Question 1

A good is an inferior good if the consumer buys more of it when

Accepted Answer

A)  his income rises. 
B)  the price of the good falls. 
C)  the price of a substitute good rises. 
D)  his income falls. 
A)  his income rises. 
B)  the price of the good falls. 
C)  the price of a substitute good rises. 
D)  his income falls.

Question 2

Figure 21-9
  
-Refer to Figure 21-9.If the consumer has $600 in income,what is the price of good Y?

Accepted Answer

A)  $20 
B)  $6 
C)  $3 
D)  $0.33 
A)  $20 
B)  $6 
C)  $3 
D)  $0.33

Question 3

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 4

Figure 21-5

-Refer to Figure 21-5.In graph (a),if income is equal to $120,the price of good X is

Accepted Answer

A)  $3. 
B)  $4. 
C)  $10. 
D)  $12. 
A)  $3. 
B)  $4. 
C)  $10. 
D)  $12.

Question 5

Alicia is a vegetarian,so she does not eat beef.That is,beef provides no additional utility to Alicia.She loves potatoes,however.If we illustrate Alicia's indifference curves by drawing beef on the horizontal axis and potatoes on the vertical axis,her indifference curves will

Accepted Answer

A)  slope downward. 
B)  be vertical straight lines. 
C)  slope upward. 
D)  be horizontal straight lines. 
A)  slope downward. 
B)  be vertical straight lines. 
C)  slope upward. 
D)  be horizontal straight lines.

Question 6

A budget constraint illustrates the

Accepted Answer

A)  prices that a consumer chooses to pay for products he consumes. 
B)  purchases made by consumers. 
C)  consumption bundles that a consumer can afford. 
D)  consumption bundles that give a consumer equal satisfaction. 
A)  prices that a consumer chooses to pay for products he consumes. 
B)  purchases made by consumers. 
C)  consumption bundles that a consumer can afford. 
D)  consumption bundles that give a consumer equal satisfaction.

Question 7

Figure 21-4
In each case, the budget constraint moves from BC-1 to BC-2.

-Refer to Figure 21-4.Which of the graphs in the figure could reflect an increase in income?

Accepted Answer

A)  graph a 
B)  graph b 
C)  graph d 
D)  None of the above is correct. 
A)  graph a 
B)  graph b 
C)  graph d 
D)  None of the above is correct.

Question 8

Figure 21-1
  
-Refer to Figure 21-1.All of the points identified in the figure represent affordable consumption options with the exception of

Accepted Answer

A)  A. 
B)  E. 
C)  A and E. 
D)  None. All points are affordable. 
A)  A. 
B)  E. 
C)  A and E. 
D)  None. All points are affordable.

Question 9

A consumer chooses an optimal consumption point where the

Accepted Answer

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

Question 10

A consumer consumes two normal goods,coffee and chocolate.The price of coffee rises.The income effect,by itself,suggests that the consumer will consume

Accepted Answer

A)  more coffee and more chocolate. 
B)  less coffee and less chocolate. 
C)  more coffee and less chocolate. 
D)  less coffee and more chocolate. 
A)  more coffee and more chocolate. 
B)  less coffee and less chocolate. 
C)  more coffee and less chocolate. 
D)  less coffee and more chocolate.

Question 11

Figure 21-8
  
-Refer to Figure 21-8.You have $600 to spend on good X and good Y.If good X costs $100 and good Y costs $100,your budget constraint is

Accepted Answer

A)  AB. 
B)  BC. 
C)  CD. 
D)  DE. 
A)  AB. 
B)  BC. 
C)  CD. 
D)  DE.

Question 12

A consumer's preferences for $1 bills and $20 bills can be represented by indifference curves that are

Accepted Answer

A)  bowed out from the origin 
B)  bowed in toward the origin 
C)  straight lines 
D)  right angles 
A)  bowed out from the origin 
B)  bowed in toward the origin 
C)  straight lines 
D)  right angles

Question 13

The following diagram shows two budget lines: A and B.  
Which of the following could explain the change in the budget line from A to B?

Accepted Answer

A)  a decrease in income and a decrease in the price of X 
B)  a decrease in income and an increase in the price of X 
C)  an increase in income and a decrease in the price of X 
D)  an increase in income and an increase in the price of X 
A)  a decrease in income and a decrease in the price of X 
B)  a decrease in income and an increase in the price of X 
C)  an increase in income and a decrease in the price of X 
D)  an increase in income and an increase in the price of X

Question 14

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 15

Figure 21-20
  
-Refer to Figure 21-20.Suppose that a consumer is originally at point R.Then the price of good X decreases.Which of the following represents the substitution effect of the price decrease?

Accepted Answer

A)  the movement from point R to point S 
B)  the movement from point R to point T 
C)  the movement from point T to point S 
D)  None of the above is correct. 
A)  the movement from point R to point S 
B)  the movement from point R to point T 
C)  the movement from point T to point S 
D)  None of the above is correct.

