Question 1

Which of the following statements is not correct?

Accepted Answer

A)  If Fiona gets a higher wage and works more, the substitution effect is greater than the income effect for her. 
B)  If Miguel experiences a wage decrease and works less, the income effect is greater than the substitution effect for him. 
C)  If the substitution effect is greater than the income effect, the labor-supply curve is upward sloping. 
D)  If the income effect is greater than the substitution effect, the labor-supply curve is downward sloping. 
A)  If Fiona gets a higher wage and works more, the substitution effect is greater than the income effect for her. 
B)  If Miguel experiences a wage decrease and works less, the income effect is greater than the substitution effect for him. 
C)  If the substitution effect is greater than the income effect, the labor-supply curve is upward sloping. 
D)  If the income effect is greater than the substitution effect, the labor-supply curve is downward sloping.

Question 2

If we observe that a consumer's budget constraint has shifted inward, we can assume that the consumer will buy

Accepted Answer

A)  fewer normal goods and more inferior goods. 
B)  more normal goods and fewer inferior goods. 
C)  more normal goods and more inferior goods. 
D)  fewer normal goods and fewer inferior goods. 
A)  fewer normal goods and more inferior goods. 
B)  more normal goods and fewer inferior goods. 
C)  more normal goods and more inferior goods. 
D)  fewer normal goods and fewer inferior goods.

Question 3

For a typical consumer, indifference curves can intersect if they satisfy the property of transitivity.

Accepted Answer

A) True 
 B)False

Question 4

When considering household savings, the relative price between consuming when young and consuming when old is the

Accepted Answer

A)  consumption rate. 
B)  interest rate that individuals can earn on their private savings. 
C)  prime rate. 
D)  federal funds rate. 
A)  consumption rate. 
B)  interest rate that individuals can earn on their private savings. 
C)  prime rate. 
D)  federal funds rate.

Question 5

Figure 21-23  
-Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The demand curve can be illustrated as the movement from

Accepted Answer

A)  D to E. 
B)  D to C. 
C)  C to E. 
D)  E to D. 
A)  D to E. 
B)  D to C. 
C)  C to E. 
D)  E to D.

Question 6

A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?

Accepted Answer

A)  $4 
B)  $8 
C)  $12 
D)  $20 
A)  $4 
B)  $8 
C)  $12 
D)  $20

Question 7

Which of the following statements is not correct?

Accepted Answer

A)  Reducing taxes on interest income might encourage people to save more. 
B)  Reducing taxes on interest income might reduce saving. 
C)  A price increase will create income and substitution effects that will both always work to reduce consumption of the good. 
D)  Utility is maximized when the marginal rate of substitution between any two goods equals the relative prices of the two goods. 
A)  Reducing taxes on interest income might encourage people to save more. 
B)  Reducing taxes on interest income might reduce saving. 
C)  A price increase will create income and substitution effects that will both always work to reduce consumption of the good. 
D)  Utility is maximized when the marginal rate of substitution between any two goods equals the relative prices of the two goods.

Question 8

A normal good is one

Accepted Answer

A)  the average consumer chooses to consume at a normal level. 
B)  the average consumer chooses to consume over other similar goods. 
C)  for which an increase in income increases consumption of the good. 
D)  for which an increase in income decreases consumption of the good. 
A)  the average consumer chooses to consume at a normal level. 
B)  the average consumer chooses to consume over other similar goods. 
C)  for which an increase in income increases consumption of the good. 
D)  for which an increase in income decreases consumption of the good.

Question 9

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Accepted Answer

A) True 
 B)False

Question 10

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 D?

Accepted Answer

No. The point (0, 40000) is the horizont

Question 11

Cashews and asparagus are normal goods. When the price of asparagus falls, the substitution effect by itself causes

Accepted Answer

A)  the consumer to feel richer, so the consumer buys more cashews. 
B)  the consumer to feel richer, so the consumer buys less cashews. 
C)  cashews to be relatively more expensive, so the consumer buys less cashews. 
D)  cashews to be relatively less expensive, so the consumer buys more cashews. 
A)  the consumer to feel richer, so the consumer buys more cashews. 
B)  the consumer to feel richer, so the consumer buys less cashews. 
C)  cashews to be relatively more expensive, so the consumer buys less cashews. 
D)  cashews to be relatively less expensive, so the consumer buys more cashews.

Question 12

The income effect of a price change is depicted by

Accepted Answer

A)  a parallel shift of the budget constraint at the old set of prices. 
B)  a parallel shift of the budget constraint at the new set of prices. 
C)  a movement along the budget constraint holding the level of satisfaction constant. 
D)  not observable and is therefore neither a shift nor a change in the slope of the budget constraint. 
A)  a parallel shift of the budget constraint at the old set of prices. 
B)  a parallel shift of the budget constraint at the new set of prices. 
C)  a movement along the budget constraint holding the level of satisfaction constant. 
D)  not observable and is therefore neither a shift nor a change in the slope of the budget constraint.

