Question 1

Assume that consumption when young and consumption when old are both normal goods. The income effect of an increase in the interest rate will result in

Accepted Answer

A)  an increase in saving when young. 
B)  an increase in saving when old. 
C)  a decrease in saving when young. 
D)  a decrease in saving when old. 
A)  an increase in saving when young. 
B)  an increase in saving when old. 
C)  a decrease in saving when young. 
D)  a decrease in saving when old.

Question 2

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 DVD?

Accepted Answer

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

Question 3

Frannie spends her income on rice and beans. At her optimum, Frannie's

Accepted Answer

A)  utility from consuming rice is equal to her utility from consuming beams. 
B)  marginal utility of rice is equal to her marginal utility of beans. 
C)  marginal utility per dollar spent on rice equals her marginal utility per dollar spent on beans. 
D)  marginal rate of substitution is equal to 1. 
A)  utility from consuming rice is equal to her utility from consuming beams. 
B)  marginal utility of rice is equal to her marginal utility of beans. 
C)  marginal utility per dollar spent on rice equals her marginal utility per dollar spent on beans. 
D)  marginal rate of substitution is equal to 1.

Question 4

Scenario 21-3
Scott knows that he will ultimately face retirement. Assume that Scott will experience two periods in his life, one in which he works and earns income, and one in which he is retired and earns no income. Scott can earn $250,000 during his working period and nothing in his retirement period. He must both save and consume in his work period with an interest rate of 10 percent on savings.
-Refer to Scenario 21-3. If the interest rate on savings increases,

Accepted Answer

A)  Scott will decrease his savings in the work period if the income effect is greater than the substitution effect for him. 
B)  Scott will increase his savings in the work period if the income effect is greater than the substitution effect for him. 
C)  Scott will increase his savings in the work period if the substitution effect is greater than the income effect for him. 
D)  Both a and c are correct. 
A)  Scott will decrease his savings in the work period if the income effect is greater than the substitution effect for him. 
B)  Scott will increase his savings in the work period if the income effect is greater than the substitution effect for him. 
C)  Scott will increase his savings in the work period if the substitution effect is greater than the income effect for him. 
D)  Both a and c are correct.

Question 5

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

Accepted Answer

A)  is equal to the relative price ratio of the goods. 
B)  exceeds the marginal utility of each good by the greatest amount. 
C)  is less than the slope of the budget constraint. 
D)  All of the above are correct. 
A)  is equal to the relative price ratio of the goods. 
B)  exceeds the marginal utility of each good by the greatest amount. 
C)  is less than the slope of the budget constraint. 
D)  All of the above are correct.

Question 6

Bundle J contains 10 units of good X and 5 units of good Y. Bundle K contains 5 units of good X and 10 units of good Y. Bundle L contains 10 units of good X and 10 units of good Y. Assume that the consumer's preferences satisfy the four properties of indifference curves. The price of X is $1, the price of Y is $2, and the consumer has an income of $20. Which bundle will the consumer choose?

Accepted Answer

A)  bundle J 
B)  bundle K 
C)  bundle L 
D)  either bundle J or bundle K 
A)  bundle J 
B)  bundle K 
C)  bundle L 
D)  either bundle J or bundle K

Question 7

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 could reflect a simultaneous decrease in the price of good X and increase in the price of good Y?

Accepted Answer

A)  (ii) only 
B)  (iii) only 
C)  (ii) or (iv) only 
D)  None of the above is correct. 
A)  (ii) only 
B)  (iii) only 
C)  (ii) or (iv) only 
D)  None of the above is correct.

Question 8

When Matt has an income of $2,000, he consumes 30 units of good A and 50 units of good B. After Matt's income increases to $3,000, he consumes 25 units of good A and 95 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 9

Shelley wins $1 million in her state's lottery. If Shelley keeps working after she wins the money, we can infer that the substitution effect must exactly offset the income effect for her.

Accepted Answer

A) True 
 B)False

Question 10

A Giffen good is one for which the quantity demanded rises as the price rises because the income effect

Accepted Answer

A)  reinforces the substitution effect. 
B)  reinforces and is greater than the substitution effect. 
C)  counteracts but is smaller than the substitution effect. 
D)  counteracts and is greater than the substitution effect. 
A)  reinforces the substitution effect. 
B)  reinforces and is greater than the substitution effect. 
C)  counteracts but is smaller than the substitution effect. 
D)  counteracts and is greater than the substitution effect.

