Question 1

For a typical consumer, indifference curves can intersect if they satisfy the property of transitivity.

Accepted Answer

A) True 
 B)False

Question 2

If the income effect counteracts the substitution effect, we know that the good in question is a(n)

Accepted Answer

A) complementary good. 
B) inferior good. 
C) luxury good. 
D) normal good. 
A) complementary good. 
B) inferior good. 
C) luxury good. 
D) normal good.

Question 3

Which of the following is a property of typical indifference curves?

Accepted Answer

A) Indifference curves usually intersect. 
B) Indifference curves have positive slopes. 
C) Indifference curves are downward sloping and always linear. 
D) Indifference curves are usually bowed in toward the origin. 
A) Indifference curves usually intersect. 
B) Indifference curves have positive slopes. 
C) Indifference curves are downward sloping and always linear. 
D) Indifference curves are usually bowed in toward the origin.

Question 4

Ryan experiences an increase in his wages. The hours of labor that he supplies to the market would increase if

Accepted Answer

A) the income effect is larger than the substitution effect. 
B) the substitution effect is larger than the income effect. 
C) neither the income effect nor the substitution effect apply to Tom's labor-leisure tradeoff. 
D) Ryan views both labor and leisure as inferior goods. 
A) the income effect is larger than the substitution effect. 
B) the substitution effect is larger than the income effect. 
C) neither the income effect nor the substitution effect apply to Tom's labor-leisure tradeoff. 
D) Ryan views both labor and leisure as inferior goods.

Question 5

Figure 21-27  
-Refer to Figure 21-27. Anna experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Anna,

Accepted Answer

A) her labor supply curve is backward bending. 
B) her labor supply curve is upward sloping. 
C) leisure is an inferior good. 
D) both a and c are correct. 
A) her labor supply curve is backward bending. 
B) her labor supply curve is upward sloping. 
C) leisure is an inferior good. 
D) both a and c are correct.

Question 6

A consumer's optimal choice is affected by income, prices of goods, and preferences.

Accepted Answer

A) True 
 B)False

Question 7

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. How much income does Hannah earn when she is young?

Accepted Answer

Hannah ear

Question 8

Teresa faces prices of $6.00 for a unit of good X and $1.50 for a unit of good Y. At her optimum, Teresa is willing to give up 1 unit of good X for __________ units of good Y.

Accepted Answer

The answer of Teresa faces prices of $6.00 for a...

Question 9

​Suppose the price of good X increases and consumers purchase more of good Y. Which of the following statements is necessarily true about good Y?

Accepted Answer

A) ​Good Y is a normal good. 
B) ​Good Y is an inferior good, but not a Giffen good. 
C) ​Good Y is an inferior good and a Giffen good. 
D) ​Good Y could be a normal or inferior good. 
A) ​Good Y is a normal good. 
B) ​Good Y is an inferior good, but not a Giffen good. 
C) ​Good Y is an inferior good and a Giffen good. 
D) ​Good Y could be a normal or inferior good.

Question 10

Assume that a consumer's indifference curve is bowed inward and satisfies the other three properties of indifference curves. As the consumer moves from left to right along the horizontal axis, the consumer's marginal rate of substitution

Accepted Answer

A) increases. 
B) decreases. 
C) remains constant. 
D) increases, then decreases. 
A) increases. 
B) decreases. 
C) remains constant. 
D) increases, then decreases.

Question 11

Figure 21-5
(a)
(b)    
-Refer to Figure 21-5. In graph (a), what is the price of good X relative to the price of good Y (i.e., PX/PY)?

Accepted Answer

A) 1/4 
B) 1/3 
C) 3 
D) 4 
A) 1/4 
B) 1/3 
C) 3 
D) 4

Question 12

Suppose Reta is planning for retirement in a two-period world. In the first period Reta is young and earns $1 million, and in the second period Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

Accepted Answer

A) substitution effect will induce Reta to consume more when she is young. 
B) substitution effect will induce Reta to consume less when she is young. 
C) income effect will induce Reta to consume more when she is young. 
D) change in interest rates affects the substitution effect but not the income effect. 
A) substitution effect will induce Reta to consume more when she is young. 
B) substitution effect will induce Reta to consume less when she is young. 
C) income effect will induce Reta to consume more when she is young. 
D) change in interest rates affects the substitution effect but not the income effect.

Question 13

An individual's demand curve for a good is derived by varying the

Accepted Answer

A) income level and observing the resulting total utility derived from both goods. 
B) price of one good and observing the resulting quantities of the other good. 
C) budget line to the left and calculating the loss in total utility. 
D) price of one good and observing the resulting quantities demanded of that good. 
A) income level and observing the resulting total utility derived from both goods. 
B) price of one good and observing the resulting quantities of the other good. 
C) budget line to the left and calculating the loss in total utility. 
D) price of one good and observing the resulting quantities demanded of that good.

