Question 1

If we observe that a consumer's budget constraint has shifted outward, we can assume that the consumer will buy

Accepted Answer

A) fewer normal goods and more inferior goods. 
B) more normal goods and fewer inferior goods. 
C) more normal goods and more inferior goods. 
D) fewer normal goods and fewer inferior goods.

Question 2

Figure 21-6 
-Refer to Figure 21-6. Suppose a consumer has $100 in income, the price of popcorn is $2, and the value of B is 100. What is the price of Mt. Dew?

Accepted Answer

A) $1 
B) $2 
C) $5 
D) $100

Question 3

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.

Question 4

Figure 21-30 The graph shows two budget constraints for a consumer. 
-Refer to Figure 21-30. Suppose the price of a light bulb is $3 and Budget Constraint B applies. What is the consumer's income? What is the price of a hamburger?

Accepted Answer

The answer of Figure 21-30 The graph shows two budget...

Question 5

A consumer likes two goods: books and movies. The three bundles shown in the table below lie on the same indifference curve for the consumer.  Which of the following properties of indifference curves would this consumer's preferences violate?

Accepted Answer

A) Indifference curves are downward sloping. 
B) Indifference curves do not cross. 
C) Indifference curves are bowed inward. 
D) These bundles do not violate any of the properties of indifference curves.

Question 6

The marginal rate of substitution

Accepted Answer

A) varies along an indifference curve if the curve is bowed inward. 
B) is constant along an indifference curve if the curve is a straight line. 
C) is greater when a consumer has more of two goods rather than less of two goods. 
D) Both a and b are correct.

Question 7

The marginal rate of substitution between two goods always equals the

Accepted Answer

A) marginal utility of one divided by the marginal utility of the other. 
B) marginal utility of one times the marginal utility of the other. 
C) price of one good divided by the price of the other. 
D) Both a and c are correct.

Question 8

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Accepted Answer

A) True 
 B)False

Question 9

The income effect of a price change is depicted by

Accepted Answer

A) a parallel shift of the budget constraint at the old set of prices. 
B) a parallel shift of the budget constraint at the new set of prices. 
C) a movement along the budget constraint holding the level of satisfaction constant. 
D) not observable and is therefore neither a shift nor a change in the slope of the budget constraint.

Question 10

Suppose the only two goods that Lorenzo consumes are wine and cheese. When wine sells for $10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100. One day the price of wine falls to $5 a bottle, and the price of cheese increases to $20 a pound, while his income does not change. If you illustrate wine on the vertical axis and cheese on the horizontal axis, then

Accepted Answer

A) the slope of Lorenzo's budget has not changed. 
B) the slope of Lorenzo's budget constraint is flatter at the new prices. 
C) the slope of Lorenzo's budget constraint is steeper at the new prices. 
D) Lorenzo's budget constraint has shifted in a parallel fashion to the budget constraint with the old prices.

Question 11

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 indifference curve. 
B) along the lowest budget constraint. 
C) where the indifference curve is tangent to the budget constraint. 
D) All of the above are correct.

Question 12

Figure 21-32 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. 
-Refer to Figure 21-32. If Hannah chose to spend $30,000 on consumption when young, then how much could she spend on consumption when old?

Accepted Answer

The answer of Figure 21-32 The figure shows three indifference...

Question 13

A rational person can have a negatively-sloped labor supply curve.

Accepted Answer

A) True 
 B)False

Question 14

A field experiment conducted by economists in the Chinese province of Hunan provided evidence that, for poor households in that province, rice is a __________ good.

Accepted Answer

The answer of A field experiment conducted by economists in...

Question 15

Figure 21-1 The downward-sloping line on the figure represents a consumer's budget
constraint. 
-Refer to Figure 21-1. If the consumer's income is $140, then what is the price of a CD?

Accepted Answer

A) $3 
B) $5 
C) $7 
D) $9

Question 16

When Adam's income increases, he purchases more tickets to Broadway musicals than he did before his income increased. For Adam, Broadway musicals are a(n)

Accepted Answer

A) normal good. 
B) inferior good that is not a Giffen good. 
C) Giffen good. 
D) optimal good.

Question 17

A Giffen good is a good for which

Accepted Answer

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

Question 18

When the indifference curve is tangent to the budget constraint,

Accepted Answer

A) a consumer cannot be made better off without an increase in her income or a price decrease in one of the goods she consumes. 
B) the consumer is likely to be at a sub-optimal level of consumption. 
C) income is at its optimum for a consumer. 
D) indifference curves are likely to intersect.

Question 19

Hold Jared's preferences for pizza and Pepsi constant. Suppose Jared's income, as well as the prices of pizza and Pepsi, double. As a result,

Accepted Answer

A) both Jared's indifference curves and his budget constraint change. 
B) Jared's indifference curves change, but his budget constraint does not change. 
C) Jared's budget constraint changes, but his indifference curves do not change. 
D) neither Jared's indifference curves nor his budget constraint change.

Question 20

Violations of the law of demand are assumed to occur

Accepted Answer

A) regularly. 
B) only when goods are Giffen goods. 
C) only when the substitution effect dominates the income effect. 
D) All of the above are correct.

Exam 21: The Theory of Consumer Choice