Question 11

The slope of a consumer's budget constraint is unaffected by a change in income.

Accepted Answer

A) True 
 B)False

Question 12

Figure 21-9  
-Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good Y?

Accepted Answer

A)  $20 
B)  $6 
C)  $3 
D)  $0.33 
A)  $20 
B)  $6 
C)  $3 
D)  $0.33

Question 13

Figure 21-5
(a) (b)    
-Refer to Figure 21-5. In graph (a), if income is equal to $200, then the price of good X is

Accepted Answer

A)  $12. 
B)  $16. 
C)  $20. 
D)  $24. 
A)  $12. 
B)  $16. 
C)  $20. 
D)  $24.

Question 14

Figure 21-7  
-Refer to Figure 21-7. Suppose the price of a book is $15, the price of a DVD is $10, the value of A is 5, and the value of B is 7.5. How much income does the consumer have?

Accepted Answer

A)  $150 
B)  $100 
C)  $75 
D)  $37.50 
A)  $150 
B)  $100 
C)  $75 
D)  $37.50

Question 15

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 3 slices of pizza and 4 paperback novels?

Accepted Answer

A)  Jack only 
B)  Diane only 
C)  both Jack and Diane 
D)  neither Jack nor Diane 
A)  Jack only 
B)  Diane only 
C)  both Jack and Diane 
D)  neither Jack nor Diane

Question 16

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 A?

Accepted Answer

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

Question 17

All Giffen goods are

Accepted Answer

A)  inferior goods, and all inferior goods are Giffen goods. 
B)  inferior goods, but not all inferior goods are Giffen goods. 
C)  normal goods, but not all normal goods are Giffen goods. 
D)  normal goods, and all normal goods are Giffen goods. 
A)  inferior goods, and all inferior goods are Giffen goods. 
B)  inferior goods, but not all inferior goods are Giffen goods. 
C)  normal goods, but not all normal goods are Giffen goods. 
D)  normal goods, and all normal goods are Giffen goods.

Question 18

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the income effect associated with a decrease in the price of a textbook will result in

Accepted Answer

A)  a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles. 
B)  a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles. 
C)  an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles. 
D)  an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles. 
A)  a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles. 
B)  a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles. 
C)  an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles. 
D)  an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.

Question 19

A typical indifference curve is upward sloping.

Accepted Answer

A) True 
 B)False

Question 20

Figure 21-7  
-Refer to Figure 21-7. Suppose a consumer has $200 in income, the price of a book is $5, and the price of a DVD is $10. What is the value of A?

Accepted Answer

A)  40 
B)  20 
C)  10 
D)  2 
A)  40 
B)  20 
C)  10 
D)  2

Exam 21: The Theory of Consumer Choice

Assume that consumption when young and consumption when old are both normal goods. The income effect of an increase in the interest rate will result in

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 DVD?

Frannie spends her income on rice and beans. At her optimum, Frannie's

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

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 could reflect a simultaneous decrease in the price of good X and increase in the price of good Y?

When Matt has an income of $2,000, he consumes 30 units of good A and 50 units of good B. After Matt's income increases to $3,000, he consumes 25 units of good A and 95 units of good B. Which of the following statements is correct?

Shelley wins $1 million in her state's lottery. If Shelley keeps working after she wins the money, we can infer that the substitution effect must exactly offset the income effect for her.

A Giffen good is one for which the quantity demanded rises as the price rises because the income effect

The slope of a consumer's budget constraint is unaffected by a change in income.

Figure 21-9 -Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good Y?

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a), if income is equal to $200, then the price of good X is

Figure 21-7 -Refer to Figure 21-7. Suppose the price of a book is $15, the price of a DVD is $10, the value of A is 5, and the value of B is 7.5. How much income does the consumer have?

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 3 slices of pizza and 4 paperback novels?

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 A?

All Giffen goods are

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the income effect associated with a decrease in the price of a textbook will result in

A typical indifference curve is upward sloping.

Figure 21-7 -Refer to Figure 21-7. Suppose a consumer has $200 in income, the price of a book is $5, and the price of a DVD is $10. What is the value of A?

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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