Question 1

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

Accepted Answer

Because the budget constraint is tangent

Question 2

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point illustrating the new marginal rate of substitution is called the

Accepted Answer

A)  income effect. 
B)  substitution effect. 
C)  Giffen good effect. 
D)  inferior good effect. 
A)  income effect. 
B)  substitution effect. 
C)  Giffen good effect. 
D)  inferior good effect.

Question 3

When Stanley has an income of $1,000,he consumes 30 units of good A and 50 units of good B.After Stanley's income increases to $1,500,he consumes 60 units of good A and 45 units of good B.Which of the following statements is correct?

Accepted Answer

A)  Both goods A and B are normal goods. 
B)  Both goods A and B are inferior goods. 
C)  Good A is a normal good, and good B is an inferior good. 
D)  Good A is an inferior good, and good B is a normal good. 
A)  Both goods A and B are normal goods. 
B)  Both goods A and B are inferior goods. 
C)  Good A is a normal good, and good B is an inferior good. 
D)  Good A is an inferior good, and good B is a normal good.

Question 4

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the

Accepted Answer

A)  prices of the products. 
B)  amount of each good the consumer is currently consuming. 
C)  consumer's income. 
D)  marginal value product. 
A)  prices of the products. 
B)  amount of each good the consumer is currently consuming. 
C)  consumer's income. 
D)  marginal value product.

Question 5

Jack and Diane each buy pizza and paperback novels.Pizza costs $3 per slice,and paperback novels cost $5 each.Jack has a budget of $30,and Diane has a budget of $15 to spend on pizza and paperback novels.Which consumer(s)can afford to purchase 5 slices of pizza and 3 paperback novels?

Accepted Answer

A)  Jack only 
B)  Diane only 
C)  both Jack and Diane 
D)  neither Jack nor Diane 
A)  Jack only 
B)  Diane only 
C)  both Jack and Diane 
D)  neither Jack nor Diane

Question 6

When two goods are perfect substitutes,the indifference curve is

Accepted Answer

A)  a horizontal straight line. 
B)  bowed outward. 
C)  a downward-sloping straight line. 
D)  a right angle. 
A)  a horizontal straight line. 
B)  bowed outward. 
C)  a downward-sloping straight line. 
D)  a right angle.

Question 7

Which of the following is a property of a typical indifference curve?

Accepted Answer

A)  upward sloping 
B)  bowed away from the origin 
C)  does not intersect another indifference curve 
D)  a higher one is preferred to a lower one 
A)  upward sloping 
B)  bowed away from the origin 
C)  does not intersect another indifference curve 
D)  a higher one is preferred to a lower one

Question 8

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 that you borrow $60 and spend $160 today.After you repay your loan one year from today,how much money will you have available for consumption one year from today?

Accepted Answer

A)  $0 
B)  $25 
C)  $50 
D)  $75 
A)  $0 
B)  $25 
C)  $50 
D)  $75

Question 9

The marginal rate of substitution is equal to the

Accepted Answer

A)  slope of the indifference curve. 
B)  ratio of the prices of the two goods. 
C)  slope of the budget constraint. 
D)  All of the above are correct. 
A)  slope of the indifference curve. 
B)  ratio of the prices of the two goods. 
C)  slope of the budget constraint. 
D)  All of the above are correct.

Question 10

Figure 21-14

-Refer to Figure 21-14.Which of the graphs illustrates indifference curves for which the marginal rate of substitution is undefined?

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 11

We can use the theory of consumer choice to analyze

Accepted Answer

A)  why most demand curves slope downward. 
B)  the tradeoff between work and leisure 
C)  how interest rates affect household saving. 
D)  All of the above are correct. 
A)  why most demand curves slope downward. 
B)  the tradeoff between work and leisure 
C)  how interest rates affect household saving. 
D)  All of the above are correct.

Question 12

Figure 21-1
  
-Refer to Figure 21-1.A consumer who chooses to spend all of her income could be at which point(s)on the budget constraint?

Accepted Answer

A)  A only 
B)  E only 
C)  B, C, or D only 
D)  A, B, C, or D only 
A)  A only 
B)  E only 
C)  B, C, or D only 
D)  A, B, C, or D only

Question 13

In the work-leisure model,suppose consumption and leisure are both normal goods.The income effect of a wage increase results in the worker choosing to

Accepted Answer

A)  work less than before. 
B)  work more than before. 
C)  possibly work more or less than before. 
D)  work more with a higher level of consumption. 
A)  work less than before. 
B)  work more than before. 
C)  possibly work more or less than before. 
D)  work more with a higher level of consumption.

