Question 1

Figure 21-7
  
-Refer to Figure 21-7.Suppose a consumer has $200 in income,the price of a book is $5,and the price of a DVD is $10.What is the value of A?

Accepted Answer

A)  40 
B)  20 
C)  10 
D)  2 
A)  40 
B)  20 
C)  10 
D)  2

Question 2

Scenario 21-3
Zach knows that he will ultimately face retirement. Assume that Zach will experience two periods in his life, one in which he works and earns income, and one in which he is retired and earns no income. Zach can earn $250,000 during his working period and nothing in his retirement period. He must both save and consume in his work period with an interest rate of 10 percent on savings.
-Refer to Scenario 21-3.If the interest rate on savings increases,

Accepted Answer

A)  Zach will decrease his savings in the work period if the income effect is greater than the substitution effect for him. 
B)  Zach will increase his savings in the work period if the income effect is greater than the substitution effect for him. 
C)  Zach will increase his savings in the work period if the substitution effect is greater than the income effect for him. 
D)  Both a and c are correct. 
A)  Zach will decrease his savings in the work period if the income effect is greater than the substitution effect for him. 
B)  Zach will increase his savings in the work period if the income effect is greater than the substitution effect for him. 
C)  Zach will increase his savings in the work period if the substitution effect is greater than the income effect for him. 
D)  Both a and c are correct.

Question 3

If the consumer's income and all prices simultaneously decrease by one-half,then the optimum consumption will

Accepted Answer

A)  shift outward relative to the original optimum. 
B)  move leftward along the original budget constraint. 
C)  shift inward relative to the original optimum. 
D)  not change. 
A)  shift outward relative to the original optimum. 
B)  move leftward along the original budget constraint. 
C)  shift inward relative to the original optimum. 
D)  not change.

Question 4

The following diagram shows a budget constraint for a particular consumer.  
If the price of X is $10,what is the price of Y?

Accepted Answer

A)  $15 
B)  $25 
C)  $35 
D)  $70 
A)  $15 
B)  $25 
C)  $35 
D)  $70

Question 5

Pete consumes two goods,rice and fish.When the price of fish rises,he consumes less fish.When the price of rice rises,he consumes more rice.For Pete,

Accepted Answer

A)  fish is not a Giffen good but rice is. 
B)  rice is not a Giffen good but fish is. 
C)  both fish and rice are normal goods. 
D)  both fish and rice are Giffen goods. 
A)  fish is not a Giffen good but rice is. 
B)  rice is not a Giffen good but fish is. 
C)  both fish and rice are normal goods. 
D)  both fish and rice are Giffen goods.

Question 6

Figure 21-19
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies:
  
-Refer to Figure 21-19.Assume that the consumer has an income of $40.If the price of chocolate chips is $4 and the price of marshmallows is $4,the optimizing consumer would choose to purchase

Accepted Answer

A)  9 marshmallows and 6 chocolate chips. 
B)  10 marshmallows and 10 chocolate chips. 
C)  5 marshmallows and 5 chocolate chips. 
D)  3 marshmallows and 9 chocolate chips. 
A)  9 marshmallows and 6 chocolate chips. 
B)  10 marshmallows and 10 chocolate chips. 
C)  5 marshmallows and 5 chocolate chips. 
D)  3 marshmallows and 9 chocolate chips.

Question 7

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 8

Figure 21-26
The figure below illustrates the preferences of a representative consumer, Carlos.
  
-Refer to Figure 21-26.Interest rates increase by 4 percent.Carlos's optimal choice point moves from A to B.Carlos consumes

Accepted Answer

A)  less while he is younger and saves more than he did before interest rates increased. 
B)  more while he is younger and saves more than he did before interest rates increased. 
C)  less while he is younger and saves less than he did before interest rates increased. 
D)  more while he is younger and saves less than he did before interest rates increased. 
A)  less while he is younger and saves more than he did before interest rates increased. 
B)  more while he is younger and saves more than he did before interest rates increased. 
C)  less while he is younger and saves less than he did before interest rates increased. 
D)  more while he is younger and saves less than he did before interest rates increased.