Question 13

Scenario 21-2
Lawrence has recently graduated from college with a degree in journalism and economics. He has decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Lawrence is typically awake for 112 hours each week (he sleeps an average of 8 hours each day). For each hour Lawrence spends writing, he can earn $75. Lawrence is such a good writer that he can get paid for as many hours of writing as he chooses to work.
-Refer to Scenario 21-2. If Lawrence's wage increases to $90 per hour of writing, which of the following points would fall on his budget constraint?

Accepted Answer

A)  75 hours of leisure, $2,775 of consumption 
B)  80 hours of leisure, $2,400 of consumption 
C)  85 hours of leisure, $2,430 of consumption 
D)  90 hours of leisure, $1,650 of consumption 
A)  75 hours of leisure, $2,775 of consumption 
B)  80 hours of leisure, $2,400 of consumption 
C)  85 hours of leisure, $2,430 of consumption 
D)  90 hours of leisure, $1,650 of consumption

Question 14

Figure 21-6  
-Refer to Figure 21-6. Suppose a consumer has $100 in income, the price of Mt. Dew is $2, and the value of A is 200. What is the price of popcorn?

Accepted Answer

A)  $0.50 
B)  $1 
C)  $2 
D)  $4 
A)  $0.50 
B)  $1 
C)  $2 
D)  $4

Question 15

Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes

Accepted Answer

A)  the consumer to feel richer, so the consumer buys more granola bars. 
B)  the consumer to feel richer, so the consumer buys fewer granola bars. 
C)  granola bars to be relatively more expensive, so the consumer buys more granola bars. 
D)  granola bars to be relatively less expensive, so the consumer buys fewer granola bars. 
A)  the consumer to feel richer, so the consumer buys more granola bars. 
B)  the consumer to feel richer, so the consumer buys fewer granola bars. 
C)  granola bars to be relatively more expensive, so the consumer buys more granola bars. 
D)  granola bars to be relatively less expensive, so the consumer buys fewer granola bars.

Question 16

Figure 21-30
The graph shows two budget constraints for a consumer.  
-Refer to Figure 21-30. What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

Accepted Answer

A decrease in the pr

Question 17

Figure 21-2
The downward­sloping line on the figure represents a consumer's budget constraint.  
-Refer to Figure 21-2. Which of the following statements is correct?

Accepted Answer

A)  Points W, X, and Y all cost the consumer the same amount of money. 
B)  Point V is unaffordable for the consumer given his budget constraint. 
C)  Point Z costs less than point V. 
D)  Points W, X, and Y give the consumer the same level of satisfaction. 
A)  Points W, X, and Y all cost the consumer the same amount of money. 
B)  Point V is unaffordable for the consumer given his budget constraint. 
C)  Point Z costs less than point V. 
D)  Points W, X, and Y give the consumer the same level of satisfaction.

Question 18

A consumer's indifference curves are right angles when, for the consumer, the goods in question are .

Accepted Answer

The answer of A consumer's indifference curves are right angles...

Question 19

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin.  
-Refer to Figure 21-31. For Kevin, are sweaters and shirts substitutes, complements, or neither?

Accepted Answer

Kevin purchases 28 sweaters at

Question 20

If we observe that Jamie's budget constraint has moved outward, then we know for certain that

Accepted Answer

A)  her income must have increased. 
B)  she will be indifferent between goods X and Y. 
C)  the price of one or both of the goods must have decreased. 
D)  she can reach a higher indifference curve. 
A)  her income must have increased. 
B)  she will be indifferent between goods X and Y. 
C)  the price of one or both of the goods must have decreased. 
D)  she can reach a higher indifference curve.

Exam 21: The Theory of Consumer Choice

Which of the following statements is not correct?

If we observe that a consumer's budget constraint has shifted inward, we can assume that the consumer will buy

For a typical consumer, indifference curves can intersect if they satisfy the property of transitivity.

When considering household savings, the relative price between consuming when young and consuming when old is the

Figure 21-23 -Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The demand curve can be illustrated as the movement from

A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?

Which of the following statements is not correct?

A normal good is one

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Cashews and asparagus are normal goods. When the price of asparagus falls, the substitution effect by itself causes

The income effect of a price change is depicted by

Figure 21-6 -Refer to Figure 21-6. Suppose a consumer has $100 in income, the price of Mt. Dew is $2, and the value of A is 200. What is the price of popcorn?

Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes

Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

Figure 21-2 The downward­sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which of the following statements is correct?

A consumer's indifference curves are right angles when, for the consumer, the goods in question are .

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. For Kevin, are sweaters and shirts substitutes, complements, or neither?

If we observe that Jamie's budget constraint has moved outward, then we know for certain that

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

Filters

Figure 21-2 The downwardsloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which of the following statements is correct?