Question 1

The marginal rate of substitution between two goods always equals the

Accepted Answer

A)  marginal utility of one divided by the marginal utility of the other. 
B)  marginal utility of one times the marginal utility of the other. 
C)  price of one good divided by the price of the other. 
D)  Both a and c are correct. 
A)  marginal utility of one divided by the marginal utility of the other. 
B)  marginal utility of one times the marginal utility of the other. 
C)  price of one good divided by the price of the other. 
D)  Both a and c are correct.

Question 2

The rate at which a consumer is willing to trade off one good for another is called the .

Accepted Answer

marginal r

Question 3

When Stanley has an income of $1,000, he consumes 30 units of good A and 50 units of good B. After Stanley's income increases to $1,500, he consumes 60 units of good A and 45 units of good B. Which of the following statements is correct?

Accepted Answer

A)  Both goods A and B are normal goods. 
B)  Both goods A and B are inferior goods. 
C)  Good A is a normal good, and good B is an inferior good. 
D)  Good A is an inferior good, and good B is a normal good. 
A)  Both goods A and B are normal goods. 
B)  Both goods A and B are inferior goods. 
C)  Good A is a normal good, and good B is an inferior good. 
D)  Good A is an inferior good, and good B is a normal good.

Question 4

Suppose a consumer spends her income on two goods: music CDs and DVDs. The price of a CD is $8, and the price of a DVD is $20. If we graph the budget constraint by measuring the quantity of CDs purchased on the vertical axis and the quantity of DVDs on the horizontal axis, what is the slope of the budget constraint?

Accepted Answer

A)  -5.0 
B)  -2.5 
C)  -0.4 
D)  The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods. 
A)  -5.0 
B)  -2.5 
C)  -0.4 
D)  The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods.

Question 5

If a consumer purchases more of good B when his income rises, good B is an inferior good.

Accepted Answer

A) True 
 B)False

Question 6

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 decides to spend 80 hours a week playing volleyball on the beach and the rest of his time writing, how much income will he have available to spend on consumption goods?

Accepted Answer

A)  $900 
B)  $1,500 
C)  $2,400 
D)  $3,000 
A)  $900 
B)  $1,500 
C)  $2,400 
D)  $3,000

Question 7

Figure 21-28
The figure below illustrates the preferences for a representative consumer, Christopher.  
-Refer to Figure 21-28. Interest rates increase by 3 percent. Christopher's optimal choice point moves from A to B Christopher consumes

Accepted Answer

A)  less while he is younger and saves more than he did before interest rates increased. 
B)  more while he is younger and saves more than he did before interest rates increased. 
C)  less while he is younger and saves less than he did before interest rates increased. 
D)  more while he is younger and saves less than he did before interest rates increased. 
A)  less while he is younger and saves more than he did before interest rates increased. 
B)  more while he is younger and saves more than he did before interest rates increased. 
C)  less while he is younger and saves less than he did before interest rates increased. 
D)  more while he is younger and saves less than he did before interest rates increased.

Question 8

Mark spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Mark's income has stayed fixed at $46 per week. If you measure gin on the vertical axis and cocktail olives on the horizontal axis, then the budget constraint

Accepted Answer

A)  is steeper after the price changes. 
B)  is flatter after the price changes. 
C)  is the same after the price changes. 
D)  shifts in a parallel fashion to the old budget constraint after the price changes. 
A)  is steeper after the price changes. 
B)  is flatter after the price changes. 
C)  is the same after the price changes. 
D)  shifts in a parallel fashion to the old budget constraint after the price changes.

Question 9

A consumer consumes two normal goods, sandwiches and milk. When the price of milk is $0.50 per glass, the consumer purchases 40 glasses. When the price rises to $0.65 per glass, the consumer purchases 30 glasses. We can use the information provided by the consumer's optimum choices to derive the

Accepted Answer

A)  demand curve for milk. 
B)  demand curve for sandwiches. 
C)  supply curve for milk. 
D)  labor-leisure tradeoff. 
A)  demand curve for milk. 
B)  demand curve for sandwiches. 
C)  supply curve for milk. 
D)  labor-leisure tradeoff.

Question 10

At a consumer's optimal choice, the consumer chooses the combination of goods such that the ratio of the marginal utilities equals the ratio of the prices.

Accepted Answer

A) True 
 B)False

Question 11

What does the slope of a budget constraint represent?

Accepted Answer

The slope of a budget constrai

Question 12

If income decreases and prices are unchanged, the consumer's budget constraint

Accepted Answer

A)  remains the same. 
B)  shifts outward. 
C)  shifts inward. 
D)  rotates outward along the horizontal axis. 
A)  remains the same. 
B)  shifts outward. 
C)  shifts inward. 
D)  rotates outward along the horizontal axis.

