Question 1

Dave consumes two normal goods, X and Y, and is currently at an optimum. If the price of good X falls, we can predict with certainty that

Accepted Answer

A) Dave will consume more of both goods because his real income has risen. 
B) the substitution effect will be positive for good X and negative for good Y. 
C) Dave may consume more or less of good X, but he will consume less of good Y. 
D) the substitution effect will offset the income effect for good X. 
A) Dave will consume more of both goods because his real income has risen. 
B) the substitution effect will be positive for good X and negative for good Y. 
C) Dave may consume more or less of good X, but he will consume less of good Y. 
D) the substitution effect will offset the income effect for good X.

Question 2

Suppose a consumer spends his income on CDs and DVDs. If his income decreases, the budget constraint for CDs and DVDs will

Accepted Answer

A) shift outward, parallel to the original budget constraint. 
B) shift inward, parallel to the original budget constraint. 
C) rotate outward along the CD axis because he can afford more CDs. 
D) rotate outward along the DVD axis because he can afford more DVDs. 
A) shift outward, parallel to the original budget constraint. 
B) shift inward, parallel to the original budget constraint. 
C) rotate outward along the CD axis because he can afford more CDs. 
D) rotate outward along the DVD axis because he can afford more DVDs.

Question 3

Assume that a person consumes two goods, Coke and Snickers. Use a graph to demonstrate how the consumer adjusts his/her optimal consumption bundle when the price of Coke decreases. Carefully label all curves and axes. What will happen to consumption if Coke is a normal good? What will happen to consumption if Coke is an inferior good? (Remember to explain the possible change when the income effect dominates and when the substitution effect dominates.)

Accepted Answer

@#IMG-DLM& If Coke is a normal good, the consumpti

Question 4

Figure 21-18  
-Refer to Figure 21-18. Bundle C 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 5

Suppose the price of good X falls and the consumption of good X increases. From this we can infer that X is a(n)(i)normal good.
(ii)inferior good.
(iii)Giffen good.

Accepted Answer

A) (i) only 
B) (i) or (ii) only 
C) (iii) only 
D) (ii) or (iii) only 
A) (i) only 
B) (i) or (ii) only 
C) (iii) only 
D) (ii) or (iii) only

Question 6

Figure 21-13  
-Refer to Figure 21-13. What is the consumer's marginal rate of substitution as she moves from B to C?

Accepted Answer

A) 4 
B) 2 
C) 1 
D) 0.5 
A) 4 
B) 2 
C) 1 
D) 0.5

Question 7

Explain the relationship between the budget constraint and indifference curve at a consumer's optimum.

Accepted Answer

Because the budget constraint is tangent

Question 8

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.        
-Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good X only?

Accepted Answer

A) graph a 
B) graph b 
C) graph c 
D) graph d 
A) graph a 
B) graph b 
C) graph c 
D) graph d

Question 9

What does the slope of a consumer's indifference curve represent?

Accepted Answer

The slope of a consumer's indi

Question 10

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

Accepted Answer

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

Question 11

A Giffen good is a good for which

Accepted Answer

A) a decrease in the price decreases the quantity demanded. 
B) the income effect outweighs the substitution effect. 
C) an increase in the price decreases the quantity demanded. 
D) Both a) and b) are correct. 
A) a decrease in the price decreases the quantity demanded. 
B) the income effect outweighs the substitution effect. 
C) an increase in the price decreases the quantity demanded. 
D) Both a) and b) are correct.

Question 12

Economists represent a consumer's preferences using

Accepted Answer

A) demand curves. 
B) budget constraints. 
C) indifference curves. 
D) supply curves. 
A) demand curves. 
B) budget constraints. 
C) indifference curves. 
D) supply curves.

Question 13

Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of

Accepted Answer

A) demand. 
B) profits. 
C) production possibility frontiers. 
D) wages. 
A) demand. 
B) profits. 
C) production possibility frontiers. 
D) wages.

Question 14

The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer.   What is the marginal rate of substitution between points A and B?

Accepted Answer

A) 1/2 
B) 4/3 
C) 2 
D) 3 
A) 1/2 
B) 4/3 
C) 2 
D) 3

Question 15

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. Which of the following statements is correct?

Accepted Answer

A) Each woman faces the same budget constraint. 
B) The slope of the budget constraint is the same for each woman. 
C) The area underneath the budget constraint is larger for Deborah than for Abby. 
D) All of the above are correct. 
A) Each woman faces the same budget constraint. 
B) The slope of the budget constraint is the same for each woman. 
C) The area underneath the budget constraint is larger for Deborah than for Abby. 
D) All of the above are correct.

Question 16

Figure 21-13  
-Refer to Figure 21-13. What is the consumer's marginal rate of substitution as she moves from A to B?

Accepted Answer

A) 4 
B) 2 
C) 1 
D) 0.5 
A) 4 
B) 2 
C) 1 
D) 0.5

Question 17

Economic theory predicts that an increase in wages

Accepted Answer

A) will cause a wage earner to work more. 
B) will cause a wage earner to work less. 
C) will cause a wage earner to be more productive. 
D) might cause a wage earner to work more or work less. 
A) will cause a wage earner to work more. 
B) will cause a wage earner to work less. 
C) will cause a wage earner to be more productive. 
D) might cause a wage earner to work more or work less.

Question 18

A consumer likes two goods: pizza and beer. The four bundles shown in the table below lie on the same indifference curve for the consumer.
 
Which of the following statements regarding these bundles is correct?

Accepted Answer

A) The goods are perfect substitutes for this consumer. 
B) The goods are perfect complements for this consumer. 
C) These bundles illustrate the property that indifference curves are bowed inward. 
D) These bundles violate the property that indifference curves do not cross. 
A) The goods are perfect substitutes for this consumer. 
B) The goods are perfect complements for this consumer. 
C) These bundles illustrate the property that indifference curves are bowed inward. 
D) These bundles violate the property that indifference curves do not cross.

Question 19

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.        
-Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price of good X only?

Accepted Answer

A) graph a 
B) graph b 
C) graph c 
D) graph d 
A) graph a 
B) graph b 
C) graph c 
D) graph d

Question 20

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 $4. The consumer will choose a consumption bundle where the marginal rate of substitution is

Accepted Answer

A) 2. 
B) 2/3. 
C) 1/2. 
D) 1/3. 
A) 2. 
B) 2/3. 
C) 1/2. 
D) 1/3.

Exam 21: The Theory of Consumer Choice

Dave consumes two normal goods, X and Y, and is currently at an optimum. If the price of good X falls, we can predict with certainty that

Suppose a consumer spends his income on CDs and DVDs. If his income decreases, the budget constraint for CDs and DVDs will

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

Suppose the price of good X falls and the consumption of good X increases. From this we can infer that X is a(n)(i)normal good. (ii)inferior good. (iii)Giffen good.

Figure 21-13 -Refer to Figure 21-13. What is the consumer's marginal rate of substitution as she moves from B to C?

Explain the relationship between the budget constraint and indifference curve at a consumer's optimum.

Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good X only?

What does the slope of a consumer's indifference curve represent?

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

A Giffen good is a good for which

Economists represent a consumer's preferences using

Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of

The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer. What is the marginal rate of substitution between points A and B?

Figure 21-13 -Refer to Figure 21-13. What is the consumer's marginal rate of substitution as she moves from A to B?

Economic theory predicts that an increase in wages

A consumer likes two goods: pizza and beer. The four bundles shown in the table below lie on the same indifference curve for the consumer. Which of the following statements regarding these bundles is correct?

Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price of good X only?

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 $4. The consumer will choose a consumption bundle where the marginal rate of substitution is

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