Question 1

The goal of the consumer is to

Accepted Answer

A)  maximize utility. 
B)  minimize expenses. 
C)  spend more income in the current time period than in the future. 
D)  All of the above are the goals of the consumer. 
A)  maximize utility. 
B)  minimize expenses. 
C)  spend more income in the current time period than in the future. 
D)  All of the above are the goals of the consumer.

Question 2

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

Accepted Answer

A) True 
 B)False

Question 3

When Adam's income increases, he purchases more tickets to Broadway musicals than he did before his income increased. For Adam, Broadway musicals are a(n)

Accepted Answer

A)  normal good. 
B)  inferior good that is not a Giffen good. 
C)  Giffen good. 
D)  optimal good. 
A)  normal good. 
B)  inferior good that is not a Giffen good. 
C)  Giffen good. 
D)  optimal good.

Question 4

If an increase in the interest rate lowers savings, then

Accepted Answer

A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  the income effect and the substitution effect move in the same direction. 
D)  we are unable to determine the sizes of the income and substitution effects without more information. 
A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  the income effect and the substitution effect move in the same direction. 
D)  we are unable to determine the sizes of the income and substitution effects without more information.

Question 5

Figure 21-6  
-Refer to Figure 21-6. Suppose a consumer has $200 in income, the price of popcorn is $1, and the price of Mt. Dew is $2. What is the value of B?

Accepted Answer

A)  200 
B)  100 
C)  50 
D)  25 
A)  200 
B)  100 
C)  50 
D)  25

Question 6

The substitution effect of an increase in the interest rate will result in an increase in

Accepted Answer

A)  consumption when young and increase in savings when young. 
B)  consumption when old and an increase in savings when young. 
C)  consumption when young and an increase in savings when old. 
D)  savings when old and an increase in consumption when old. 
A)  consumption when young and increase in savings when young. 
B)  consumption when old and an increase in savings when young. 
C)  consumption when young and an increase in savings when old. 
D)  savings when old and an increase in consumption when old.

Question 7

Fiona uses all of her income to purchase popcorn and butter. At any two points A and B on Fiona's budget constraint,

Accepted Answer

A)  Fiona is equally happy. 
B)  Fiona is spending more money on popcorn than she is spending on butter. 
C)  Fiona's income is different. 
D)  the price of popcorn relative to the price of butter is the same. 
A)  Fiona is equally happy. 
B)  Fiona is spending more money on popcorn than she is spending on butter. 
C)  Fiona's income is different. 
D)  the price of popcorn relative to the price of butter is the same.

Question 8

If the income effect counteracts the substitution effect, we know that the good in question is a(n)

Accepted Answer

A)  complementary good. 
B)  inferior good. 
C)  luxury good. 
D)  normal good. 
A)  complementary good. 
B)  inferior good. 
C)  luxury good. 
D)  normal good.

Question 9

Utility measures the

Accepted Answer

A)  income a consumer receives from consuming a bundle of goods. 
B)  satisfaction a consumer receives from consuming a bundle of goods. 
C)  satisfaction a consumer places on her budget constraint. 
D)  All of the above are correct. 
A)  income a consumer receives from consuming a bundle of goods. 
B)  satisfaction a consumer receives from consuming a bundle of goods. 
C)  satisfaction a consumer places on her budget constraint. 
D)  All of the above are correct.

Question 10

Figure 21-19  
-Refer to Figure 21-19. Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B. According to the graph, which of the following would cause the consumer to move to point A?

Accepted Answer

A)  a decrease in the price of Skittles 
B)  a decrease in the price of M&M's 
C)  an increase in the price of Skittles 
D)  an increase in the price of M&M's 
A)  a decrease in the price of Skittles 
B)  a decrease in the price of M&M's 
C)  an increase in the price of Skittles 
D)  an increase in the price of M&M's

Question 11

Is it possible for a normal good to be a Giffen good? Briefly explain.

Accepted Answer

No, only i

Question 12

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. What is the value of the interest rate that Hannah earns on her saving?

Accepted Answer

The interest rate is

Question 13

Abby, Bobbi, and Deborah each buy ice cream and paperback novels to enjoy on hot summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Abby has a budget of $80, Bobbi has a budget of $60, and Deborah has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 4 gallons of ice cream and 5 paperback novels?

