Question 1

The following diagram shows a budget constraint for a particular consumer.   If the price of X is $5, what is the consumer's income?

Accepted Answer

A)  $10 
B)  $30 
C)  $150 
D)  $300 
A)  $10 
B)  $30 
C)  $150 
D)  $300

Question 2

On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then

Accepted Answer

A)  a pineapple costs six times as much as a pencil. 
B)  the opportunity cost of a pineapple is 6 pencils. 
C)  the opportunity cost of a pencil is one-sixth of a pineapple. 
D)  All of the above are correct. 
A)  a pineapple costs six times as much as a pencil. 
B)  the opportunity cost of a pineapple is 6 pencils. 
C)  the opportunity cost of a pencil is one-sixth of a pineapple. 
D)  All of the above are correct.

Question 3

When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point shows that it occurs

Accepted Answer

A)  along the highest attainable indifference curve. 
B)  where the indifference curve is tangent to the budget constraint. 
C)  where the marginal utility per dollar spent is the same for both X and Y. 
D)  All of the above are correct. 
A)  along the highest attainable indifference curve. 
B)  where the indifference curve is tangent to the budget constraint. 
C)  where the marginal utility per dollar spent is the same for both X and Y. 
D)  All of the above are correct.

Question 4

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of CDs the consumer can purchase?

Accepted Answer

A)  10 
B)  20 
C)  40 
D)  50 
A)  10 
B)  20 
C)  40 
D)  50

Question 5

The theory of consumer choice provides the foundation for understanding the

Accepted Answer

A)  structure of a firm. 
B)  profitability of a firm. 
C)  demand for a firm's product. 
D)  supply of a firm's product. 
A)  structure of a firm. 
B)  profitability of a firm. 
C)  demand for a firm's product. 
D)  supply of a firm's product.

Question 6

When a consumer experiences a price increase for an inferior good, if the income effect is

Accepted Answer

A)  greater than the substitution effect, the demand curve will be downward sloping. 
B)  greater than the substitution effect, the demand curve will be upward sloping. 
C)  less than the substitution effect, the demand curve will be upward sloping. 
D)  less than the substitution effect but the substitution effect is positive, the demand curve will be upward sloping. 
A)  greater than the substitution effect, the demand curve will be downward sloping. 
B)  greater than the substitution effect, the demand curve will be upward sloping. 
C)  less than the substitution effect, the demand curve will be upward sloping. 
D)  less than the substitution effect but the substitution effect is positive, the demand curve will be upward sloping.

Question 7

Which of the following statements is correct?

Accepted Answer

A)  The theory of consumer choice provides a more complete understanding of supply, just as the theory of the competitive firm provides a more complete understanding of demand. 
B)  The theory of consumer choice provides a more complete understanding of demand, just as the theory of the competitive firm provides a more complete understanding of supply. 
C)  Monetary theory provides a more complete understanding of demand, just as the theory of the competitive firm provides a more complete understanding of supply. 
D)  The theory of public choice provides a more complete understanding of supply, just as the theory of the competitive firm provides a more complete understanding of demand. 
A)  The theory of consumer choice provides a more complete understanding of supply, just as the theory of the competitive firm provides a more complete understanding of demand. 
B)  The theory of consumer choice provides a more complete understanding of demand, just as the theory of the competitive firm provides a more complete understanding of supply. 
C)  Monetary theory provides a more complete understanding of demand, just as the theory of the competitive firm provides a more complete understanding of supply. 
D)  The theory of public choice provides a more complete understanding of supply, just as the theory of the competitive firm provides a more complete understanding of demand.

Question 8

Figure 21-8  
-Refer to Figure 21-8. You have $300 to spend on good X and good Y. If good X costs $30 and good Y costs $50, your budget constraint is

Accepted Answer

A)  AB. 
B)  BC. 
C)  CD. 
D)  DE. 
A)  AB. 
B)  BC. 
C)  CD. 
D)  DE.

Question 9

If the consumer's income and all prices simultaneously decrease by one-half, then the optimum consumption will

Accepted Answer

A)  shift outward relative to the original optimum. 
B)  move leftward along the original budget constraint. 
C)  shift inward relative to the original optimum. 
D)  not change. 
A)  shift outward relative to the original optimum. 
B)  move leftward along the original budget constraint. 
C)  shift inward relative to the original optimum. 
D)  not change.

Question 10

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 $20 and point B is Kevin's optimum, then what is Kevin's income?

