Question 1

The price of a good increases relative to other goods.Which one of the following statements must be true? The resulting

Accepted Answer

A) income effect is negative. 
B) income effect is positive. 
C) substitution effect is negative. 
D) substitution effect is positive. 
E) income effect is zero. 
A) income effect is negative. 
B) income effect is positive. 
C) substitution effect is negative. 
D) substitution effect is positive. 
E) income effect is zero.

Question 2

A consumer choosing between apples and oranges is at her best affordable point.Then the price of apples decreases.If both apples and oranges are normal goods,which one of the following statements is true about her new best affordable point?

Accepted Answer

A) She will consume more apples and more oranges. 
B) She will consume more apples and fewer oranges. 
C) She will consume fewer apples and more oranges. 
D) She will consume fewer apples and fewer oranges. 
E) She will consume more apples, and we cannot tell whether she will consume more or less oranges. 
A) She will consume more apples and more oranges. 
B) She will consume more apples and fewer oranges. 
C) She will consume fewer apples and more oranges. 
D) She will consume fewer apples and fewer oranges. 
E) She will consume more apples, and we cannot tell whether she will consume more or less oranges.

Question 3

Use the figure below to answer the following questions.
   
Figure 9.1.2
-Refer to Figure 9.1.2.Which budget line has the lowest relative price for compact discs?

Accepted Answer

A) DA 
B) DB 
C) DC 
D) The relative price is equal for all three budget lines. 
E) Cannot be determined without studying the indifference curves. 
A) DA 
B) DB 
C) DC 
D) The relative price is equal for all three budget lines. 
E) Cannot be determined without studying the indifference curves.

Question 4

What is a distinguishing characteristic of an inferior good?

Accepted Answer

A) a negative price effect 
B) a positive income effect 
C) a positive substitution effect 
D) a negative income effect 
E) an upward-sloping demand curve 
A) a negative price effect 
B) a positive income effect 
C) a positive substitution effect 
D) a negative income effect 
E) an upward-sloping demand curve

Question 5

Martha consumes cake and muffins.Suppose Martha's income doubles and the prices of cake and muffins also double.Martha's budget line

Accepted Answer

A) shifts leftward but the slope does not change. 
B) remains unchanged. 
C) shifts rightward but the slope does not change. 
D) shifts rightward and becomes steeper. 
E) shifts rightward and becomes flatter. 
A) shifts leftward but the slope does not change. 
B) remains unchanged. 
C) shifts rightward but the slope does not change. 
D) shifts rightward and becomes steeper. 
E) shifts rightward and becomes flatter.

Question 6

Use the figure below to answer the following questions.
   
Figure 9.3.1
-Consider the budget line and indifference curve in Figure 9.3.1.If the price of good X is $2 a unit,what is the price of good Y?

Accepted Answer

A) $0.37 a unit 
B) $0.67 a unit 
C) $1.50 a unit 
D) $2.67 a unit 
E) impossible to calculate without additional information 
A) $0.37 a unit 
B) $0.67 a unit 
C) $1.50 a unit 
D) $2.67 a unit 
E) impossible to calculate without additional information

Question 7

Which statement is true for an inferior good?

Accepted Answer

A) The substitution effect is positive;as price rises, consumption increases. 
B) The income effect is absent;as income increases, consumption remains constant. 
C) The income effect works in the opposite direction to the substitution effect. 
D) The good is of poor workmanship. 
E) The income effect works in the same direction as the substitution effect. 
A) The substitution effect is positive;as price rises, consumption increases. 
B) The income effect is absent;as income increases, consumption remains constant. 
C) The income effect works in the opposite direction to the substitution effect. 
D) The good is of poor workmanship. 
E) The income effect works in the same direction as the substitution effect.

Question 8

When price rises,the substitution effect

Accepted Answer

A) always increases consumption. 
B) increases consumption for normal goods only. 
C) decreases consumption for normal goods only. 
D) decreases consumption for inferior goods only. 
E) does none of the above. 
A) always increases consumption. 
B) increases consumption for normal goods only. 
C) decreases consumption for normal goods only. 
D) decreases consumption for inferior goods only. 
E) does none of the above.

Question 9

Bill consumes apples and bananas.Apples are measured on the vertical axis and bananas are measured on the horizontal axis.Bill's income doubles,the price of apples doubles,and the price of bananas triples.Bill's budget line

Accepted Answer

A) remains unchanged. 
B) shifts rightward and the slope does not change. 
C) shifts rightward and becomes steeper. 
D) shifts rightward and becomes flatter. 
E) becomes steeper. 
A) remains unchanged. 
B) shifts rightward and the slope does not change. 
C) shifts rightward and becomes steeper. 
D) shifts rightward and becomes flatter. 
E) becomes steeper.

