Question 1

The opportunity cost of current household consumption is the

Accepted Answer

A) wage rate. 
B) market interest rate. 
C) price of the goods consumed. 
D) explicit cost of consumption. 
A) wage rate. 
B) market interest rate. 
C) price of the goods consumed. 
D) explicit cost of consumption.

Question 2

Figure 21-6  
-Refer to Figure 21-6. Suppose the price of popcorn is $2, the price of Mt. Dew is $4, the value of A is 30, and the value of B is 15. How much income does the consumer have?

Accepted Answer

A) $120 
B) $80 
C) $60 
D) $30 
A) $120 
B) $80 
C) $60 
D) $30

Question 3

Figure 21-10  
-Refer to Figure 21-10. When comparing bundle B to bundle C, the consumer

Accepted Answer

A) prefers bundle B because it contains more donuts. 
B) is indifferent between the two bundles. 
C) prefers bundle C because it contains more cake. 
D) In order to compare bundle B to bundle C, we must know the prices of cake and donuts. 
A) prefers bundle B because it contains more donuts. 
B) is indifferent between the two bundles. 
C) prefers bundle C because it contains more cake. 
D) In order to compare bundle B to bundle C, we must know the prices of cake and donuts.

Question 4

The marginal rate of substitution between goods A and B measures the price of A relative to the price of B.

Accepted Answer

A) True 
 B)False

Question 5

An inferior good is one in which

Accepted Answer

A) the average consumer chooses not to consume. 
B) the good is not equally valued by all consumers. 
C) an increase in income increases consumption of the good. 
D) an increase in income decreases consumption of the good. 
A) the average consumer chooses not to consume. 
B) the good is not equally valued by all consumers. 
C) an increase in income increases consumption of the good. 
D) an increase in income decreases consumption of the good.

Question 6

When we derive the demand curve for a good, we should remember that the

Accepted Answer

A) income effect must be greater than the substitution effect. 
B) substitution effect must be greater than the income effect. 
C) substitution effect must be in the same direction as the income effect. 
D) income effect and the substitution effect may work in the same or in opposite directions. 
A) income effect must be greater than the substitution effect. 
B) substitution effect must be greater than the income effect. 
C) substitution effect must be in the same direction as the income effect. 
D) income effect and the substitution effect may work in the same or in opposite directions.

Question 7

Consumer theory provides the foundation for understanding demand curves because

Accepted Answer

A) each point on a demand curve represents an optimal choice point. 
B) consumers purchase more inferior goods than normal goods. 
C) increases in income cause the budget constraint to rotate inward along one axis, which changes the consumer's purchases. 
D) increases in income cause the budget constraint to rotate outward along one axis, which changes the consumer's purchases. 
A) each point on a demand curve represents an optimal choice point. 
B) consumers purchase more inferior goods than normal goods. 
C) increases in income cause the budget constraint to rotate inward along one axis, which changes the consumer's purchases. 
D) increases in income cause the budget constraint to rotate outward along one axis, which changes the consumer's purchases.

Question 8

As more units of an item are purchased, everything else equal, marginal satisfaction from consuming additional units will tend to

Accepted Answer

A) decrease at the same rate for all consumers. 
B) decrease but at different rates for different people. 
C) increase at the same rate for all consumers. 
D) increase but at a decreasing rate for all consumers. 
A) decrease at the same rate for all consumers. 
B) decrease but at different rates for different people. 
C) increase at the same rate for all consumers. 
D) increase but at a decreasing rate for all consumers.

Question 9

Suppose a consumer consumes two goods, X and Y. The slope of the budget constraint equals the

Accepted Answer

A) marginal rate of substitution. 
B) rate at which the consumer will give up X to gain Y while maintaining the same level of utility. 
C) relative price of the two goods. 
D) All of the above are correct. 
A) marginal rate of substitution. 
B) rate at which the consumer will give up X to gain Y while maintaining the same level of utility. 
C) relative price of the two goods. 
D) All of the above are correct.

Question 10

If a consumer purchases more of good B when his income rises, good B is an inferior good.

Accepted Answer

A) True 
 B)False

Question 11

A consumer chooses an optimal consumption point where the

Accepted Answer

A) marginal rate of substitution is maximized. 
B) slope of the indifference curve exceeds the slope of the budget constraint by the greatest amount. 
C) ratio of the marginal utilities equals the ratio of the prices. 
D) All of the above are correct. 
A) marginal rate of substitution is maximized. 
B) slope of the indifference curve exceeds the slope of the budget constraint by the greatest amount. 
C) ratio of the marginal utilities equals the ratio of the prices. 
D) All of the above are correct.

