Question 1

Figure 21-22  
-Refer to Figure 21-22. The shift from point B to point C in the figure is due to the

Accepted Answer

A) substitution effect of an increase in the price of potato chips. 
B) income effect of an increase in the price of potato chips. 
C) substitution effect of a decrease in the price of potato chips. 
D) income effect of a decrease in the price of potato chips. 
A) substitution effect of an increase in the price of potato chips. 
B) income effect of an increase in the price of potato chips. 
C) substitution effect of a decrease in the price of potato chips. 
D) income effect of a decrease in the price of potato chips.

Question 2

When two goods are perfect substitutes, the

Accepted Answer

A) indifference curve is a horizontal straight line. 
B) marginal rate of substitution is constant. 
C) indifference curve is a vertical straight line. 
D) Both a and b are correct. 
A) indifference curve is a horizontal straight line. 
B) marginal rate of substitution is constant. 
C) indifference curve is a vertical straight line. 
D) Both a and b are correct.

Question 3

If the market is offering consumers the trade-off of 3 pints of Pepsi for 1 pizza, and if the price of a pizza is $9, then what is the price of a pint of Pepsi?

Accepted Answer

The price

Question 4

Pepsi and pizza are normal goods. When the price of pizza falls, the substitution effect by itself will cause a

Accepted Answer

A) shift to a lower indifference curve so that the consumer buys less Pepsi. 
B) shift to a higher indifference curve so that the consumer buys more Pepsi. 
C) movement along the indifference curve so that the consumer buys more Pepsi. 
D) movement along the indifference curve so that the consumer buys less Pepsi. 
A) shift to a lower indifference curve so that the consumer buys less Pepsi. 
B) shift to a higher indifference curve so that the consumer buys more Pepsi. 
C) movement along the indifference curve so that the consumer buys more Pepsi. 
D) movement along the indifference curve so that the consumer buys less Pepsi.

Question 5

Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies:  
-Refer to Figure 21-20. Assume that the consumer depicted the figure has an income of $50. Based on the information available in the graph, which of the following price-quantity combinations would be on her demand curve for chocolate chips if the price of marshmallows is $2.50?

Accepted Answer

A) P=$2.50, Q=6 
B) P=$2.50, Q=10 
C) P=$5.00, Q=3 
D) P=$5.00, Q=5 
A) P=$2.50, Q=6 
B) P=$2.50, Q=10 
C) P=$5.00, Q=3 
D) P=$5.00, Q=5

Question 6

The labor supply curve may have a backward-bending portion if, at higher wages, the income effect is

Accepted Answer

A) smaller than the substitution effect. 
B) larger than the substitution effect. 
C) negative. 
D) Any of the above could result in a backward-bending supply curve. 
A) smaller than the substitution effect. 
B) larger than the substitution effect. 
C) negative. 
D) Any of the above could result in a backward-bending supply curve.

Question 7

When the price of a normal good decreases,

Accepted Answer

A) both the income and substitution effects encourage the consumer to purchase more of the good. 
B) both the income and substitution effects encourage the consumer to purchase less of the good. 
C) the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good. 
D) the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages the consumer to purchase more of the good. 
A) both the income and substitution effects encourage the consumer to purchase more of the good. 
B) both the income and substitution effects encourage the consumer to purchase less of the good. 
C) the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good. 
D) the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages the consumer to purchase more of the good.

Question 8

When a consumer experiences a price increase for an inferior good, if the income effect is

Accepted Answer

A) greater than the substitution effect, the demand curve will be downward sloping. 
B) greater than the substitution effect, the demand curve will be upward sloping. 
C) less than the substitution effect, the demand curve will be upward sloping. 
D) less than the substitution effect but the substitution effect is positive, the demand curve will be upward sloping. 
A) greater than the substitution effect, the demand curve will be downward sloping. 
B) greater than the substitution effect, the demand curve will be upward sloping. 
C) less than the substitution effect, the demand curve will be upward sloping. 
D) less than the substitution effect but the substitution effect is positive, the demand curve will be upward sloping.

Question 9

Taylor spends all of her income on tank tops and running shoes, and the price of a pair of running shoes is four times the price of a tank top. In order to maximize total utility, Taylor should buy

Accepted Answer

A) four times as many tank tops as pairs of running shoes. 
B) four times as many pairs of running shoes as tank tops. 
C) both items until the marginal utility of a pair of running shoes is four times the marginal utility of a tank top. 
D) both items until the marginal utility of a tank top is four times the marginal utility of a pair of running shoes. 
A) four times as many tank tops as pairs of running shoes. 
B) four times as many pairs of running shoes as tank tops. 
C) both items until the marginal utility of a pair of running shoes is four times the marginal utility of a tank top. 
D) both items until the marginal utility of a tank top is four times the marginal utility of a pair of running shoes.

Question 10

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin.  
-Refer to Figure 21-31. If point B is Kevin's optimum, then at that optimum, what is his opportunity cost of a sweater in terms of shirts?

Accepted Answer

Kevin's opportunity

Question 11

Which of the following statements is not correct?

Accepted Answer

A) Reducing taxes on interest income might encourage people to save more. 
B) Reducing taxes on interest income might reduce saving. 
C) A price increase will create income and substitution effects that will both always work to reduce consumption of the good. 
D) Utility is maximized when the marginal rate of substitution between any two goods equals the relative prices of the two goods. 
A) Reducing taxes on interest income might encourage people to save more. 
B) Reducing taxes on interest income might reduce saving. 
C) A price increase will create income and substitution effects that will both always work to reduce consumption of the good. 
D) Utility is maximized when the marginal rate of substitution between any two goods equals the relative prices of the two goods.