Question 10

Real income in terms of a good is defined as

Accepted Answer

A) income divided by the quantity consumed of a good. 
B) the income of a producer of that good. 
C) the price of one good divided by the price of another good. 
D) dollar income. 
E) income divided by the price of a good. 
A) income divided by the quantity consumed of a good. 
B) the income of a producer of that good. 
C) the price of one good divided by the price of another good. 
D) dollar income. 
E) income divided by the price of a good.

Question 11

Marie-Louise has an income of $10 to buy peanuts and popcorn.The price of a bag of peanuts is $1 and the price of a bag of popcorn is $2.What is Marie-Louise's real income in terms of popcorn?

Accepted Answer

A) 1/2 bag of popcorn 
B) 1 bag of popcorn 
C) 2 bags of popcorn 
D) 5 bags of popcorn 
E) 10 bags of popcorn 
A) 1/2 bag of popcorn 
B) 1 bag of popcorn 
C) 2 bags of popcorn 
D) 5 bags of popcorn 
E) 10 bags of popcorn

Question 12

If the price of a normal good rises,the income effect

Accepted Answer

A) will increase consumption of the good and the substitution effect will decrease consumption. 
B) will decrease consumption of the good and the substitution effect will increase consumption. 
C) and the substitution effect will both increase consumption of the good. 
D) and the substitution effect will both decrease consumption of the good. 
E) is always larger than the substitution effect. 
A) will increase consumption of the good and the substitution effect will decrease consumption. 
B) will decrease consumption of the good and the substitution effect will increase consumption. 
C) and the substitution effect will both increase consumption of the good. 
D) and the substitution effect will both decrease consumption of the good. 
E) is always larger than the substitution effect.

Question 13

Use the figure below to answer the following questions.
   
Figure 9.3.1
-Consider the budget line and indifference curve in Figure 9.3.1.If the price of good X is $1 a unit,then the price of good Y is

Accepted Answer

A) $0.75 a unit. 
B) $1 a unit. 
C) $1.25 a unit. 
D) $2 a unit. 
E) $1.33 a unit. 
A) $0.75 a unit. 
B) $1 a unit. 
C) $1.25 a unit. 
D) $2 a unit. 
E) $1.33 a unit.

Question 14

Karen consumes chocolate and candles.When Karen is at her best affordable point,she is ________.

Accepted Answer

A) on or inside her budget line, on her highest attainable indifference curve, and has a marginal rate of substitution between chocolate and candles that is equal to the relative price of chocolate and candles 
B) on the indifference curve that is closest to the origin and minimizing the marginal rate of substitution 
C) on the indifference curve that is farthest from the origin and maximizing the marginal rate of substitution 
D) on her budget line, on her highest attainable indifference curve, and has a marginal rate of substitution between chocolate and candles that is equal to the relative price of chocolate and candles 
E) on her budget line, on her highest attainable indifference curve, and maximizing the marginal rate of substitution 
A) on or inside her budget line, on her highest attainable indifference curve, and has a marginal rate of substitution between chocolate and candles that is equal to the relative price of chocolate and candles 
B) on the indifference curve that is closest to the origin and minimizing the marginal rate of substitution 
C) on the indifference curve that is farthest from the origin and maximizing the marginal rate of substitution 
D) on her budget line, on her highest attainable indifference curve, and has a marginal rate of substitution between chocolate and candles that is equal to the relative price of chocolate and candles 
E) on her budget line, on her highest attainable indifference curve, and maximizing the marginal rate of substitution

Question 15

Use the figure below to answer the following questions.
   
Figure 9.3.3
-Consider an initial budget line labelled RT in Figure 9.3.3.If the budget line becomes RS,the substitution effect is illustrated by the move from point

Accepted Answer

A) A to C. 
B) A to D. 
C) B to D. 
D) B to A. 
E) C to D. 
A) A to C. 
B) A to D. 
C) B to D. 
D) B to A. 
E) C to D.

Question 16

If income decreases,the budget line

Accepted Answer

A) becomes steeper. 
B) becomes flatter. 
C) shifts leftward and parallel to the original budget line. 
D) shifts rightward and parallel to the original budget line. 
E) shifts parallel either leftward or rightward depending on whether the goods measured on the axes are normal or inferior. 
A) becomes steeper. 
B) becomes flatter. 
C) shifts leftward and parallel to the original budget line. 
D) shifts rightward and parallel to the original budget line. 
E) shifts parallel either leftward or rightward depending on whether the goods measured on the axes are normal or inferior.

Question 17

Which one of the following statements is false?

