Question 1

For a typical consumer, most indifference curves are bowed inward.

Accepted Answer

A) True 
 B)False

Question 2

When a consumer spends less time enjoying leisure and more time working, she has

Accepted Answer

A)  lower income and therefore cannot afford more consumption. 
B)  lower income and therefore can afford more consumption. 
C)  higher income and therefore cannot afford more consumption. 
D)  higher income and therefore can afford more consumption. 
A)  lower income and therefore cannot afford more consumption. 
B)  lower income and therefore can afford more consumption. 
C)  higher income and therefore cannot afford more consumption. 
D)  higher income and therefore can afford more consumption.

Question 3

Consumer theory provides the foundation for understanding demand curves because

Accepted Answer

A)  each point on a demand curve represents an optimal choice point. 
B)  consumers purchase more inferior goods than normal goods. 
C)  increases in income cause the budget constraint to rotate inward along one axis, which changes the consumer's purchases. 
D)  increases in income cause the budget constraint to rotate outward along one axis, which changes the consumer's purchases. 
A)  each point on a demand curve represents an optimal choice point. 
B)  consumers purchase more inferior goods than normal goods. 
C)  increases in income cause the budget constraint to rotate inward along one axis, which changes the consumer's purchases. 
D)  increases in income cause the budget constraint to rotate outward along one axis, which changes the consumer's purchases.

Question 4

For Meg, the substitution effect of an interest-rate increase is stronger than the income effect. In response to a higher interest rate, will Meg save more or will she save less?

Accepted Answer

In response to a hig

Question 5

Jake experiences an increase in his wages. The hours of labor that he supplies to the market would decrease if

Accepted Answer

A)  the income effect is larger than the substitution effect. 
B)  the substitution effect is larger than the income effect. 
C)  neither the income effect nor the substitution effect apply to Harry's labor­leisure tradeoff. 
D)  Jake views both labor and leisure as inferior goods. 
A)  the income effect is larger than the substitution effect. 
B)  the substitution effect is larger than the income effect. 
C)  neither the income effect nor the substitution effect apply to Harry's labor­leisure tradeoff. 
D)  Jake views both labor and leisure as inferior goods.

Question 6

The marginal rate of substitution between goods A and B measures the price of A relative to the price of B.

Accepted Answer

A) True 
 B)False

Question 7

Pete consumes two goods, rice and fish. When the price of fish rises, he consumes less fish. When the price of rice rises, he consumes more rice. For Pete,

Accepted Answer

A)  fish is not a Giffen good but rice is. 
B)  rice is not a Giffen good but fish is. 
C)  both fish and rice are normal goods. 
D)  both fish and rice are Giffen goods. 
A)  fish is not a Giffen good but rice is. 
B)  rice is not a Giffen good but fish is. 
C)  both fish and rice are normal goods. 
D)  both fish and rice are Giffen goods.

Question 8

Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save

Accepted Answer

A)  less in the current period if the substitution effect is greater than the income effect. 
B)  less in the current period if the income effect is greater than the substitution effect. 
C)  more in the current period if the substitution effect is greater than the income effect. 
D)  more in the current period, regardless of the sizes of the income and substitution effects. 
A)  less in the current period if the substitution effect is greater than the income effect. 
B)  less in the current period if the income effect is greater than the substitution effect. 
C)  more in the current period if the substitution effect is greater than the income effect. 
D)  more in the current period, regardless of the sizes of the income and substitution effects.

Question 9

Figure 21-18  
-Refer to Figure 21-18. Bundle B represents a point where

Accepted Answer

A)  MRSxy > Py/Px. 
B)  MRSxy = Px/Py. 
C)  MRSxy  Px/Py. 
A)  MRSxy > Py/Px. 
B)  MRSxy = Px/Py. 
C)  MRSxy  Px/Py.

Question 10

A Giffen good is a good for which

Accepted Answer

A)  a decrease in the price decreases the quantity demanded. 
B)  the substitution effect outweighs the income effect. 
C)  an increase in the price decreases the quantity demanded. 
D)  Both a) and b) are correct. 
A)  a decrease in the price decreases the quantity demanded. 
B)  the substitution effect outweighs the income effect. 
C)  an increase in the price decreases the quantity demanded. 
D)  Both a) and b) are correct.