Question 12

Abby, Bobbi, and Deborah each buy ice cream and paperback novels to enjoy on hot summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Abby has a budget of $80, Bobbi has a budget of $60, and Deborah has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 4 gallons of ice cream and 5 paperback novels?

Accepted Answer

A) Abby, Bobbi, and Deborah 
B) Abby only 
C) Abby and Bobbi, but not Deborah 
D) None of the women can afford to purchase 4 gallons of ice cream and 5 paperback novels. 
A) Abby, Bobbi, and Deborah 
B) Abby only 
C) Abby and Bobbi, but not Deborah 
D) None of the women can afford to purchase 4 gallons of ice cream and 5 paperback novels.

Question 13

Suppose a consumer has an income of $800 per month and that she spends her entire income each month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4. Which of the following combinations of beers and bratwursts represents a point that would lie directly on the consumer's budget constraint?

Accepted Answer

A) 160 beers and 200 bratwursts 
B) 40 beers and 50 bratwursts 
C) 80 beers and 100 bratwursts 
D) 80 beers and 0 bratwursts 
A) 160 beers and 200 bratwursts 
B) 40 beers and 50 bratwursts 
C) 80 beers and 100 bratwursts 
D) 80 beers and 0 bratwursts

Question 14

A consumer's indifference curves are right angles when, for the consumer, the goods in question are __________.

Accepted Answer

The answer of A consumer's indifference curves are right angles...

Question 15

At a consumer's optimal choice, the consumer chooses the combination of goods that equates the marginal rate of substitution and the price ratio.

Accepted Answer

A) True 
 B)False

Question 16

Irrespective of whether she is at her optimum, Jenna's valuation of coffee relative to orange juice can be measured by

Accepted Answer

A) her marginal rate of substitution between coffee and orange juice. 
B) the price of coffee relative to the price of orange juice. 
C) the ratio of the quantity of coffee that she buys relative to the quantity of orange juice that she buys. 
D) the ratio of the quantity of coffee supplied in the market to the quantity of orange juice supplied in the market. 
A) her marginal rate of substitution between coffee and orange juice. 
B) the price of coffee relative to the price of orange juice. 
C) the ratio of the quantity of coffee that she buys relative to the quantity of orange juice that she buys. 
D) the ratio of the quantity of coffee supplied in the market to the quantity of orange juice supplied in the market.

Question 17

A rational consumer maximizes her

Accepted Answer

A) preferences. 
B) marginal rate of substitution. 
C) utility. 
D) budget constraint. 
A) preferences. 
B) marginal rate of substitution. 
C) utility. 
D) budget constraint.

Question 18

All of the following are properties of typical indifference curves except

Accepted Answer

A) higher indifference curves are preferred to lower ones. 
B) indifference curves are downward sloping. 
C) indifference curves do not cross. 
D) indifference curves are bowed outward. 
A) higher indifference curves are preferred to lower ones. 
B) indifference curves are downward sloping. 
C) indifference curves do not cross. 
D) indifference curves are bowed outward.

Question 19

A consumer's optimal choice occurs when the

Accepted Answer

A) consumer's valuation of the two goods equals the market's valuation of the two goods. 
B) consumer minimizes her expenditures. 
C) consumer attains the highest indifference curve. 
D) consumer's valuation of the two goods exceeds the market's valuation of the two goods. 
A) consumer's valuation of the two goods equals the market's valuation of the two goods. 
B) consumer minimizes her expenditures. 
C) consumer attains the highest indifference curve. 
D) consumer's valuation of the two goods exceeds the market's valuation of the two goods.

Question 20

Violations of the law of demand are assumed to occur

Accepted Answer

A) regularly. 
B) only when goods are Giffen goods. 
C) only when the substitution effect dominates the income effect. 
D) All of the above are correct. 
A) regularly. 
B) only when goods are Giffen goods. 
C) only when the substitution effect dominates the income effect. 
D) All of the above are correct.

Exam 21: The Theory of Consumer Choice

Figure 21-22 -Refer to Figure 21-22. The shift from point B to point C in the figure is due to the

When two goods are perfect substitutes, the

If the market is offering consumers the trade-off of 3 pints of Pepsi for 1 pizza, and if the price of a pizza is $9, then what is the price of a pint of Pepsi?

Pepsi and pizza are normal goods. When the price of pizza falls, the substitution effect by itself will cause a

The labor supply curve may have a backward-bending portion if, at higher wages, the income effect is

When the price of a normal good decreases,

When a consumer experiences a price increase for an inferior good, if the income effect is

Taylor spends all of her income on tank tops and running shoes, and the price of a pair of running shoes is four times the price of a tank top. In order to maximize total utility, Taylor should buy

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If point B is Kevin's optimum, then at that optimum, what is his opportunity cost of a sweater in terms of shirts?

Which of the following statements is not correct?

A consumer's indifference curves are right angles when, for the consumer, the goods in question are __________.

At a consumer's optimal choice, the consumer chooses the combination of goods that equates the marginal rate of substitution and the price ratio.

Irrespective of whether she is at her optimum, Jenna's valuation of coffee relative to orange juice can be measured by

A rational consumer maximizes her

All of the following are properties of typical indifference curves except

A consumer's optimal choice occurs when the

Violations of the law of demand are assumed to occur

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

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