Question 1

Which one of the following statements is true about the indifference curves for two goods that are close but not perfect substitutes?

Accepted Answer

A) The indifference curves are negatively-sloped straight lines. 
B) The indifference curves are L-shaped. 
C) The marginal rate of substitution is constant. 
D) The marginal rate of substitution decreases as more of the good measured on the x-axis and less of the good measured on the y-axis are consumed. 
E) both A and C 
A) The indifference curves are negatively-sloped straight lines. 
B) The indifference curves are L-shaped. 
C) The marginal rate of substitution is constant. 
D) The marginal rate of substitution decreases as more of the good measured on the x-axis and less of the good measured on the y-axis are consumed. 
E) both A and C

Question 2

The substitution effect is the effect of a change in ________ on ________.The income effect is the effect of a change in ________ on ________.

Accepted Answer

A) income;quantity bought of a substitute;income;quantity bought 
B) income;consumption;price;quantity bought 
C) price;quantity bought;income;quantity bought 
D) the price of a substitute;quantity bought;income;the number of labour hours 
E) none of the above 
A) income;quantity bought of a substitute;income;quantity bought 
B) income;consumption;price;quantity bought 
C) price;quantity bought;income;quantity bought 
D) the price of a substitute;quantity bought;income;the number of labour hours 
E) none of the above

Question 3

Use the figure below to answer the following question.
   
Figure 9.3.2
-Which one of the following statements about Figure 9.3.2 is true?

Accepted Answer

A) Point S is preferred to point Q, but S is not affordable. 
B) Point R is not affordable. 
C) Point T is preferred to point Q, but T is not affordable. 
D) Points Q and S cost the same, but Q is preferred to S. 
E) Point R is the best affordable point. 
A) Point S is preferred to point Q, but S is not affordable. 
B) Point R is not affordable. 
C) Point T is preferred to point Q, but T is not affordable. 
D) Points Q and S cost the same, but Q is preferred to S. 
E) Point R is the best affordable point.

Question 4

If two goods are perfect substitutes,then their

Accepted Answer

A) indifference curves are positively-sloped straight lines. 
B) indifference curves are negatively-sloped straight lines. 
C) indifference curves are L-shaped. 
D) marginal rate of substitution is zero. 
E) marginal rate of substitution is infinity. 
A) indifference curves are positively-sloped straight lines. 
B) indifference curves are negatively-sloped straight lines. 
C) indifference curves are L-shaped. 
D) marginal rate of substitution is zero. 
E) marginal rate of substitution is infinity.

Question 5

Use the figure below to answer the following questions.
   
Figure 9.1.2
-Refer to Figure 9.1.2.Which budget line shows the greatest real income in terms of carrots?

Accepted Answer

A) AD 
B) BD 
C) CD 
D) Real income is equal for all three budget lines. 
E) Cannot be determined without studying the indifference curves. 
A) AD 
B) BD 
C) CD 
D) Real income is equal for all three budget lines. 
E) Cannot be determined without studying the indifference curves.

Question 6

Which one of the following is true at the best affordable choice of a consumer?

Accepted Answer

A) Marginal rate of substitution exceeds the slope of the budget line. 
B) Marginal rate of substitution is less than the relative price of the good measured on the x-axis. 
C) All income is spent. 
D) The consumption choice is outside the budget line. 
E) Other consumption points along the consumer's budget line lie on higher indifference curves. 
A) Marginal rate of substitution exceeds the slope of the budget line. 
B) Marginal rate of substitution is less than the relative price of the good measured on the x-axis. 
C) All income is spent. 
D) The consumption choice is outside the budget line. 
E) Other consumption points along the consumer's budget line lie on higher indifference curves.

Question 7

The magnitude of the slope of the budget line is the

Accepted Answer

A) relative price of the good measured on the vertical axis. 
B) relative price of the good measured on the horizontal axis. 
C) absolute price of the good measured on the horizontal axis. 
D) real price of the good measured on the vertical axis. 
E) price of the good measured on the vertical axis. 
A) relative price of the good measured on the vertical axis. 
B) relative price of the good measured on the horizontal axis. 
C) absolute price of the good measured on the horizontal axis. 
D) real price of the good measured on the vertical axis. 
E) price of the good measured on the vertical axis.

Question 8

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

Accepted Answer

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

Question 9

Use the figure below to answer the following questions.
   