Question 14

Figure 21-11  
-Refer to Figure 21-11. What is the consumer's marginal rate of substitution as she moves from B to C?

Accepted Answer

A) 12 
B) 6 
C) 4 
D) 1 
A) 12 
B) 6 
C) 4 
D) 1

Question 15

Figure 21-19  
-Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $2. The consumer's optimal choice is point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
A) A. 
B) B. 
C) C. 
D) D.

Question 16

Figure 21-17  
-Refer to Figure 21-17. When the price of X is $6, the price of Y is $24, and income is $48, Paul's optimal choice is point C. Then the price of Y decreases to $8. Paul's new optimal choice is point

Accepted Answer

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

Question 17

Figure 21-18  
-Refer to Figure 21-18. It would be possible for the consumer to reach I2 if

Accepted Answer

A) the price of Y decreases. 
B) the price of X decreases. 
C) income increases. 
D) All of the above would be correct. 
A) the price of Y decreases. 
B) the price of X decreases. 
C) income increases. 
D) All of the above would be correct.

Question 18

Figure 21-30 The graph shows two budget constraints for a consumer.  
-Refer to Figure 21-30. Suppose Budget Constraint B applies. If the consumer's income is $90 and if he is buying 5 light bulbs, then how much money is he spending on hamburgers?

Accepted Answer

If income is $90, then the price of a li

Question 19

Figure 21-25 The figure pertains to a particular consumer. On the axes, X represents the quantity of good X and Y represents the quantity of good Y.  
-Refer to Figure 21-25. Suppose the price of good X is $15, the price of good Y is $10, and the consumer's income is $450. Then the consumer's optimal choice is to buy

Accepted Answer

A) 6 units of good X and 36 units of good Y. 
B) 12 units of good X and 27 units of good Y. 
C) 20 units of good X and 15 units of good Y. 
D) 26 units of good X and 6 units of good Y. 
A) 6 units of good X and 36 units of good Y. 
B) 12 units of good X and 27 units of good Y. 
C) 20 units of good X and 15 units of good Y. 
D) 26 units of good X and 6 units of good Y.

Question 20

A family on a trip budgets $800 for meals and gasoline. If the price of a meal for the family is $50, how many meals can the family buy if they do not buy any gasoline?

Accepted Answer

A) 8 
B) 16 
C) 24 
D) 32 
A) 8 
B) 16 
C) 24 
D) 32

Exam 21: The Theory of Consumer Choice

For a typical consumer, indifference curves can intersect if they satisfy the property of transitivity.

If the income effect counteracts the substitution effect, we know that the good in question is a(n)

Which of the following is a property of typical indifference curves?

Ryan experiences an increase in his wages. The hours of labor that he supplies to the market would increase if

Figure 21-27 -Refer to Figure 21-27. Anna experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Anna,

A consumer's optimal choice is affected by income, prices of goods, and preferences.

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. How much income does Hannah earn when she is young?

Teresa faces prices of $6.00 for a unit of good X and $1.50 for a unit of good Y. At her optimum, Teresa is willing to give up 1 unit of good X for __________ units of good Y.

​Suppose the price of good X increases and consumers purchase more of good Y. Which of the following statements is necessarily true about good Y?

Assume that a consumer's indifference curve is bowed inward and satisfies the other three properties of indifference curves. As the consumer moves from left to right along the horizontal axis, the consumer's marginal rate of substitution

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a), what is the price of good X relative to the price of good Y (i.e., PX/PY)?

Suppose Reta is planning for retirement in a two-period world. In the first period Reta is young and earns $1 million, and in the second period Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

An individual's demand curve for a good is derived by varying the

Figure 21-11 -Refer to Figure 21-11. What is the consumer's marginal rate of substitution as she moves from B to C?

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $2. The consumer's optimal choice is point

Figure 21-17 -Refer to Figure 21-17. When the price of X is $6, the price of Y is $24, and income is $48, Paul's optimal choice is point C. Then the price of Y decreases to $8. Paul's new optimal choice is point

Figure 21-18 -Refer to Figure 21-18. It would be possible for the consumer to reach I2 if

Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. Suppose Budget Constraint B applies. If the consumer's income is $90 and if he is buying 5 light bulbs, then how much money is he spending on hamburgers?

A family on a trip budgets $800 for meals and gasoline. If the price of a meal for the family is $50, how many meals can the family buy if they do not buy any gasoline?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Suppose the price of good X increases and consumers purchase more of good Y. Which of the following statements is necessarily true about good Y?

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a), what is the price of good X relative to the price of good Y (i.e., P_X/P_Y)?

Figure 21-18 -Refer to Figure 21-18. It would be possible for the consumer to reach I₂ if