Question 1

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Accepted Answer

A) True 
 B)False

Question 2

Figure 21-12  
-Refer to Figure 21-12. Which of the following statements is not correct?

Accepted Answer

A) The consumer prefers bundle Y to bundle Z. 
B) The consumer is indifference between bundle W and bundle X. 
C) The consumer is indifference between bundle X and bundle V. 
D) The consumer prefers bundle X to bundle Z. 
A) The consumer prefers bundle Y to bundle Z. 
B) The consumer is indifference between bundle W and bundle X. 
C) The consumer is indifference between bundle X and bundle V. 
D) The consumer prefers bundle X to bundle Z.

Question 3

Figure 21-30 The graph shows two budget constraints for a consumer.  
-Refer to Figure 21-30. Suppose the price of a light bulb is $3 and Budget Constraint B applies. What is the consumer's income? What is the price of a hamburger?

Accepted Answer

The consumer's incom

Question 4

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, coffee is a normal good, but donuts are an inferior good.

Accepted Answer

A) True 
 B)False

Question 5

If Walter has one hour of leisure time in which to watch a sporting event on television, his preferences are as follows: Walter prefers watching football to watching baseball, but he prefers watching baseball to watching basketball. He is indifferent between watching baseball and watching hockey. Bundle A contains one hour of football and zero hours of all other sports. Bundle B contains one hour of baseball and zero hours of all other sports. Bundle C contains one hour of basketball and zero hours of all other sports. Bundle D contains one hour of hockey and zero hours of all other sports. If we were to graph Walter's preferences using indifference curves, which of the following bundles would be on the same indifference curve?

Accepted Answer

A) A, B, and C only 
B) B and D only 
C) A and D only 
D) There is no combination of the sports that could be drawn on the same indifference curve. 
A) A, B, and C only 
B) B and D only 
C) A and D only 
D) There is no combination of the sports that could be drawn on the same indifference curve.

Question 6

Consider a consumer who purchases two goods, X and Y. If the price of good Y falls, then the substitution effect by itself will

Accepted Answer

A) cause the consumer to buy more of good Y and less of good X. 
B) cause the consumer to buy more of good X and less of good Y. 
C) not affect the amount of goods X and Y that the consumer buys. 
D) result in an upward-sloping demand for good Y if the substitution effect is positive. 
A) cause the consumer to buy more of good Y and less of good X. 
B) cause the consumer to buy more of good X and less of good Y. 
C) not affect the amount of goods X and Y that the consumer buys. 
D) result in an upward-sloping demand for good Y if the substitution effect is positive.

Question 7

Consumers face tradeoffs except at the point where the indifference curve is tangent to the budget line.

Accepted Answer

A) True 
 B)False

Question 8

Figure 21-18  
-Refer to Figure 21-18. Bundle B represents a point where

Accepted Answer

A) MRSxy > Py/Px. 
B) MRSxy = Px/Py. 
C) MRSxy x/Py. 
D) MRSxy > Px/Py. 
A) MRSxy > Py/Px. 
B) MRSxy = Px/Py. 
C) MRSxy x/Py. 
D) MRSxy > Px/Py.

Question 9

The substitution effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Accepted Answer

A) True 
 B)False

Question 10

When indifference curves are bowed in toward the origin,

Accepted Answer

A) consumers are more inclined to trade away goods they have in abundance. 
B) an increase in income will shift the indifference curve away from the origin. 
C) a decrease in income will shift the indifference curve toward the origin. 
D) Both b) and c) are correct. 
A) consumers are more inclined to trade away goods they have in abundance. 
B) an increase in income will shift the indifference curve away from the origin. 
C) a decrease in income will shift the indifference curve toward the origin. 
D) Both b) and c) are correct.

Question 11

If the price of a good increases, all else equal, consumers perceive

Accepted Answer

A) an increase in purchasing power if the good is an inferior good. 
B) an increase in income if the price increase occurs for a normal good. 
C) a decrease in purchasing power. 
D) a net gain in purchasing power if they decrease consumption of some goods. 
A) an increase in purchasing power if the good is an inferior good. 
B) an increase in income if the price increase occurs for a normal good. 
C) a decrease in purchasing power. 
D) a net gain in purchasing power if they decrease consumption of some goods.

Question 12

What does the slope of a budget constraint represent?

Accepted Answer

The slope of a budget constrai

Question 13

Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis. 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. Suppose now that the interest rate decreases to 10%. What happens to the slope of your budget constraint relative to when the interest rate was 25%? The slope

Accepted Answer

A) becomes steeper. 
B) becomes flatter. 
C) doesn't change because the budget constraint shifts in parallel to the original budget constraint. 
D) doesn't change because the budget constraint shifts out parallel to the original budget constraint. 
A) becomes steeper. 
B) becomes flatter. 
C) doesn't change because the budget constraint shifts in parallel to the original budget constraint. 
D) doesn't change because the budget constraint shifts out parallel to the original budget constraint.