Figure 9.3.4
Original equilibrium at A, new equilibrium at B
-Refer to Figure 9.3.4.Which graphs show the case where good Y is a normal good?

Accepted Answer

A) (a)and (b) 
B) (c)and (d) 
C) (a)and (c) 
D) (b)and (d) 
E) none of the graphs 
A) (a)and (b) 
B) (c)and (d) 
C) (a)and (c) 
D) (b)and (d) 
E) none of the graphs

Question 10

If the price of an inferior good rises,the income effect

Accepted Answer

A) will have an uncertain effect on consumption of the good, and the substitution effect will decrease consumption. 
B) will decrease consumption of the good, and the substitution effect will decrease 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) will increase consumption of the good and the substitution effect will decrease consumption. 
A) will have an uncertain effect on consumption of the good, and the substitution effect will decrease consumption. 
B) will decrease consumption of the good, and the substitution effect will decrease 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) will increase consumption of the good and the substitution effect will decrease consumption.

Question 11

If income increases,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 parallels 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 parallels either leftward or rightward depending on whether the goods measured on the axes are normal or inferior.

Question 12

At the best affordable point,what is the relationship between the indifference curve and the budget line?

Accepted Answer

A) The budget line and the indifference curve are identical. 
B) The slope of the indifference curve exceeds the slope of the budget line. 
C) The slope of the budget line exceeds the slope of the indifference curve. 
D) The slope of the indifference curve equals the slope of the budget line. 
E) None of the above. 
A) The budget line and the indifference curve are identical. 
B) The slope of the indifference curve exceeds the slope of the budget line. 
C) The slope of the budget line exceeds the slope of the indifference curve. 
D) The slope of the indifference curve equals the slope of the budget line. 
E) None of the above.

Question 13

David has an income of $30 to buy movie tickets and bus tickets.The price of a movie ticket is $6 and the price of a bus ticket is $2.What is the relative price of a bus ticket in terms of movie tickets?

Accepted Answer

A) 2 movie tickets 
B) 15 movie tickets 
C) $3 
D) 1/3 movie tickets 
E) $6 
A) 2 movie tickets 
B) 15 movie tickets 
C) $3 
D) 1/3 movie tickets 
E) $6

Question 14

Use the figure below to answer the following questions.
   
Figure 9.1.1
-Shelly's budget line is shown in Figure 9.1.1.Which points are affordable given her income and current prices?

Accepted Answer

A) A only 
B) B only 
C) C only 
D) D only 
E) A, C, and D 
A) A only 
B) B only 
C) C only 
D) D only 
E) A, C, and D

Question 15

When the price of a good changes,the change in consumption that leaves the consumer indifferent between the two choices is called the

Accepted Answer

A) normal effect. 
B) substitution effect. 
C) income effect. 
D) price effect. 
E) inferior effect. 
A) normal effect. 
B) substitution effect. 
C) income effect. 
D) price effect. 
E) inferior effect.

Question 16

Use the information below to answer the following questions.
Fact 9.3.1
Marc has an income of $20 and spends it on two goods, root beer (measured on the vertical axis)and chips (measured on the horizontal axis).The price of root beer is $1 a can.The price of chips is $0.50 a bag.Initially, Marc chooses to consume 10 cans of root beer and 20 bags of chips.Then the price of root beer rises to $1.50 per can and the price of chips falls to $0.25 a bag.
-Refer to Fact 9.3.1.Marc's initial marginal rate of substitution was

Accepted Answer

A) not calculable with the information given. 
B) equal to 2 cans of root beer given up for each bag of chips gained. 
C) equal to 1 can of root beer given up for each bag of chips gained. 
D) equal to 10 cans of root beer given up for each bag of chips gained. 
E) equal to 1/2 can of root beer given up for each bag of chips gained. 
A) not calculable with the information given. 
B) equal to 2 cans of root beer given up for each bag of chips gained. 
C) equal to 1 can of root beer given up for each bag of chips gained. 
D) equal to 10 cans of root beer given up for each bag of chips gained. 
E) equal to 1/2 can of root beer given up for each bag of chips gained.

