Question 1

Figure 21-7  
-Refer to Figure 21-7. Suppose a consumer has $500 in income, the price of a book is $10, and the value of B is 50. What is the price of a DVD?

Accepted Answer

A) $5 
B) $10 
C) $50 
D) $100 
A) $5 
B) $10 
C) $50 
D) $100

Question 2

Shelley wins $1 million in her state's lottery. If Shelley keeps working after she wins the money, we can infer that the substitution effect must exactly offset the income effect for her.

Accepted Answer

A) True 
 B)False

Question 3

Suppose that you have $100 today and expect to receive $100 one year from today. Your money market account pays an annual interest rate of 25%, and you may borrow money at that interest rate. If you save all your money, how much money will you have one year from today?

Accepted Answer

A) $100 
B) $125 
C) $200 
D) $225 
A) $100 
B) $125 
C) $200 
D) $225

Question 4

Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and the price of a book is $15. If she has $120 in income, she could choose to consume

Accepted Answer

A) 8 pizzas and 4 books. 
B) 4 pizzas and 6 books. 
C) 5 pizzas and 5 books. 
D) 2 pizzas and 7 books. 
A) 8 pizzas and 4 books. 
B) 4 pizzas and 6 books. 
C) 5 pizzas and 5 books. 
D) 2 pizzas and 7 books.

Question 5

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

Accepted Answer

A) True 
 B)False

Question 6

On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then

Accepted Answer

A) a pineapple costs six times as much as a pencil. 
B) the opportunity cost of a pineapple is 6 pencils. 
C) the opportunity cost of a pencil is one-sixth of a pineapple. 
D) All of the above are correct. 
A) a pineapple costs six times as much as a pencil. 
B) the opportunity cost of a pineapple is 6 pencils. 
C) the opportunity cost of a pencil is one-sixth of a pineapple. 
D) All of the above are correct.

Question 7

Frannie spends her income on rice and beans. At her optimum, Frannie's

Accepted Answer

A) utility from consuming rice is equal to her utility from consuming beams. 
B) marginal utility of rice is equal to her marginal utility of beans. 
C) marginal utility per dollar spent on rice equals her marginal utility per dollar spent on beans. 
D) marginal rate of substitution is equal to 1. 
A) utility from consuming rice is equal to her utility from consuming beams. 
B) marginal utility of rice is equal to her marginal utility of beans. 
C) marginal utility per dollar spent on rice equals her marginal utility per dollar spent on beans. 
D) marginal rate of substitution is equal to 1.

Question 8

A consumer maximizes utility at a point where multiple indifference curves intersect the budget line.

Accepted Answer

A) True 
 B)False

Question 9

If goods X and Y are both normal goods for Brenda, then an increase in Brenda's income will lead her to __________.

Accepted Answer

buy more o

Question 10

A typical consumer consumes both coffee and donuts. After the consumer's income decreases, the consumer consumes more coffee but fewer donuts than before. For this consumer, donuts are a normal good, but coffee is an inferior good.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following descriptions best depicts the substitution effect?

Accepted Answer

A) the change in consumption resulting from a change in the consumer's income, holding the prices of the goods constant 
B) the change in consumption resulting from a change in the consumer's income, holding the consumer's level of satisfaction constant 
C) the change in consumption resulting from a change in the price of one good, holding the consumer's level of satisfaction constant 
D) the change in consumption resulting from a change in the price of one good, allowing the consumer's level of satisfaction to change 
A) the change in consumption resulting from a change in the consumer's income, holding the prices of the goods constant 
B) the change in consumption resulting from a change in the consumer's income, holding the consumer's level of satisfaction constant 
C) the change in consumption resulting from a change in the price of one good, holding the consumer's level of satisfaction constant 
D) the change in consumption resulting from a change in the price of one good, allowing the consumer's level of satisfaction to change

Question 12

Good X is a Giffen good. When the price of X increases, the consumer will consume

Accepted Answer

A) more X. 
B) the same amount of X. 
C) less X. 
D) more or less X depending on the size of the income effect relative to the size of the substitution effect. 
A) more X. 
B) the same amount of X. 
C) less X. 
D) more or less X depending on the size of the income effect relative to the size of the substitution effect.

Question 13

If the price of bread is zero and the price of cheese is positive, then the budget constraint between bread (on the horizontal axis) and cheese (on the vertical axis) would

Accepted Answer

A) be vertical. 
B) coincide with the vertical axis. 
C) coincide with the horizontal axis. 
D) be horizontal. 
A) be vertical. 
B) coincide with the vertical axis. 
C) coincide with the horizontal axis. 
D) be horizontal.