Question 13

On a graph we draw a consumer's budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then

Accepted Answer

A)  an apple costs twice as much as a light bulb. 
B)  the opportunity cost of a light bulb is 2 apples. 
C)  the opportunity cost of an apple is one-half of a light bulb. 
D)  All of the above are correct. 
A)  an apple costs twice as much as a light bulb. 
B)  the opportunity cost of a light bulb is 2 apples. 
C)  the opportunity cost of an apple is one-half of a light bulb. 
D)  All of the above are correct.

Question 14

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.  
-Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good X only?

Accepted Answer

A)  graph a 
B)  graph b 
C)  graph c 
D)  graph d 
A)  graph a 
B)  graph b 
C)  graph c 
D)  graph d

Question 15

Thomas faces prices of $6 for a unit of good X and $30 for a unit of good Y. At his optimum, Thomas is willing to give up 1 unit of good Y for units of good X.

Accepted Answer

The answer of Thomas faces prices of $6 for a...

Question 16

Figure 21-27  
-Refer to Figure 21-27. Anna experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Anna,

Accepted Answer

A)  her labor supply curve is backward bending. 
B)  her labor supply curve is upward sloping. 
C)  leisure is an inferior good. 
D)  both a and c are correct. 
A)  her labor supply curve is backward bending. 
B)  her labor supply curve is upward sloping. 
C)  leisure is an inferior good. 
D)  both a and c are correct.

Question 17

A consumer has preferences over two goods, X and Y. Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves) and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis. At the consumer's current consumption bundle, the consumer is spending all available income, and the marginal rate of substitution is less than the slope of the budget constraint. We can conclude that the consumer

Accepted Answer

A)  is currently maximizing satisfaction subject to the budget constraint. 
B)  could increase satisfaction by consuming more X and less Y. 
C)  could increase satisfaction by consuming less X and more Y. 
D)  could purchase more X and more Y and increase total satisfaction. 
A)  is currently maximizing satisfaction subject to the budget constraint. 
B)  could increase satisfaction by consuming more X and less Y. 
C)  could increase satisfaction by consuming less X and more Y. 
D)  could purchase more X and more Y and increase total satisfaction.

Question 18

If the price of a good increases, all else equal, consumers perceive

Accepted Answer

A)  an increase in purchasing power if the good is an inferior good. 
B)  an increase in income if the price increase occurs for a normal good. 
C)  a decrease in purchasing power. 
D)  a net gain in purchasing power if they decrease consumption of some goods. 
A)  an increase in purchasing power if the good is an inferior good. 
B)  an increase in income if the price increase occurs for a normal good. 
C)  a decrease in purchasing power. 
D)  a net gain in purchasing power if they decrease consumption of some goods.

Question 19

In order to represent a consumer's choices on a graph, we draw her budget constraint as well as her curves.

Accepted Answer

The answer of In order to represent a consumer's choices...

Question 20

Figure 21-6  
-Refer to Figure 21-6. Suppose the price of popcorn is $2, the price of Mt. Dew is $4, the value of A is 30, and the value of B is 15. How much income does the consumer have?

Accepted Answer

A)  $120 
B)  $80 
C)  $60 
D)  $30 
A)  $120 
B)  $80 
C)  $60 
D)  $30

Exam 21: The Theory of Consumer Choice

The marginal rate of substitution between two goods always equals the

The rate at which a consumer is willing to trade off one good for another is called the .

When Stanley has an income of $1,000, he consumes 30 units of good A and 50 units of good B. After Stanley's income increases to $1,500, he consumes 60 units of good A and 45 units of good B. Which of the following statements is correct?

If a consumer purchases more of good B when his income rises, good B is an inferior good.

Figure 21-28 The figure below illustrates the preferences for a representative consumer, Christopher. -Refer to Figure 21-28. Interest rates increase by 3 percent. Christopher's optimal choice point moves from A to B Christopher consumes

A consumer consumes two normal goods, sandwiches and milk. When the price of milk is $0.50 per glass, the consumer purchases 40 glasses. When the price rises to $0.65 per glass, the consumer purchases 30 glasses. We can use the information provided by the consumer's optimum choices to derive the

At a consumer's optimal choice, the consumer chooses the combination of goods such that the ratio of the marginal utilities equals the ratio of the prices.

What does the slope of a budget constraint represent?

If income decreases and prices are unchanged, the consumer's budget constraint

On a graph we draw a consumer's budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then

Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good X only?

Thomas faces prices of $6 for a unit of good X and $30 for a unit of good Y. At his optimum, Thomas is willing to give up 1 unit of good Y for units of good X.

Figure 21-27 -Refer to Figure 21-27. Anna experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Anna,

If the price of a good increases, all else equal, consumers perceive

In order to represent a consumer's choices on a graph, we draw her budget constraint as well as her curves.

Figure 21-6 -Refer to Figure 21-6. Suppose the price of popcorn is $2, the price of Mt. Dew is $4, the value of A is 30, and the value of B is 15. How much income does the consumer have?

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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