Question 1

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px = $10,Py = $20,X = 0,and M = 400?

Accepted Answer

A)  10 
B)  20 
C)  5 
D)  0

Question 2

If an increase in the price of good X leads to an increase in the consumption of good Y,then goods X and Y are called:

Accepted Answer

A)  substitutes. 
B)  complements. 
C)  normal goods. 
D)  inferior goods.

Question 3

At any point on an indifference curve,the slope indicates:

Accepted Answer

A)  the market rate of substitution between the two goods. 
B)  the way the consumer's budget is allocated between the two goods. 
C)  how the total satisfaction of the consumer changes with different market baskets. 
D)  None of the preceding statements is correct.

Question 4

If widgets and gidgets are complements and both are normal goods,then an increase in the demand for widgets will result from:

Accepted Answer

A)  an increase in the price of widgets. 
B)  a decrease in income. 
C)  a decrease in the price of gidgets. 
D)  an increase in the price of widgets and a decrease in income.

Question 5

If a consumer's income decreases,what will happen to the budget line?

Accepted Answer

A)  It will shift outward. 
B)  It will become steeper. 
C)  It will become flatter. 
D)  It will shift inward.

Question 6

If income increases,then the:

Accepted Answer

A)  budget line rotates counterclockwise. 
B)  budget line rotates clockwise. 
C)  budget line shifts to the right. 
D)  opportunity set contracts.

Question 7

Airlines give away millions of tickets each year through their frequent flyer programs,with the typical airline awarding a free ticket for each 25,000 miles flown on the airline.The average airline ticket costs $500 and is for a 2,500-mile round trip.Given this information,evaluate the following statement:
 Airlines could have the same effect on demand by eliminating their frequent flyer programs and simply lowering the average ticket price by 10 percent.

Accepted Answer

The answer of Airlines give away millions of tickets each...

Question 8

A price increase causes a consumer's "real" income to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  decrease or increase depending on the size of the price change.

Question 9

While at a discount shoe store,a customer asked a clerk,"I see that your shoes are 'buy one,get one free-limit one free pair per customer.' Will you sell me one pair for half price?
" The clerk answered,"I can't do that." When the customer started to leave the store,the clerk hastily offered,"However,I am authorized to give you a 40 percent discount on any pair in the store." Assuming the consumer has $200 to spend on shoes (X)or all other goods (Y),and that shoes cost $100 per pair,answer the following questions:
a.Illustrate the consumer's opportunity set with the "buy one,get one free" deal and with a 50 percent discount.
b.Why was the 40 percent discount offered only after the consumer rejected the "buy one,get one free" deal and started to leave the store?
c.Why was the clerk willing to offer a "buy one,get one free" deal,but unwilling to sell a pair of shoes for half price?

Accepted Answer

The answer of While at a discount shoe store,a customer...

Question 10

If the price of good X increases,what will happen to the budget line?

Accepted Answer

A)  It will have a parallel shift inward. 
B)  It will have a parallel shift outward. 
C)  It will become steeper. 
D)  It will become flatter.

Question 11

If an increase in income causes a decrease in the consumption of good Y,we know that good Y is:

Accepted Answer

A)  a normal good. 
B)  a substitute. 
C)  a complement. 
D)  an inferior good.

Question 12

Many gourmet shops go out of business during recessions since they sell almost exclusively:

Accepted Answer

A)  inferior goods. 
B)  normal goods. 
C)  substitutes. 
D)  complements.

Question 13

The rate at which a consumer is willing to substitute one good for another,while still maintaining a given level of satisfaction,is called the

Accepted Answer

A)  market rate of substitution. 
B)  average rate of substitution. 
C)  marginal rate of substitution. 
D)  budget constraint.

Question 14

If a consumer is given a $10 gift certificate good only for items in store X,and all items in store X are normal goods,then the consumer desires to consume:

Accepted Answer

A)  more goods in store X. 
B)  fewer goods in store X. 
C)  the same amount of goods in store X. 
D)  None of the preceding statements is correct.

Question 15

The horizontal intercept of the budget line is:

Accepted Answer

A)  -PX/PY. 
B)  M/PX. 
C)  M/PY. 
D)  PYY.

Question 16

An increase in the price of good X will have what effect on the budget line on a normal X-Y graph?

Accepted Answer

A)  A parallel outward shift of the line 
B)  An increase in the vertical intercept 
C)  A decrease in the horizontal intercept 
D)  A parallel inward shift of the line

Question 17

Joe consumes 48 units of food and 12 units of clothing.If food is an inferior good:

Accepted Answer

A)  Joe would strictly prefer receiving a $10 gift certificate at a clothing store to receiving $10 in cash. 
B)  Joe would strictly prefer receiving $10 in cash to receiving a $10 gift certificate at a clothing store. 
C)  Joe would be indifferent between receiving a $10 gift certificate at a clothing store and receiving $10 in cash. 
D)  upon receiving a $10 gift certificate at a clothing store, Joe would consume less clothing and more food.

Question 18

Consumers adjust their purchasing behavior so that:

Accepted Answer

A)  they purchase as many scarce resources as possible. 
B)  marginal rate of substitution is maximized. 
C)  marginal rate of substitution is minimized. 
D)  the ratio of prices they pay equals their marginal rate of substitution.

Question 19

Given that income is $300,the price of good Y is $15,and the price of good X is $20,what is the vertical intercept of the budget line?

Accepted Answer

A)  4,500 
B)  300 
C)  20 
D)  15

Question 20

If you include in your offerings some inferior goods,the demand for these products will increase:

Accepted Answer

A)  during bad economic times. 
B)  during economic booms. 
C)  when incomes are high. 
D)  All of the statements associated with this question are correct.

Exam 4: The Theory of Individual Behavior

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and P_x = $10,P_y = $20,X = 0,and M = 400?