Question 14

A consumer likes two goods: books and movies.The two bundles shown in the table below lie on the same indifference curve for the consumer.  
Which of the following bundles could not lie on the same indifference curve with A and B and satisfy the four properties of indifference curves?

Accepted Answer

A)  1 movie and 5 books 
B)  3 movies and 3 books 
C)  5 movies and 1 book 
D)  1 movie and 7 books 
A)  1 movie and 5 books 
B)  3 movies and 3 books 
C)  5 movies and 1 book 
D)  1 movie and 7 books

Question 15

If a good is a Giffen good,then

Accepted Answer

A)  the supply curve is downward sloping. 
B)  the demand curve is upward sloping. 
C)  the demand curve is horizontal. 
D)  there is no optimal level of consumption for the consumer. 
A)  the supply curve is downward sloping. 
B)  the demand curve is upward sloping. 
C)  the demand curve is horizontal. 
D)  there is no optimal level of consumption for the consumer.

Question 16

The indifference curves for left gloves and right gloves are straight lines.

Accepted Answer

A) True 
 B)False

Question 17

A consumer likes two goods: books and movies.The three bundles shown in the table below lie on the same indifference curve for the consumer.  
Which of the following properties of indifference curves would this consumer's preferences violate?

Accepted Answer

A)  Indifference curves are downward sloping. 
B)  Indifference curves do not cross. 
C)  Indifference curves are bowed inward. 
D)  These bundles do not violate any of the properties of indifference curves. 
A)  Indifference curves are downward sloping. 
B)  Indifference curves do not cross. 
C)  Indifference curves are bowed inward. 
D)  These bundles do not violate any of the properties of indifference curves.

Question 18

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 19

The theory of consumer choice describes the

Accepted Answer

A)  literal process by which people make decisions. 
B)  irrational decisions made by consumers on a daily basis. 
C)  implicit, psychological process by which people make explicit, economic decisions. 
D)  Both a) and b) are correct. 
A)  literal process by which people make decisions. 
B)  irrational decisions made by consumers on a daily basis. 
C)  implicit, psychological process by which people make explicit, economic decisions. 
D)  Both a) and b) are correct.

Question 20

Figure 21-2
  
-Refer to Figure 21-2.Which of the following statements is not correct?

Accepted Answer

A)  Points W, X, and Y all cost the consumer the same amount of money. 
B)  Point Z is unaffordable for the consumer given his budget constraint. 
C)  Point V costs less than point Z. 
D)  Points W, X, and Y give the consumer the same level of satisfaction. 
A)  Points W, X, and Y all cost the consumer the same amount of money. 
B)  Point Z is unaffordable for the consumer given his budget constraint. 
C)  Point V costs less than point Z. 
D)  Points W, X, and Y give the consumer the same level of satisfaction.

Exam 21: The Theory of Consumer Choice.

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

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point illustrating the new marginal rate of substitution is called the

When Stanley has an income of $1,000,he consumes 30 units of good A and 50 units of good B.After Stanley's income increases to $1,500,he consumes 60 units of good A and 45 units of good B.Which of the following statements is correct?

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the

Jack and Diane each buy pizza and paperback novels.Pizza costs $3 per slice,and paperback novels cost $5 each.Jack has a budget of $30,and Diane has a budget of $15 to spend on pizza and paperback novels.Which consumer(s)can afford to purchase 5 slices of pizza and 3 paperback novels?

When two goods are perfect substitutes,the indifference curve is

Which of the following is a property of a typical indifference curve?

The marginal rate of substitution is equal to the

Figure 21-14 -Refer to Figure 21-14.Which of the graphs illustrates indifference curves for which the marginal rate of substitution is undefined?

We can use the theory of consumer choice to analyze

Figure 21-1 -Refer to Figure 21-1.A consumer who chooses to spend all of her income could be at which point(s)on the budget constraint?

In the work-leisure model,suppose consumption and leisure are both normal goods.The income effect of a wage increase results in the worker choosing to

A consumer likes two goods: books and movies.The two bundles shown in the table below lie on the same indifference curve for the consumer. Which of the following bundles could not lie on the same indifference curve with A and B and satisfy the four properties of indifference curves?

If a good is a Giffen good,then

The indifference curves for left gloves and right gloves are straight lines.

A consumer likes two goods: books and movies.The three bundles shown in the table below lie on the same indifference curve for the consumer. Which of the following properties of indifference curves would this consumer's preferences violate?

An inferior good is one in which

The theory of consumer choice describes the

Figure 21-2 -Refer to Figure 21-2.Which of the following statements is not correct?

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