Question 14

At the consumer's optimum

Accepted Answer

A) the budget constraint will have a slope of MUx/Px. 
B) it is still possible for the consumer to increase his consumption of both goods. 
C) the indifference curve will intersect the budget constraint at the midpoint of the budget constraint. 
D) the slope of the indifference curve is equal to the slope of the budget constraint. 
A) the budget constraint will have a slope of MUx/Px. 
B) it is still possible for the consumer to increase his consumption of both goods. 
C) the indifference curve will intersect the budget constraint at the midpoint of the budget constraint. 
D) the slope of the indifference curve is equal to the slope of the budget constraint.

Question 15

Figure 21-15 On the graph, QS1U1B1xS1U1B0 represents the quantity of good x and QS1U1B1yS1U1B0 represents the quantity of good y. The lines drawn on the graph represent three of Barbara's indifference curves.  
-Refer to Figure 21-15. For Barbara, goods x and y are

Accepted Answer

A) imperfect complements. 
B) imperfect substitutes. 
C) perfect substitutes. 
D) perfect complements. 
A) imperfect complements. 
B) imperfect substitutes. 
C) perfect substitutes. 
D) perfect complements.

Question 16

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin.  
-Refer to Figure 21-31. If Kevin's income is $1,260, then what is the price of a sweater?

Accepted Answer

The price

Question 17

Both Diana and Sarah like jazz music and music by the Beatles. Diana likes music by the Beatles much better than jazz music, whereas Sarah prefers jazz music to music by the Beatles. If we were to graph an indifference curve with CDs by the Beatles on the horizontal axis and jazz CDs on the vertical axis, then

Accepted Answer

A) Diana and Sarah would have identical indifference curves. 
B) Diana's indifference curve would be steeper than Sarah's indifference curve. 
C) Sarah's indifference curve would be steeper than Diana's indifference curve. 
D) We do not have enough information to compare their indifference curves. 
A) Diana and Sarah would have identical indifference curves. 
B) Diana's indifference curve would be steeper than Sarah's indifference curve. 
C) Sarah's indifference curve would be steeper than Diana's indifference curve. 
D) We do not have enough information to compare their indifference curves.

Question 18

Susie wins $2 million in her state's lottery. If Susie keeps working after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Accepted Answer

A) True 
 B)False

Question 19

Economists have found evidence of a Giffen good when studying the consumption of rice in the Chinese province of Hunan.

Accepted Answer

A) True 
 B)False

Question 20

A consumer's budget constraint is drawn on a graph with the number of sandwiches measured along the horizontal axis and the number of bowls of soup measured along the vertical axis. Hold the consumer's income and the price of a sandwich fixed, and increase the price of a bowl of soup. Describe the effect on the budget constraint.

Accepted Answer

The horizontal intercept is un

Exam 21: The Theory of Consumer Choice

Figure 21-7 -Refer to Figure 21-7. Suppose a consumer has $500 in income, the price of a book is $10, and the value of B is 50. What is the price of a DVD?

Shelley wins $1 million in her state's lottery. If Shelley keeps working after she wins the money, we can infer that the substitution effect must exactly offset the income effect for her.

Suppose that you have $100 today and expect to receive $100 one year from today. Your money market account pays an annual interest rate of 25%, and you may borrow money at that interest rate. If you save all your money, how much money will you have one year from today?

Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and the price of a book is $15. If she has $120 in income, she could choose to consume

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then

Frannie spends her income on rice and beans. At her optimum, Frannie's

A consumer maximizes utility at a point where multiple indifference curves intersect the budget line.

If goods X and Y are both normal goods for Brenda, then an increase in Brenda's income will lead her to __________.

A typical consumer consumes both coffee and donuts. After the consumer's income decreases, the consumer consumes more coffee but fewer donuts than before. For this consumer, donuts are a normal good, but coffee is an inferior good.

Which of the following descriptions best depicts the substitution effect?

Good X is a Giffen good. When the price of X increases, the consumer will consume

If the price of bread is zero and the price of cheese is positive, then the budget constraint between bread (on the horizontal axis) and cheese (on the vertical axis) would

At the consumer's optimum

Figure 21-15 On the graph, Qx represents the quantity of good x and Qy represents the quantity of good y. The lines drawn on the graph represent three of Barbara's indifference curves. -Refer to Figure 21-15. For Barbara, goods x and y are

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If Kevin's income is $1,260, then what is the price of a sweater?

Susie wins $2 million in her state's lottery. If Susie keeps working after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Economists have found evidence of a Giffen good when studying the consumption of rice in the Chinese province of Hunan.

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

Figure 21-15 On the graph, Q_x represents the quantity of good x and Q_y represents the quantity of good y. The lines drawn on the graph represent three of Barbara's indifference curves. -Refer to Figure 21-15. For Barbara, goods x and y are