is to supply. 
A)  public goods is to supply. 
B)  oligopoly is to supply. 
C)  the competitive firm is to supply. 
D)  comparative advantage is to supply.

Question 11

Figure 21-32
The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income.  
-Refer to Figure 21-32. From the figure we can determine how much income Hannah earns when young and we can determine the interest rate. Could the interest rate rise to a level at which Hannah could afford to be at point A?

Accepted Answer

Yes. The point (0, 40000) is the horizon

Question 12

The slope of the budget constraint reveals the relative price of good X compared to good Y.

Accepted Answer

A) True 
 B)False

Question 13

Figure 21-22  
-Refer to Figure 21-22. If the consumer were initially at point A in the figure, a movement from point B to point C as a result of a decrease in the price of potato chips represents the

Accepted Answer

A)  substitution effect. 
B)  income effect. 
C)  budget effect. 
D)  price effect. 
A)  substitution effect. 
B)  income effect. 
C)  budget effect. 
D)  price effect.

Question 14

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 15

Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of

Accepted Answer

A)  demand. 
B)  profits. 
C)  production possibility frontiers. 
D)  wages. 
A)  demand. 
B)  profits. 
C)  production possibility frontiers. 
D)  wages.

Question 16

Suppose that Elmer's hourly wage increases, and he decides to work fewer hours. For Elmer, the substitution effect of the wage change is

Accepted Answer

A)  only partially offset by the income effect. 
B)  more than offset by the income effect. 
C)  exactly offset by the income effect. 
D)  We do not have enough information with which to answer the question. 
A)  only partially offset by the income effect. 
B)  more than offset by the income effect. 
C)  exactly offset by the income effect. 
D)  We do not have enough information with which to answer the question.

Question 17

If a consumer consumes two goods, X and Y, and has indifference curves that are bowed inward, the consumer's optional choice occurs when

Accepted Answer

A)  he consumes the maximum affordable quantity of good X. 
B)  he consumes the maximum affordable quantity of good Y. 
C)  his indifference curve is tangent to his budget constraint. 
D)  his indifference curve lies entirely above his budget constraint. 
A)  he consumes the maximum affordable quantity of good X. 
B)  he consumes the maximum affordable quantity of good Y. 
C)  his indifference curve is tangent to his budget constraint. 
D)  his indifference curve lies entirely above his budget constraint.

Question 18

The slope at any point on an indifference curve equals the absolute price at which a consumer is willing to substitute one good for the other.

Accepted Answer

A) True 
 B)False

Question 19

Figure 21-24
The figure shows three indifference curves and a budget constraint for a certain consumer named Steve.  
-Refer to Figure 21-24. Steve

Accepted Answer

A)  gains 1.1 pounds of pears and becomes better off by moving from point A to point B. 
B)  gains 1.1 pounds of pears and becomes better off by moving from point A to point C. 
C)  gains 1.1 pounds of pears and becomes better off by moving from point B to point C. 
D)  gives up 1.1 pounds of pears and becomes better off by moving from point C to point B. 
A)  gains 1.1 pounds of pears and becomes better off by moving from point A to point B. 
B)  gains 1.1 pounds of pears and becomes better off by moving from point A to point C. 
C)  gains 1.1 pounds of pears and becomes better off by moving from point B to point C. 
D)  gives up 1.1 pounds of pears and becomes better off by moving from point C to point B.

Question 20

Figure 21-32
The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income.  
-Refer to Figure 21-32. At two of the four labeled points, Hannah is equally happy. Identify those two points.

Accepted Answer

Hannah is

Exam 21: The Theory of Consumer Choice

For a typical consumer, most indifference curves are downward sloping.

A consumer chooses an optimal consumption point where the

Giffen goods are

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 5 slices of pizza and 3 paperback novels?

An optimizing consumer will select the consumption bundle in which the

If goods A and B are perfect substitutes, then the marginal rate of substitution of good A for good B is constant.

A decrease in a consumer's income

Violations of the law of demand are assumed to occur

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If the price of a shirt is $36 and point A is Kevin's optimum, then what is Kevin's income?

The theory of consumer choice is to demand as the theory of

The slope of the budget constraint reveals the relative price of good X compared to good Y.

Figure 21-22 -Refer to Figure 21-22. If the consumer were initially at point A in the figure, a movement from point B to point C as a result of a decrease in the price of potato chips represents the

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.

Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of

Suppose that Elmer's hourly wage increases, and he decides to work fewer hours. For Elmer, the substitution effect of the wage change is

If a consumer consumes two goods, X and Y, and has indifference curves that are bowed inward, the consumer's optional choice occurs when

The slope at any point on an indifference curve equals the absolute price at which a consumer is willing to substitute one good for the other.

Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. Steve

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

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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