Accepted Answer

A)  Abby, Bobbi, and Deborah 
B)  Abby only 
C)  Abby and Bobbi, but not Deborah 
D)  None of the women can afford to purchase 4 gallons of ice cream and 5 paperback novels. 
A)  Abby, Bobbi, and Deborah 
B)  Abby only 
C)  Abby and Bobbi, but not Deborah 
D)  None of the women can afford to purchase 4 gallons of ice cream and 5 paperback novels.

Question 14

A decrease in the price of DVD players leads consumers to buy more DVD players. From this information we can conclude that DVD players

Accepted Answer

A)  are normal goods. 
B)  are inferior goods. 
C)  are luxury goods. 
D)  could be any of the above. 
A)  are normal goods. 
B)  are inferior goods. 
C)  are luxury goods. 
D)  could be any of the above.

Question 15

Consider two goods: peanuts and crackers. The slope of the consumer's budget constraint is measured by the

Accepted Answer

A)  consumer's income divided by the price of crackers. 
B)  relative price of peanuts and crackers. 
C)  consumer's marginal rate of substitution. 
D)  number of peanuts purchased divided by the number of crackers purchased. 
A)  consumer's income divided by the price of crackers. 
B)  relative price of peanuts and crackers. 
C)  consumer's marginal rate of substitution. 
D)  number of peanuts purchased divided by the number of crackers purchased.

Question 16

A decrease in income will cause a consumer's budget constraint to

Accepted Answer

A)  shift outward, parallel to its initial position. 
B)  shift inward, parallel to its initial position. 
C)  pivot along the horizontal axis. 
D)  pivot along the vertical axis. 
A)  shift outward, parallel to its initial position. 
B)  shift inward, parallel to its initial position. 
C)  pivot along the horizontal axis. 
D)  pivot along the vertical axis.

Question 17

Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies:  
-Refer to Figure 21-20. Assume that the consumer has an income of $40. If the price of chocolate chips is $4 and the price of marshmallows is $4, the optimizing consumer would choose to purchase

Accepted Answer

A)  9 marshmallows and 6 chocolate chips. 
B)  10 marshmallows and 10 chocolate chips. 
C)  5 marshmallows and 5 chocolate chips. 
D)  3 marshmallows and 9 chocolate chips. 
A)  9 marshmallows and 6 chocolate chips. 
B)  10 marshmallows and 10 chocolate chips. 
C)  5 marshmallows and 5 chocolate chips. 
D)  3 marshmallows and 9 chocolate chips.

Question 18

The theory of consumer choice examines

Accepted Answer

A)  the determination of output in competitive markets. 
B)  the tradeoffs inherent in decisions made by consumers. 
C)  how consumers select inputs into manufacturing production processes. 
D)  the determination of prices in competitive markets. 
A)  the determination of output in competitive markets. 
B)  the tradeoffs inherent in decisions made by consumers. 
C)  how consumers select inputs into manufacturing production processes. 
D)  the determination of prices in competitive markets.

Question 19

Figure 21-19  
-Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer's optimal choice is point

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
A)  A. 
B)  B. 
C)  C. 
D)  D.

Question 20

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin.  
-Refer to Figure 21-31. Suppose point A was Kevin's optimum last week, and point B is his optimum this week. What happened between last week and this week?

Accepted Answer

The price

Exam 21: The Theory of Consumer Choice

The goal of the consumer is to

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

When Adam's income increases, he purchases more tickets to Broadway musicals than he did before his income increased. For Adam, Broadway musicals are a(n)

If an increase in the interest rate lowers savings, then

Figure 21-6 -Refer to Figure 21-6. Suppose a consumer has $200 in income, the price of popcorn is $1, and the price of Mt. Dew is $2. What is the value of B?

The substitution effect of an increase in the interest rate will result in an increase in

Fiona uses all of her income to purchase popcorn and butter. At any two points A and B on Fiona's budget constraint,

If the income effect counteracts the substitution effect, we know that the good in question is a(n)

Utility measures the

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B. According to the graph, which of the following would cause the consumer to move to point A?

Is it possible for a normal good to be a Giffen good? Briefly explain.

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. What is the value of the interest rate that Hannah earns on her saving?

A decrease in the price of DVD players leads consumers to buy more DVD players. From this information we can conclude that DVD players

Consider two goods: peanuts and crackers. The slope of the consumer's budget constraint is measured by the

A decrease in income will cause a consumer's budget constraint to

The theory of consumer choice examines

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer's optimal choice is point

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. Suppose point A was Kevin's optimum last week, and point B is his optimum this week. What happened between last week and this week?

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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