Question 1

Which one of the following statements is always true of the substitution effect?

Accepted Answer

A) It leads to a positive income effect. 
B) It is positive. 
C) It decreases consumption. 
D) It leads to a negative income effect. 
E) It is negative. 
A) It leads to a positive income effect. 
B) It is positive. 
C) It decreases consumption. 
D) It leads to a negative income effect. 
E) It is negative.

Question 2

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 income effect is illustrated by the move from point

Accepted Answer

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

Question 3

The price of a cup of coffee is $2.00.The price of a cup of tea is $1.20.The relative price of a cup of tea with respect to a cup of coffee is

Accepted Answer

A) 0.6 cups of coffee. 
B) 1.67 cups of coffee. 
C) 1.0 cup of coffee. 
D) 1.25 cups of coffee. 
E) 0.75 cups of coffee. 
A) 0.6 cups of coffee. 
B) 1.67 cups of coffee. 
C) 1.0 cup of coffee. 
D) 1.25 cups of coffee. 
E) 0.75 cups of coffee.

Question 4

Larry consumes only beer (B)and chips (C).His real income in terms of chips is

Accepted Answer

A) PC/Y. 
B) PC × PB. 
C) Y/PC. 
D) Y/PB. 
E) PC/PB. 
A) PC/Y. 
B) PC × PB. 
C) Y/PC. 
D) Y/PB. 
E) PC/PB.

Question 5

Zarina can afford to buy 3 tomatoes and no toothbrushes,or 2 toothbrushes and no tomatoes.The relative price of a toothbrush is

Accepted Answer

A) 2/3 of a tomato. 
B) 3/2 tomatoes. 
C) 6 tomatoes. 
D) 1/6 of a tomato. 
E) impossible to calculate without additional information. 
A) 2/3 of a tomato. 
B) 3/2 tomatoes. 
C) 6 tomatoes. 
D) 1/6 of a tomato. 
E) impossible to calculate without additional information.

Question 6

Which of the following is not relevant when calculating the budget line?

Accepted Answer

A) the price of good X 
B) income 
C) the price of good Y 
D) preferences 
E) the relative price of good X in terms of good Y 
A) the price of good X 
B) income 
C) the price of good Y 
D) preferences 
E) the relative price of good X in terms of good Y

Question 7

A consumer always has a cup of coffee with a tablespoon of sugar.What would the consumer's indifference curves for these two goods look like?

Accepted Answer

A) upward sloping 
B) horizontal along the entire length 
C) downward sloping with a constant slope 
D) vertical along the entire length 
E) L-shaped 
A) upward sloping 
B) horizontal along the entire length 
C) downward sloping with a constant slope 
D) vertical along the entire length 
E) L-shaped

Question 8

Leah consumes at a point on her budget line where her marginal rate of substitution is less than the magnitude of the slope of her budget line.As Leah moves towards her best affordable point,she will move to

Accepted Answer

A) a lower budget line. 
B) a higher budget line. 
C) a lower indifference curve. 
D) a higher indifference curve. 
E) a tangent point on the same indifference curve. 
A) a lower budget line. 
B) a higher budget line. 
C) a lower indifference curve. 
D) a higher indifference curve. 
E) a tangent point on the same indifference curve.

Question 9

A change in the price of the good measured on the horizontal axis changes ________ of the budget line.

Accepted Answer

A) the slope and y-intercept 
B) the slope and x-intercept 
C) the x- and y-intercepts but not the slope 
D) only the slope 
E) only the y-intercept 
A) the slope and y-intercept 
B) the slope and x-intercept 
C) the x- and y-intercepts but not the slope 
D) only the slope 
E) only the y-intercept

Question 10

The number of pizza slices is plotted on the horizontal axis and number of hot dogs is plotted on the vertical axis.If the price of a hot dog rises the

Accepted Answer

A) x-intercept and the slope of the budget line increase. 
B) y-intercept and the slope of the budget line increase. 
C) x-intercept and the slope of the budget line decrease. 
D) y-intercept decreases and the slope of the budget line does not change. 
E) y-intercept and the slope of the budget line decrease. 
A) x-intercept and the slope of the budget line increase. 
B) y-intercept and the slope of the budget line increase. 
C) x-intercept and the slope of the budget line decrease. 
D) y-intercept decreases and the slope of the budget line does not change. 
E) y-intercept and the slope of the budget line decrease.

Question 11

Larry consumes only beer (B)and chips (C).If beer is measured on the vertical axis,the relative price of chips in terms of beer is all of the following except

Accepted Answer

A) PC/PB 
B) the magnitude of the slope of the budget line 
C) equal to the opportunity cost of 1 bag of chips 
D) the real income in terms of beer 
E) the inverse of the relative price of beer in terms of chips 
A) PC/PB 
B) the magnitude of the slope of the budget line 
C) equal to the opportunity cost of 1 bag of chips 
D) the real income in terms of beer 
E) the inverse of the relative price of beer in terms of chips

Question 12

The marginal rate of substitution

Accepted Answer

A) is the amount of good Y substituted for good X as a consumer moves along his budget line. 
B) is the rate at which a person gives up the good measured on the y-axis to get an additional unit of the good measured on the x-axis while remaining on the same indifference curve. 
C) increases as a consumer consumes more of the good measured on the x-axis. 
D) is greater than the magnitude of the slope of the budget line. 
E) is equal to the slope of the budget line. 
A) is the amount of good Y substituted for good X as a consumer moves along his budget line. 
B) is the rate at which a person gives up the good measured on the y-axis to get an additional unit of the good measured on the x-axis while remaining on the same indifference curve. 
C) increases as a consumer consumes more of the good measured on the x-axis. 
D) is greater than the magnitude of the slope of the budget line. 
E) is equal to the slope of the budget line.

Question 13

What is the relationship between goods and the income effect?

Accepted Answer

A) An inferior good has a positive income effect. 
B) A normal good has a positive income effect. 
C) An inferior good has no income effect. 
D) A normal good has no income effect. 
E) A normal good has a negative income effect. 
A) An inferior good has a positive income effect. 
B) A normal good has a positive income effect. 
C) An inferior good has no income effect. 
D) A normal good has no income effect. 
E) A normal good has a negative income effect.

Exam 9: Possibilities, Preferences, and Choices

Which one of the following statements is always true of the substitution effect?

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 income effect is illustrated by the move from point

The price of a cup of coffee is $2.00.The price of a cup of tea is $1.20.The relative price of a cup of tea with respect to a cup of coffee is

Larry consumes only beer (B)and chips (C).His real income in terms of chips is

Zarina can afford to buy 3 tomatoes and no toothbrushes,or 2 toothbrushes and no tomatoes.The relative price of a toothbrush is

Which of the following is not relevant when calculating the budget line?

A consumer always has a cup of coffee with a tablespoon of sugar.What would the consumer's indifference curves for these two goods look like?

Leah consumes at a point on her budget line where her marginal rate of substitution is less than the magnitude of the slope of her budget line.As Leah moves towards her best affordable point,she will move to

A change in the price of the good measured on the horizontal axis changes ________ of the budget line.

The number of pizza slices is plotted on the horizontal axis and number of hot dogs is plotted on the vertical axis.If the price of a hot dog rises the

Larry consumes only beer (B)and chips (C).If beer is measured on the vertical axis,the relative price of chips in terms of beer is all of the following except

The marginal rate of substitution

What is the relationship between goods and the income effect?

What Is Economics?

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Perfect Competition

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The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: The Keynesian Model

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