Question 17

Larry consumes only beer (B)and chips (C).The equation of his budget line (with beer measured on the vertical axis)is

Accepted Answer

A) QB = Y/PB - (PC/P
B) QC. 
B) QB = Y - (PC/P
B) QC. 
C) QB = Y/PC - (PB/P
C) QC. 
D) QB = Y/PB - (PC/P
B) QB. 
E) QC = Y/PC - (PB/P
C) QB. 
A) QB = Y/PB - (PC/P
B) QC. 
B) QB = Y - (PC/P
B) QC. 
C) QB = Y/PC - (PB/P
C) QC. 
D) QB = Y/PB - (PC/P
B) QB. 
E) QC = Y/PC - (PB/P
C) QB.

Question 18

Goods that can be bought in any quantity desired are called

Accepted Answer

A) divisible goods. 
B) invisible goods. 
C) inferior goods. 
D) services. 
E) normal goods. 
A) divisible goods. 
B) invisible goods. 
C) inferior goods. 
D) services. 
E) normal goods.

Question 19

Which of the following results in a rightward shift of your indifference curves for gasoline and movie rentals?

Accepted Answer

A) an increase in the price of a litre of gasoline with no change in the price of a movie rental 
B) an increase in the price of a movie rental with no change in the price of a litre of gasoline 
C) an increase in income if gasoline and movie rentals are normal goods 
D) a decrease in the price of a litre of gasoline or a decrease in the price of a movie rental 
E) none of the above 
A) an increase in the price of a litre of gasoline with no change in the price of a movie rental 
B) an increase in the price of a movie rental with no change in the price of a litre of gasoline 
C) an increase in income if gasoline and movie rentals are normal goods 
D) a decrease in the price of a litre of gasoline or a decrease in the price of a movie rental 
E) none of the above

Question 20

Good X is measured on the horizontal axis and good Y is measured on the vertical axis.The marginal rate of substitution is

Accepted Answer

A) the relative price of good X in terms of good Y. 
B) the relative price of good Y in terms of good X. 
C) the rate at which a consumer will give up good Y to obtain an additional unit of good X while remaining indifferent. 
D) the rate at which a consumer will give up good X to obtain an additional unit of good Y while remaining indifferent. 
E) equal to the magnitude of the slope of the budget line. 
A) the relative price of good X in terms of good Y. 
B) the relative price of good Y in terms of good X. 
C) the rate at which a consumer will give up good Y to obtain an additional unit of good X while remaining indifferent. 
D) the rate at which a consumer will give up good X to obtain an additional unit of good Y while remaining indifferent. 
E) equal to the magnitude of the slope of the budget line.

Exam 9: Possibilities, Preferences, and Choices

Which one of the following statements is true about the indifference curves for two goods that are close but not perfect substitutes?

The substitution effect is the effect of a change in ________ on ________.The income effect is the effect of a change in ________ on ________.

Use the figure below to answer the following question. Figure 9.3.2 -Which one of the following statements about Figure 9.3.2 is true?

If two goods are perfect substitutes,then their

Use the figure below to answer the following questions. Figure 9.1.2 -Refer to Figure 9.1.2.Which budget line shows the greatest real income in terms of carrots?

Which one of the following is true at the best affordable choice of a consumer?

The magnitude of the slope of the budget line is the

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

Use the figure below to answer the following questions. Figure 9.3.4 Original equilibrium at A, new equilibrium at B -Refer to Figure 9.3.4.Which graphs show the case where good Y is a normal good?

If the price of an inferior good rises,the income effect

If income increases,the budget line

At the best affordable point,what is the relationship between the indifference curve and the budget line?

David has an income of $30 to buy movie tickets and bus tickets.The price of a movie ticket is $6 and the price of a bus ticket is $2.What is the relative price of a bus ticket in terms of movie tickets?

Use the figure below to answer the following questions. Figure 9.1.1 -Shelly's budget line is shown in Figure 9.1.1.Which points are affordable given her income and current prices?

When the price of a good changes,the change in consumption that leaves the consumer indifferent between the two choices is called the

Larry consumes only beer (B)and chips (C).The equation of his budget line (with beer measured on the vertical axis)is

Goods that can be bought in any quantity desired are called

Which of the following results in a rightward shift of your indifference curves for gasoline and movie rentals?

Good X is measured on the horizontal axis and good Y is measured on the vertical axis.The marginal rate of substitution 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

Filters

The substitution effect is the effect of a change in on .The income effect is the effect of a change in on .