Question 1

Nathalie is maximizing total utility while consuming food and clothing. Her marginal utility from food and clothing is 50 and 25, respectively. If clothing is priced at €10 per unit, the price of food must

Accepted Answer

A)  be rising. 
B)  be falling. 
C)  equal €10 as well. 
D)  equal €20.

Question 2

Why are many purchase decisions irrational?

Accepted Answer

The answer of Why are many purchase decisions irrational?...

Question 3

Which of the following is the best example of rational behaviour?

Accepted Answer

A)  People are overconfident. 
B)  People carefully consider all options. 
C)  People are reluctant to change their mind. 
D)  People give weight to a small number of vivid observations. 
E)  People use rules of thumb or shortcuts in making decisions.

Question 4

Indifference curves for perfect substitutes are

Accepted Answer

A)  right angles. 
B)  bowed outward. 
C)  straight lines. 
D)  nonexistent. 
E)  bowed inward.

Question 5

Indifference curves tend to be bowed inward because a consumer is willing to trade a greater amount of a good for another if they have an abundance of the good they are trading away.

Accepted Answer

A) True 
 B)False

Question 6

Indifference curves tend to be bowed inward because of diminishing

Accepted Answer

A)  marginal rates of substitution. 
B)  demand for the good as prices rise. 
C)  income. 
D)  supply of the good being consumed.

Question 7

If the price of a good falls and the good is an inferior good, the income effect causes a decrease in the quantity demanded of that good.

Accepted Answer

A) True 
 B)False

Question 8

Explain the income and substitution effects.

Accepted Answer

The answer of Explain the income and substitution effects....

Question 9

In the upward-sloping portion of the individual labour supply curve, the substitution effect is __________ the income effect.

Accepted Answer

A)  greater than 
B)  less than 
C)  equal to 
D)  exactly offset by

Question 10

If income were to double and prices were to double, the budget line would

Accepted Answer

A)  stay the same. 
B)  rotate inward. 
C)  shift outward in a parallel fashion. 
D)  rotate outward. 
E)  shift inward in a parallel fashion.

Question 11

When drawn on a graph that measures the quantity of a good on each axis, indifference curves are usually straight lines that slope downward (negatively).

Accepted Answer

A) True 
 B)False

Question 12

Claudia spends all of her income on warm-up suits and running shoes, and the price of a warm-up suit is four times as large as the price of a pair of shoes. Then, in order to maximize total utility, Claudia should

Accepted Answer

A)  buy four times as many warm-up suits as pairs of running shoes. 
B)  buy four times as many pairs of running shoes as warm-up suits. 
C)  divide her income equally between warm-up suits and running shoes. 
D)  buy both items until the marginal satisfaction of a warm-up suit is four times the marginal satisfaction of a pair of running shoes.

Question 13

Mario consumes only cheese and crackers.
a) Could these both be inferior goods for Mario? Explain.
b) Suppose that cheese is a normal good for Mario while crackers is inferior. If the price of cheese falls explain what happens to Mario's consumption of both cheese and crackers.

Accepted Answer

The answer of Mario consumes only cheese and crackers.
a) Could...

Question 14

Refer to Exhibit 4. Suppose that the consumer must choose between buying socks and belts. Also, suppose that the consumer's income is €100. Suppose that the price of a pair of socks has falls from €5 to €2. The income effect is represented by the movement from point? ​  ​

Accepted Answer

A)  Y to point X. 
B)  X to point Z. 
C)  X to point Y. 
D)  Z to point X.

Question 15

Evaluate the following statement, "Warren Buffet is the second richest person in the world. He does not face any constraint on his ability to purchase commodities he wants."

Accepted Answer

The answer of Evaluate the following statement, "Warren Buffet is...

Question 16

Suppose the price of a pizza is €8, the price of a milk shake is €2, and the consumer's weekly income is €32. Suppose we have constructed the consumer's budget line with pizzas on the vertical axis and milk shakes on the horizontal axis. Given this information, if the consumer's income rises to €48, then what will happen to the consumer's budget line?