Question 14

Figure 21-17  
-Refer to Figure 21-17. When the price of X is $40, the price of Y is $40, and income is $160, Paul's optimal choice is point B. Then Paul's income increases to $320, and his optimal choice is point E. For Paul,

Accepted Answer

A) good X is a normal good, and good Y is an inferior good. 
B) good X is an inferior good, and good Y is a normal good. 
C) both good X and good Y are normal goods. 
D) good Y is a normal good; good X is neither a normal nor an inferior good. 
A) good X is a normal good, and good Y is an inferior good. 
B) good X is an inferior good, and good Y is a normal good. 
C) both good X and good Y are normal goods. 
D) good Y is a normal good; good X is neither a normal nor an inferior good.

Question 15

When Joshua's income increases, he purchases more prime-rib dinners than he did before his income increased. For Joshua, prime-rib dinners are a(n)

Accepted Answer

A) normal good. 
B) inferior good. 
C) optimal good. 
D) Giffen good. 
A) normal good. 
B) inferior good. 
C) optimal good. 
D) Giffen good.

Question 16

Figure 21-14      
-Refer to Figure 21-14. Which of the graphs shown represent indifference curves for perfect complements?

Accepted Answer

A) graph a 
B) graph b 
C) graph c 
D) All of the above are correct. 
A) graph a 
B) graph b 
C) graph c 
D) All of the above are correct.

Question 17

A consumer chooses an optimal consumption point where the

Accepted Answer

A) marginal rate of substitution exceeds the relative price ratio. 
B) slope of the indifference curve equals the slope of the budget constraint. 
C) ratio of the prices equals one. 
D) All of the above are correct. 
A) marginal rate of substitution exceeds the relative price ratio. 
B) slope of the indifference curve equals the slope of the budget constraint. 
C) ratio of the prices equals one. 
D) All of the above are correct.

Question 18

If goods A and B are perfect substitutes, then the marginal rate of substitution of good A for good B is constant.

Accepted Answer

A) True 
 B)False

Question 19

Hold Jared's preferences for pizza and Pepsi constant. Suppose Jared's income, as well as the prices of pizza and Pepsi, double. As a result,

Accepted Answer

A) both Jared's indifference curves and his budget constraint change. 
B) Jared's indifference curves change, but his budget constraint does not change. 
C) Jared's budget constraint changes, but his indifference curves do not change. 
D) neither Jared's indifference curves nor his budget constraint change. 
A) both Jared's indifference curves and his budget constraint change. 
B) Jared's indifference curves change, but his budget constraint does not change. 
C) Jared's budget constraint changes, but his indifference curves do not change. 
D) neither Jared's indifference curves nor his budget constraint change.

Question 20

If a consumer purchases more of good A when her income falls, good A is an inferior good.

Accepted Answer

A) True 
 B)False

Exam 21: The Theory of Consumer Choice

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Figure 21-12 -Refer to Figure 21-12. Which of the following statements is not correct?

Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. Suppose the price of a light bulb is $3 and Budget Constraint B applies. What is the consumer's income? What is the price of a hamburger?

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, coffee is a normal good, but donuts are an inferior good.

Consider a consumer who purchases two goods, X and Y. If the price of good Y falls, then the substitution effect by itself will

Consumers face tradeoffs except at the point where the indifference curve is tangent to the budget line.

Figure 21-18 -Refer to Figure 21-18. Bundle B represents a point where

The substitution effect of a price change is the change in consumption that results from the movement to a new indifference curve.

When indifference curves are bowed in toward the origin,

If the price of a good increases, all else equal, consumers perceive

What does the slope of a budget constraint represent?

Figure 21-17 -Refer to Figure 21-17. When the price of X is $40, the price of Y is $40, and income is $160, Paul's optimal choice is point B. Then Paul's income increases to $320, and his optimal choice is point E. For Paul,

When Joshua's income increases, he purchases more prime-rib dinners than he did before his income increased. For Joshua, prime-rib dinners are a(n)

Figure 21-14 -Refer to Figure 21-14. Which of the graphs shown represent indifference curves for perfect complements?

A consumer chooses an optimal consumption point where the

If goods A and B are perfect substitutes, then the marginal rate of substitution of good A for good B is constant.

Hold Jared's preferences for pizza and Pepsi constant. Suppose Jared's income, as well as the prices of pizza and Pepsi, double. As a result,

If a consumer purchases more of good A when her income falls, good A is an inferior good.

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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