Question 9

Budget constraints exist for consumers because

Accepted Answer

A)  their utility from consuming goods eventually reaches a maximum level. 
B)  even with unlimited incomes they have to pay for each good they consume. 
C)  they have to pay for goods, and they have limited incomes. 
D)  prices and incomes are inversely related. 
A)  their utility from consuming goods eventually reaches a maximum level. 
B)  even with unlimited incomes they have to pay for each good they consume. 
C)  they have to pay for goods, and they have limited incomes. 
D)  prices and incomes are inversely related.

Question 10

Janet prefers cashews to almonds.She prefers macadamia nuts to peanuts,but she is indifferent between almonds and peanuts.Which of the following statements can we say for sure?

Accepted Answer

A)  Janet prefers cashews to macadamia nuts. 
B)  Janet prefers peanuts to cashews. 
C)  Janet prefers macadamia nuts to almonds. 
D)  Janet prefers almonds to macadamia nuts. 
A)  Janet prefers cashews to macadamia nuts. 
B)  Janet prefers peanuts to cashews. 
C)  Janet prefers macadamia nuts to almonds. 
D)  Janet prefers almonds to macadamia nuts.

Question 11

A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

Accepted Answer

A)  perfect substitutes. 
B)  perfect complements. 
C)  very close substitutes. 
D)  very close complements. 
A)  perfect substitutes. 
B)  perfect complements. 
C)  very close substitutes. 
D)  very close complements.

Question 12

Steak and pasta are normal goods.When the price of pasta falls,the substitution effect by itself causes

Accepted Answer

A)  the consumer to feel richer, so the consumer buys more steak. 
B)  the consumer to feel richer, so the consumer buys less steak. 
C)  steak to be relatively more expensive, so the consumer buys less steak. 
D)  steak to be relatively less expensive, so the consumer buys more steak. 
A)  the consumer to feel richer, so the consumer buys more steak. 
B)  the consumer to feel richer, so the consumer buys less steak. 
C)  steak to be relatively more expensive, so the consumer buys less steak. 
D)  steak to be relatively less expensive, so the consumer buys more steak.

Question 13

When economists describe preferences,they often use the concept of

Accepted Answer

A)  markets. 
B)  income. 
C)  utility. 
D)  prices. 
A)  markets. 
B)  income. 
C)  utility. 
D)  prices.

Question 14

Suppose a consumer spends her income on two goods: music CDs and DVDs.The consumer has $200 to allocate to these two goods,the price of a CD is $10,and the price of a DVD is $20.What is the maximum number of CDs the consumer can purchase?

Accepted Answer

A)  10 
B)  20 
C)  40 
D)  50 
A)  10 
B)  20 
C)  40 
D)  50

Question 15

Assume that a consumer's indifference curve is bowed inward and satisfies the other three properties of indifference curves.As the consumer moves from left to right along the horizontal axis,the consumer's marginal rate of substitution

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains constant. 
D)  increases, then decreases. 
A)  increases. 
B)  decreases. 
C)  remains constant. 
D)  increases, then decreases.

Question 16

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X is

Accepted Answer

A)  equal to the marginal utility per dollar saved on good X. 
B)  greater than the marginal utility per dollar spent on good Y. 
C)  equal to the marginal utility per dollar spent on good Y. 
D)  less than the marginal utility per dollar spent on good Y. 
A)  equal to the marginal utility per dollar saved on good X. 
B)  greater than the marginal utility per dollar spent on good Y. 
C)  equal to the marginal utility per dollar spent on good Y. 
D)  less than the marginal utility per dollar spent on good Y.

Question 17

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 income 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 18

If we observe that a consumer's budget constraint has shifted inward,we can assume that the consumer will buy

Accepted Answer

A)  fewer normal goods and more inferior goods. 
B)  more normal goods and fewer inferior goods. 
C)  more normal goods and more inferior goods. 
D)  fewer normal goods and fewer inferior goods. 
A)  fewer normal goods and more inferior goods. 
B)  more normal goods and fewer inferior goods. 
C)  more normal goods and more inferior goods. 
D)  fewer normal goods and fewer inferior goods.