Accepted Answer

A)  It move outwards so that it now intersects the vertical axis at 6 pizzas per week and the horizontal axis at 24 milk shakes per week. 
B)  It would not change. 
C)  It would move inwards so that it now intersects the vertical axis at 3 pizzas per week and the horizontal axis at 8 milk shakes per week. 
D)  It would rotate in a clockwise direction around the point at which it intersects the horizontal axis.

Question 17

If the price of a good falls and the good is a normal good, the income effect causes a decrease in the quantity demanded of that good.

Accepted Answer

A) True 
 B)False

Question 18

Suppose Roberto always consumes two packets of sugar with his tea. Roberto's indifference curves for sugar and tea are

Accepted Answer

A)  bowed inward. 
B)  bowed outward. 
C)  straight lines. 
D)  L shaped.

Question 19

Suppose the price of a pizza is €8, the price of a milk shake is €2, and the consumer's weekly income is €32. Suppose we have constructed the consumer's budget line with pizzas on the vertical axis and milk shakes on the horizontal axis. Given this information, if the price of a milk shake doubles to €4, then what will happen to the budget line?

Accepted Answer

A)  It will move so that it intersects the horizontal axis at 16 milk shakes per week. 
B)  Its slope rises to -1/2. 
C)  It will move so that it intersects the horizontal axis at 8 milk shakes per week. 
D)  It will shift inward but remain parallel to its original position.

Question 20

Suppose a consumer must choose between the consumption of sandwiches and pizza. If we measure the quantity of pizza on the horizontal axis and the quantity of sandwiches on the vertical axis, and if the price of a pizza is €10 and the price of a sandwich is €5, then the slope of the budget constraint is

Accepted Answer

A)  2 
B)  10 
C)  1/2 
D)  5

Exam 5: Background to Demand: Consumer Choices

Nathalie is maximizing total utility while consuming food and clothing. Her marginal utility from food and clothing is 50 and 25, respectively. If clothing is priced at €10 per unit, the price of food must

Why are many purchase decisions irrational?

Which of the following is the best example of rational behaviour?

Indifference curves for perfect substitutes are

Indifference curves tend to be bowed inward because a consumer is willing to trade a greater amount of a good for another if they have an abundance of the good they are trading away.

Indifference curves tend to be bowed inward because of diminishing

If the price of a good falls and the good is an inferior good, the income effect causes a decrease in the quantity demanded of that good.

Explain the income and substitution effects.

In the upward-sloping portion of the individual labour supply curve, the substitution effect is __________ the income effect.

If income were to double and prices were to double, the budget line would

When drawn on a graph that measures the quantity of a good on each axis, indifference curves are usually straight lines that slope downward (negatively).

Claudia spends all of her income on warm-up suits and running shoes, and the price of a warm-up suit is four times as large as the price of a pair of shoes. Then, in order to maximize total utility, Claudia should

Mario consumes only cheese and crackers. a) Could these both be inferior goods for Mario? Explain. b) Suppose that cheese is a normal good for Mario while crackers is inferior. If the price of cheese falls explain what happens to Mario's consumption of both cheese and crackers.

Refer to Exhibit 4. Suppose that the consumer must choose between buying socks and belts. Also, suppose that the consumer's income is €100. Suppose that the price of a pair of socks has falls from €5 to €2. The income effect is represented by the movement from point? ​ ​

Evaluate the following statement, "Warren Buffet is the second richest person in the world. He does not face any constraint on his ability to purchase commodities he wants."

If the price of a good falls and the good is a normal good, the income effect causes a decrease in the quantity demanded of that good.

Suppose Roberto always consumes two packets of sugar with his tea. Roberto's indifference curves for sugar and tea are

Refer to Exhibit 4. Suppose that the consumer must choose between buying socks and belts. Also, suppose that the consumer's income is €100. Suppose that the price of a pair of socks has falls from €5 to €2. The income effect is represented by the movement from point?