Accepted Answer

A) Indifference curves are negatively sloped. 
B) A preference map consists of a series of indifference curves. 
C) Indifference curves are bowed out from the origin. 
D) The marginal rate of substitution is the magnitude of the slope of an indifference curve. 
E) The marginal rate of substitution increases as a consumer moves up along an indifference curve for ordinary goods. 
A) Indifference curves are negatively sloped. 
B) A preference map consists of a series of indifference curves. 
C) Indifference curves are bowed out from the origin. 
D) The marginal rate of substitution is the magnitude of the slope of an indifference curve. 
E) The marginal rate of substitution increases as a consumer moves up along an indifference curve for ordinary goods.

Question 18

An indifference curve is

Accepted Answer

A) the boundary between what can be produced and what cannot be produced. 
B) the boundary between what a consumer can afford and what he cannot afford. 
C) a line that shows combinations of goods among which a consumer is indifferent. 
D) the boundary between normal goods and inferior goods. 
E) a line with a positive slope. 
A) the boundary between what can be produced and what cannot be produced. 
B) the boundary between what a consumer can afford and what he cannot afford. 
C) a line that shows combinations of goods among which a consumer is indifferent. 
D) the boundary between normal goods and inferior goods. 
E) a line with a positive slope.

Question 19

Junkfood Jill spends all of her income on jellybeans and Jolt cola.Suppose that Jill's income is $30,the price of a bag of jellybeans is $6,and the price of a bottle of Jolt cola is $2.Which of the following combinations of jellybeans and Jolt cola lies inside Jill's budget line?

Accepted Answer

A) 2 bags of jellybeans and 8 bottles of Jolt 
B) 5 bags of jellybeans and 0 bottles of Jolt 
C) 4 bags of jellybeans and 4 bottles of Jolt 
D) 3 bags of jellybeans and 6 bottles of Jolt 
E) 5 bags of jellybeans and 15 bottles of Jolt 
A) 2 bags of jellybeans and 8 bottles of Jolt 
B) 5 bags of jellybeans and 0 bottles of Jolt 
C) 4 bags of jellybeans and 4 bottles of Jolt 
D) 3 bags of jellybeans and 6 bottles of Jolt 
E) 5 bags of jellybeans and 15 bottles of Jolt

Question 20

Sara's income is $12 a week.The price of popcorn is $3 a bag,and the price of a smoothie is $3.The opportunity cost of a smoothie is ________.

Accepted Answer

A) $3 
B) 4 bags of popcorn 
C) 1.00 smoothie 
D) 1.0 bag of popcorn 
E) $1 
A) $3 
B) 4 bags of popcorn 
C) 1.00 smoothie 
D) 1.0 bag of popcorn 
E) $1

Exam 9: Possibilities, Preferences, and Choices

The price of a good increases relative to other goods.Which one of the following statements must be true? The resulting

A consumer choosing between apples and oranges is at her best affordable point.Then the price of apples decreases.If both apples and oranges are normal goods,which one of the following statements is true about her new best affordable point?

Use the figure below to answer the following questions. Figure 9.1.2 -Refer to Figure 9.1.2.Which budget line has the lowest relative price for compact discs?

What is a distinguishing characteristic of an inferior good?

Martha consumes cake and muffins.Suppose Martha's income doubles and the prices of cake and muffins also double.Martha's budget line

Use the figure below to answer the following questions. Figure 9.3.1 -Consider the budget line and indifference curve in Figure 9.3.1.If the price of good X is $2 a unit,what is the price of good Y?

Which statement is true for an inferior good?

When price rises,the substitution effect

Bill consumes apples and bananas.Apples are measured on the vertical axis and bananas are measured on the horizontal axis.Bill's income doubles,the price of apples doubles,and the price of bananas triples.Bill's budget line

Real income in terms of a good is defined as

Marie-Louise has an income of $10 to buy peanuts and popcorn.The price of a bag of peanuts is $1 and the price of a bag of popcorn is $2.What is Marie-Louise's real income in terms of popcorn?

If the price of a normal good rises,the income effect

Use the figure below to answer the following questions. Figure 9.3.1 -Consider the budget line and indifference curve in Figure 9.3.1.If the price of good X is $1 a unit,then the price of good Y is

Karen consumes chocolate and candles.When Karen is at her best affordable point,she is ________.

Use the figure below to answer the following questions. Figure 9.3.3 -Consider an initial budget line labelled RT in Figure 9.3.3.If the budget line becomes RS,the substitution effect is illustrated by the move from point

If income decreases,the budget line

Which one of the following statements is false?

An indifference curve is

Junkfood Jill spends all of her income on jellybeans and Jolt cola.Suppose that Jill's income is $30,the price of a bag of jellybeans is $6,and the price of a bottle of Jolt cola is $2.Which of the following combinations of jellybeans and Jolt cola lies inside Jill's budget line?

Sara's income is $12 a week.The price of popcorn is $3 a bag,and the price of a smoothie is $3.The opportunity cost of a smoothie is ________.

What Is Economics?

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring GDP and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: The Keynesian Model

Canadian Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

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