Question 12

When two goods are perfect substitutes, the

Accepted Answer

A) indifference curve is a downward-sloping 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 downward-sloping 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 13

Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

Accepted Answer

A) $10 
B) $5 
C) $4 
D) $2 
A) $10 
B) $5 
C) $4 
D) $2

Question 14

Traci consumes two goods, lemonade and pretzels. Lemonade costs $2 per glass, and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 4. Pretzels cost $3 per bag. The relationship between the marginal utility Traci gets from eating a bag of pretzels and the number of bags she eats per month is as follows:   If Traci is maximizing her utility, how many bags of pretzels does she buy each month?

Accepted Answer

A) 3 
B) 4 
C) 5 
D) 6 
A) 3 
B) 4 
C) 5 
D) 6

Question 15

The following diagram shows a budget constraint for a particular consumer.   If the price of X is $12, then what is the price of Y?

Accepted Answer

A) $9 
B) $16 
C) $24 
D) $30 
A) $9 
B) $16 
C) $24 
D) $30

Question 16

Traci consumes two goods, lemonade and pretzels. Lemonade costs $1 per glass, and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 3. Pretzels cost $2 per bag. The relationship between the marginal utility Traci gets from eating a bag of pretzels and the number of bags she eats per month is as follows:   If Traci is maximizing his utility, how much does she spend on pretzels each month?

Accepted Answer

A) $2 
B) $6 
C) $8 
D) $12 
A) $2 
B) $6 
C) $8 
D) $12

Question 17

Suppose that Elmer's hourly wage increases, and he decides to work fewer hours. For Elmer, the substitution effect of the wage change is

Accepted Answer

A) only partially offset by the income effect. 
B) more than offset by the income effect. 
C) exactly offset by the income effect. 
D) We do not have enough information with which to answer the question. 
A) only partially offset by the income effect. 
B) more than offset by the income effect. 
C) exactly offset by the income effect. 
D) We do not have enough information with which to answer the question.

Question 18

Which of the following is most likely an inferior good?

Accepted Answer

A) an antique car 
B) gasoline 
C) a bus ticket 
D) an airline ticket 
A) an antique car 
B) gasoline 
C) a bus ticket 
D) an airline ticket

Question 19

On a graph we draw a consumer's budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then

Accepted Answer

A) an apple costs twice as much as a light bulb. 
B) the opportunity cost of a light bulb is 2 apples. 
C) the opportunity cost of an apple is one-half of a light bulb. 
D) All of the above are correct. 
A) an apple costs twice as much as a light bulb. 
B) the opportunity cost of a light bulb is 2 apples. 
C) the opportunity cost of an apple is one-half of a light bulb. 
D) All of the above are correct.

Question 20

In order to represent a consumer's choices on a graph, we draw her budget constraint as well as her __________ curves.

Accepted Answer

The answer of In order to represent a consumer's choices...

Exam 21: The Theory of Consumer Choice

The opportunity cost of current household consumption is the

Figure 21-6 -Refer to Figure 21-6. Suppose the price of popcorn is $2, the price of Mt. Dew is $4, the value of A is 30, and the value of B is 15. How much income does the consumer have?

Figure 21-10 -Refer to Figure 21-10. When comparing bundle B to bundle C, the consumer

The marginal rate of substitution between goods A and B measures the price of A relative to the price of B.

An inferior good is one in which

When we derive the demand curve for a good, we should remember that the

Consumer theory provides the foundation for understanding demand curves because

As more units of an item are purchased, everything else equal, marginal satisfaction from consuming additional units will tend to

Suppose a consumer consumes two goods, X and Y. The slope of the budget constraint equals the

If a consumer purchases more of good B when his income rises, good B is an inferior good.

A consumer chooses an optimal consumption point where the

When two goods are perfect substitutes, the

Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

The following diagram shows a budget constraint for a particular consumer. If the price of X is $12, then what is the price of Y?

Suppose that Elmer's hourly wage increases, and he decides to work fewer hours. For Elmer, the substitution effect of the wage change is

Which of the following is most likely an inferior good?

On a graph we draw a consumer's budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then

In order to represent a consumer's choices on a graph, we draw her budget constraint as well as her __________ curves.

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