Question 16

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 17

The slope of the budget constraint is determined by the

Accepted Answer

A)  relative price of the goods measured on the axes. 
B)  relative price of the goods measured on the axes and the consumer's income. 
C)  endowment of productive resources. 
D)  preferences of the consumer. 
A)  relative price of the goods measured on the axes. 
B)  relative price of the goods measured on the axes and the consumer's income. 
C)  endowment of productive resources. 
D)  preferences of the consumer.

Question 18

Suppose the price of good X falls.As a result,the quantity demanded for good X increases for a particular consumer.For this consumer,the substitution effect induced the consumer to purchase more X while the income effect induced the consumer to purchase less X.We can infer that X is a(n)

Accepted Answer

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

Question 19

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 20

If an increase in the interest rate lowers savings,then

Accepted Answer

A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  the income effect and the substitution effect move in the same direction. 
D)  we are unable to determine the sizes of the income and substitution effects without more information. 
A)  the substitution effect is greater than the income effect. 
B)  the income effect is greater than the substitution effect. 
C)  the income effect and the substitution effect move in the same direction. 
D)  we are unable to determine the sizes of the income and substitution effects without more information.

A good is an inferior good if the consumer buys more of it when

Figure 21-9 -Refer to Figure 21-9.If the consumer has $600 in income,what is the price of good Y?

Consumer theory provides the foundation for understanding demand curves because

Figure 21-5 -Refer to Figure 21-5.In graph (a),if income is equal to $120,the price of good X is

Alicia is a vegetarian,so she does not eat beef.That is,beef provides no additional utility to Alicia.She loves potatoes,however.If we illustrate Alicia's indifference curves by drawing beef on the horizontal axis and potatoes on the vertical axis,her indifference curves will

A budget constraint illustrates the

Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4.Which of the graphs in the figure could reflect an increase in income?

Figure 21-1 -Refer to Figure 21-1.All of the points identified in the figure represent affordable consumption options with the exception of

A consumer chooses an optimal consumption point where the

A consumer consumes two normal goods,coffee and chocolate.The price of coffee rises.The income effect,by itself,suggests that the consumer will consume

Figure 21-8 -Refer to Figure 21-8.You have $600 to spend on good X and good Y.If good X costs $100 and good Y costs $100,your budget constraint is

A consumer's preferences for $1 bills and $20 bills can be represented by indifference curves that are

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

Figure 21-20 -Refer to Figure 21-20.Suppose that a consumer is originally at point R.Then the price of good X decreases.Which of the following represents the substitution effect of the price decrease?

The slope of the budget constraint is determined by the

Suppose the price of good X falls.As a result,the quantity demanded for good X increases for a particular consumer.For this consumer,the substitution effect induced the consumer to purchase more X while the income effect induced the consumer to purchase less X.We can infer that X is a(n)

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

If an increase in the interest rate lowers savings,then

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.

Application: 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 Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

Frontiers in Microeconomics.

Filters

Exam 21: The Theory of Consumer Choice.

A good is an inferior good if the consumer buys more of it when

Figure 21-9 -Refer to Figure 21-9.If the consumer has $600 in income,what is the price of good Y?

Consumer theory provides the foundation for understanding demand curves because

Figure 21-5 -Refer to Figure 21-5.In graph (a),if income is equal to $120,the price of good X is

Alicia is a vegetarian,so she does not eat beef.That is,beef provides no additional utility to Alicia.She loves potatoes,however.If we illustrate Alicia's indifference curves by drawing beef on the horizontal axis and potatoes on the vertical axis,her indifference curves will

A budget constraint illustrates the

Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4.Which of the graphs in the figure could reflect an increase in income?

Figure 21-1 -Refer to Figure 21-1.All of the points identified in the figure represent affordable consumption options with the exception of

A consumer chooses an optimal consumption point where the

A consumer consumes two normal goods,coffee and chocolate.The price of coffee rises.The income effect,by itself,suggests that the consumer will consume

Figure 21-8 -Refer to Figure 21-8.You have $600 to spend on good X and good Y.If good X costs $100 and good Y costs $100,your budget constraint is

A consumer's preferences for $1 bills and $20 bills can be represented by indifference curves that are

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

Figure 21-20 -Refer to Figure 21-20.Suppose that a consumer is originally at point R.Then the price of good X decreases.Which of the following represents the substitution effect of the price decrease?

The slope of the budget constraint is determined by the

Suppose the price of good X falls.As a result,the quantity demanded for good X increases for a particular consumer.For this consumer,the substitution effect induced the consumer to purchase more X while the income effect induced the consumer to purchase less X.We can infer that X is a(n)

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

If an increase in the interest rate lowers savings,then

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.

Application: 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 Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

Frontiers in Microeconomics.

Filters