Question 11

Suppose a consumer has an income of $800 per month and that she spends her entire income each month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4. Which of the following combinations of beers and bratwursts represents a point that would lie directly on the consumer's budget constraint?

Accepted Answer

A)  160 beers and 200 bratwursts 
B)  40 beers and 50 bratwursts 
C)  80 beers and 100 bratwursts 
D)  80 beers and 0 bratwursts 
A)  160 beers and 200 bratwursts 
B)  40 beers and 50 bratwursts 
C)  80 beers and 100 bratwursts 
D)  80 beers and 0 bratwursts

Question 12

Figure 21-17  
-Refer to Figure 21-17. When the price of X is $6, the price of Y is $24, and income is $48, Paul's optimal choice is point C. Then the price of Y decreases to $8. Paul's new optimal choice is point

Accepted Answer

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

Question 13

The goal of the consumer is to

Accepted Answer

A)  maximize utility. 
B)  be on the highest indifference curve. 
C)  maximize satisfaction. 
D)  All of the above are the goals of the consumer. 
A)  maximize utility. 
B)  be on the highest indifference curve. 
C)  maximize satisfaction. 
D)  All of the above are the goals of the consumer.

Question 14

Which of the following examples would illustrate a backward-sloping labor supply-curve?

Accepted Answer

A)  An increase in a person's wages results in the person working fewer hours per week. 
B)  A decrease in a person's wages results in the person working more hours per week. 
C)  An increase in a person's wages results in the person working more hours per week. 
D)  Both a and b are correct. 
A)  An increase in a person's wages results in the person working fewer hours per week. 
B)  A decrease in a person's wages results in the person working more hours per week. 
C)  An increase in a person's wages results in the person working more hours per week. 
D)  Both a and b are correct.

Question 15

If a good is a Giffen good, then

Accepted Answer

A)  the supply curve is downward sloping. 
B)  the demand curve is upward sloping. 
C)  the demand curve is horizontal. 
D)  there is no optimal level of consumption for the consumer. 
A)  the supply curve is downward sloping. 
B)  the demand curve is upward sloping. 
C)  the demand curve is horizontal. 
D)  there is no optimal level of consumption for the consumer.

Question 16

The following diagram shows a budget constraint for a particular consumer.   If the price of X is $20, then what is the price of Y?

Accepted Answer

A)  $15 
B)  $25 
C)  $35 
D)  $70 
A)  $15 
B)  $25 
C)  $35 
D)  $70

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, the price of a bag of marshmallows is $2, and the price of a bag of chocolate chips is $2. The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?

Accepted Answer

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

Question 18

The income effect of a price change is unaffected by whether the good is a normal or inferior good.

Accepted Answer

A) True 
 B)False

Question 19

An increase in a consumer's income

Accepted Answer

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

Question 20

The theory of consumer choice is representative of how consumers make decisions but is not intended to be a literal account of the process.

Accepted Answer

A) True 
 B)False

Exam 21: The Theory of Consumer Choice

For a typical consumer, most indifference curves are bowed inward.

When a consumer spends less time enjoying leisure and more time working, she has

Consumer theory provides the foundation for understanding demand curves because

For Meg, the substitution effect of an interest-rate increase is stronger than the income effect. In response to a higher interest rate, will Meg save more or will she save less?

Jake experiences an increase in his wages. The hours of labor that he supplies to the market would decrease if

The marginal rate of substitution between goods A and B measures the price of A relative to the price of B.

Pete consumes two goods, rice and fish. When the price of fish rises, he consumes less fish. When the price of rice rises, he consumes more rice. For Pete,

Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save

Figure 21-18 -Refer to Figure 21-18. Bundle B represents a point where

A Giffen good is a good for which

Figure 21-17 -Refer to Figure 21-17. When the price of X is $6, the price of Y is $24, and income is $48, Paul's optimal choice is point C. Then the price of Y decreases to $8. Paul's new optimal choice is point

The goal of the consumer is to

Which of the following examples would illustrate a backward-sloping labor supply-curve?

If a good is a Giffen good, then

The following diagram shows a budget constraint for a particular consumer. If the price of X is $20, then what is the price of Y?

The income effect of a price change is unaffected by whether the good is a normal or inferior good.

An increase in a consumer's income

The theory of consumer choice is representative of how consumers make decisions but is not intended to be a literal account of the process.

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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