Question 1

-In the above figure, if the price of pizza falls, the budget line

Accepted Answer

A)  rotates outward and becomes steeper. 
B)  shifts leftward and its slope does not change. 
C)  shifts rightward and its slope does not change. 
D)  rotates inward and becomes flatter.

Question 2

-When the price of a normal good decreases, the ________ can be divided between the ________, which keeps the best affordable point on the same indifference curve and the ________, which moves the best affordable point farther away from the origin.

Accepted Answer

A)  substitution effect; price effect; income effect 
B)  price effect; income effect; substitution effect 
C)  income effect; substitution effect; price effect 
D)  price effect; substitution effect; income effect

Question 3

-Joe spends $72 on gasoline and sandwiches. The price of a gallon of gasoline is $3 and a sandwich is $4. Placing the quantity of sandwiches on the left side, what is Joe's budget equation? If sandwiches are measured on the vertical axis, what is the slope of Joe's budget line?

Accepted Answer

The answer of 
-Joe spends $72 on gasoline and sandwiches....

Question 4

-The above figure gives your budget line between CDs and magazines. If the price of a magazine increased, then the budget line

Accepted Answer

A)  shifts outward and the slope does not change. 
B)  rotates inward with no change in the horizontal intercept. 
C)  rotates inward with no change in the vertical intercept. 
D)  rotates outward with no change in the vertical axis.

Question 5

Which of the following statements is FALSE?

Accepted Answer

A)  When the relative price of a good falls, the substitution effect always leads the consumer to substitute more of that good for the other good. 
B)  For a normal good, the income effect reinforces the substitution effect. 
C)  For an inferior good, the income effect offsets the substitution effect. 
D)  For an inferior good, the income effect is positive.

Question 6

-Lizzie's budget line is shown in the figure above. The relative price of a cookie is ________ per cookie.

Accepted Answer

A)  2 magazines 
B)  0.5 of a magazine 
C)  $1 
D)  $2

Question 7

-The above figure gives your budget line between CDs and magazines. Which combination of CDs and magazines are affordable?

Accepted Answer

A)  combination a 
B)  combinations a, b, c, and d 
C)  combination c only 
D)  combinations b, c, and d

Question 8

-The figure above shows Sam's budget line. Which of the following would result in Sam's budget line rotating outward and not changing its horizontal intercept?

Accepted Answer

A)  a fall in the price of a pound of coffee 
B)  a rise in the price of a pound of coffee 
C)  a fall in the price of a gallon of gasoline 
D)  a rise in the price of a gallon of gasoline

Question 9

The concept of diminishing marginal rate of substitution indicates that

Accepted Answer

A)  individuals are willing to give up an increasing amount of good Y in order to obtain one more unit of good X as the consumption of good X increases. 
B)  individuals are willing to give up a decreasing amount of good Y in order to obtain one more unit of good X as the consumption of good X increases. 
C)  along an indifference curve, a consumer prefers the consumption combinations moving to the northwest along the curve. 
D)  None of the above answers is correct.

Question 10

If Rachel is at her best affordable point, then ________.

Accepted Answer

A)  her marginal rate of substitution equals 1 
B)  her marginal rate of substitution is maximized 
C)  the relative price of the goods she buys equals the marginal rate of substitution 
D)  she is indifferent among other points on her budget line

Question 11

Ernie has an income of $40 which he plans to spend on cookies and milk. The price of milk is $1 per gallon, and the price of cookies is $2 per dozen. If Ernie buys 12 gallons of milk, how many dozens of cookies will he buy if he spends all of his income?

Accepted Answer

A)  28 
B)  20 
C)  14 
D)  12

Question 12

When a consumer is consuming at a point where his or her budget line is not as steep as his or her indifference curve, then he or she should

Accepted Answer

A)  consume more of the good that is measured on the horizontal axis. 
B)  consume less of the good that is measured on the horizontal axis. 
C)  not change his or her behavior. 
D)  consume none of the good that is measured on the horizontal axis.

Question 13

Samara's income is $30 a month and she spends all of it on music downloads and gasoline. The price of a music download is $3 and the price of a gallon of gasoline is $3. At Samara's best affordable point, her marginal rate of substitution is ________ gallon of gasoline per music download.

Accepted Answer

A)  0.5 
B)  1 
C)  1.5 
D)  More information is needed to determine the marginal rate of substitution.

Question 14

Budget lines are drawn on a diagram with the

Accepted Answer

A)  price of the good on the vertical axis and its quantity on the horizontal axis. 
B)  price of one good on the vertical axis and the price of another good on the horizontal axis. 
C)  quantity of the good on the vertical axis and its price on the horizontal axis. 
D)  quantity of one good on the vertical axis and the quantity of another good on the horizontal axis.

Question 15

-In the above figure, point B

Accepted Answer

A)  is superior to point A. 
B)  is inferior to point A. 
C)  is as good as point A. 
D)  could be superior to, inferior to, or as good as point A but there is no way of telling which.

Question 16

-Consider the indifference maps shown above. If X and Y are perfect substitutes, your indifference curves between them would look like those in

Accepted Answer

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

Question 17

-Melissa has an income of $240 a month to spend on tennis lessons and concert tickets. The price of a tennis lesson is $20, and the price of a concert ticket is $40. The slope of Melissa's budget line, with tennis lessons on the horizontal axis, is

Accepted Answer

A)  -2. 
B)  -0.5. 
C)  -6. 
D)  -12.

Question 18

As a consumer moves along an indifference curve and decreases consumption of the good on the x-axis, the consumer needs ________ of the good on the y-axis to give up an additional unit of the good on the x-axis.

Accepted Answer

A)  less and less 
B)  more and more 
C)  none 
D)  a constant amount

Question 19

Suppose that Dell computers and Gateway computers are very close substitutes. Then the indifference curves between Dell computers and Gateway computers are almost straight lines. Is this analysis correct or incorrect? Explain.

Accepted Answer

The answer of Suppose that Dell computers and Gateway computers...

Question 20

-In the figure above, the marginal rate of substitution (MRS) at point A is equal to ________ pounds of pickles per pound of olives.

Accepted Answer

A)  8 
B)  6 
C)  1 1/3 
D)  2

Exam 9: Possibilities, Preferences, and Choices