Accepted Answer

Kevin's in

Question 11

Figure 21-29
The figure below illustrates the preferences of a representative consumer, Nathaniel.  
-Refer to Figure 21-29. Interest rates increase by 4 percent. Nathaniel's optimal choice point moves from A to B. Nathaniel 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 12

The substitution effect of a price change is depicted by a

Accepted Answer

A)  movement along the budget constraint holding satisfaction constant. 
B)  shift in the budget constraint at the old prices. 
C)  movement along the consumer's new indifference curve at the new prices. 
D)  movement along the original indifference curve to the point where the marginal rate of substitution equals the price ratio for the new set of prices. 
A)  movement along the budget constraint holding satisfaction constant. 
B)  shift in the budget constraint at the old prices. 
C)  movement along the consumer's new indifference curve at the new prices. 
D)  movement along the original indifference curve to the point where the marginal rate of substitution equals the price ratio for the new set of prices.

Question 13

Karen, Tara, and Chelsea 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. Karen has a budget of $80, Tara has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 8 gallons of ice cream and 5 paperback novels?

Accepted Answer

A)  Karen, Tara, and Chelsea 
B)  Karen only 
C)  Tara and Chelsea but not Karen 
D)  none of the women 
A)  Karen, Tara, and Chelsea 
B)  Karen only 
C)  Tara and Chelsea but not Karen 
D)  none of the women

Question 14

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

Accepted Answer

A) True 
 B)False

Question 15

For Molly, the substitution effect of a wage increase is stronger than the income effect. In response to a wage increase, will Sally work more hours or will she work fewer hours?

Accepted Answer

In response to a wag

Question 16

When leisure is a normal good, the income effect from a decrease in wages is evident in

Accepted Answer

A)  a desire to consume more leisure. 
B)  a desire to consume less leisure. 
C)  an upward-sloping labor-supply curve. 
D)  a shift in labor demand. 
A)  a desire to consume more leisure. 
B)  a desire to consume less leisure. 
C)  an upward-sloping labor-supply curve. 
D)  a shift in labor demand.

Question 17

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 will choose a consumption bundle where the marginal rate of substitution is

Accepted Answer

A)  2. 
B)  2/3. 
C)  1/2. 
D)  1/3. 
A)  2. 
B)  2/3. 
C)  1/2. 
D)  1/3.

Question 18

Figure 21-19  
-Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $50. The price of Skittles is $5 and the price of M&M's is $5. This consumer will choose a consumption bundle where the marginal rate of substitution is

Accepted Answer

A)  10. 
B)  5. 
C)  1. 
D)  1/5. 
A)  10. 
B)  5. 
C)  1. 
D)  1/5.

Question 19

Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

Accepted Answer

A)  $10 
B)  $5 
C)  $4 
D)  $2 
A)  $10 
B)  $5 
C)  $4 
D)  $2

Question 20

An inferior good is one in which

Accepted Answer

A)  the average consumer chooses not to consume. 
B)  the good is not equally valued by all consumers. 
C)  an increase in income increases consumption of the good. 
D)  an increase in income decreases consumption of the good. 
A)  the average consumer chooses not to consume. 
B)  the good is not equally valued by all consumers. 
C)  an increase in income increases consumption of the good. 
D)  an increase in income decreases consumption of the good.

Exam 21: The Theory of Consumer Choice

The following diagram shows a budget constraint for a particular consumer. If the price of X is $5, what is the consumer's income?

On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then

When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point shows that it occurs

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of CDs the consumer can purchase?

The theory of consumer choice provides the foundation for understanding the

When a consumer experiences a price increase for an inferior good, if the income effect is

Which of the following statements is correct?

Figure 21-8 -Refer to Figure 21-8. You have $300 to spend on good X and good Y. If good X costs $30 and good Y costs $50, your budget constraint is

If the consumer's income and all prices simultaneously decrease by one-half, then the optimum consumption will

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 $20 and point B is Kevin's optimum, then what is Kevin's income?

Figure 21-29 The figure below illustrates the preferences of a representative consumer, Nathaniel. -Refer to Figure 21-29. Interest rates increase by 4 percent. Nathaniel's optimal choice point moves from A to B. Nathaniel consumes

The substitution effect of a price change is depicted by a

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

For Molly, the substitution effect of a wage increase is stronger than the income effect. In response to a wage increase, will Sally work more hours or will she work fewer hours?

When leisure is a normal good, the income effect from a decrease in wages is evident in

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 will choose a consumption bundle where the marginal rate of substitution is

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $50. The price of Skittles is $5 and the price of M&M's is $5. This consumer will choose a consumption bundle where the marginal rate of substitution is

Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

An inferior good is one in which

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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