Question 19

Indifference curves tend to be bowed inward because of diminishing

Accepted Answer

A)  marginal rates of substitution. 
B)  demand for the good as prices rise. 
C)  income. 
D)  Both a and b are correct. 
A)  marginal rates of substitution. 
B)  demand for the good as prices rise. 
C)  income. 
D)  Both a and b are correct.

Question 20

The two "goods" used when economists analyze labor supply are

Accepted Answer

A)  work and leisure. 
B)  work and consumption. 
C)  saving and consumption. 
D)  leisure and consumption. 
A)  work and leisure. 
B)  work and consumption. 
C)  saving and consumption. 
D)  leisure and consumption.

Figure 21-7 -Refer to Figure 21-7.Suppose a consumer has $200 in income,the price of a book is $5,and the price of a DVD is $10.What is the value of A?

If the consumer's income and all prices simultaneously decrease by one-half,then the optimum consumption will

The following diagram shows a budget constraint for a particular consumer. If the price of X is $10,what is the price of Y?

Pete consumes two goods,rice and fish.When the price of fish rises,he consumes less fish.When the price of rice rises,he consumes more rice.For Pete,

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

Figure 21-26 The figure below illustrates the preferences of a representative consumer, Carlos. -Refer to Figure 21-26.Interest rates increase by 4 percent.Carlos's optimal choice point moves from A to B.Carlos consumes

Budget constraints exist for consumers because

Janet prefers cashews to almonds.She prefers macadamia nuts to peanuts,but she is indifferent between almonds and peanuts.Which of the following statements can we say for sure?

A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

Steak and pasta are normal goods.When the price of pasta falls,the substitution effect by itself causes

When economists describe preferences,they often use the concept of

Suppose a consumer spends her income on two goods: music CDs and DVDs.The consumer has $200 to allocate to these two goods,the price of a CD is $10,and the price of a DVD is $20.What is the maximum number of CDs the consumer can purchase?

Assume that a consumer's indifference curve is bowed inward and satisfies the other three properties of indifference curves.As the consumer moves from left to right along the horizontal axis,the consumer's marginal rate of substitution

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X is

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 income effect of the price decrease?

If we observe that a consumer's budget constraint has shifted inward,we can assume that the consumer will buy

Indifference curves tend to be bowed inward because of diminishing

The two "goods" used when economists analyze labor supply are

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.

Figure 21-7 -Refer to Figure 21-7.Suppose a consumer has $200 in income,the price of a book is $5,and the price of a DVD is $10.What is the value of A?

If the consumer's income and all prices simultaneously decrease by one-half,then the optimum consumption will

The following diagram shows a budget constraint for a particular consumer. If the price of X is $10,what is the price of Y?

Pete consumes two goods,rice and fish.When the price of fish rises,he consumes less fish.When the price of rice rises,he consumes more rice.For Pete,

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

Figure 21-26 The figure below illustrates the preferences of a representative consumer, Carlos. -Refer to Figure 21-26.Interest rates increase by 4 percent.Carlos's optimal choice point moves from A to B.Carlos consumes

Budget constraints exist for consumers because

Janet prefers cashews to almonds.She prefers macadamia nuts to peanuts,but she is indifferent between almonds and peanuts.Which of the following statements can we say for sure?

A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

Steak and pasta are normal goods.When the price of pasta falls,the substitution effect by itself causes

When economists describe preferences,they often use the concept of

Suppose a consumer spends her income on two goods: music CDs and DVDs.The consumer has $200 to allocate to these two goods,the price of a CD is $10,and the price of a DVD is $20.What is the maximum number of CDs the consumer can purchase?

Assume that a consumer's indifference curve is bowed inward and satisfies the other three properties of indifference curves.As the consumer moves from left to right along the horizontal axis,the consumer's marginal rate of substitution

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X is

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 income effect of the price decrease?

If we observe that a consumer's budget constraint has shifted inward,we can assume that the consumer will buy

Indifference curves tend to be bowed inward because of diminishing

The two "goods" used when economists analyze labor supply are

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