Question 1

If indifference curves could cross, it would suggest that:

Accepted Answer

A)  it is possible to demonstrate that all standard properties of indifference curves are typically satisfied 
B)  consumers are likely to prefer a redistribution of income from rich to poor 
C)  it is possible to demonstrate that a consumer does not prefer more to less 
D)  it facilitates the explanation of differences in consumption choices among individuals 
A)  it is possible to demonstrate that all standard properties of indifference curves are typically satisfied 
B)  consumers are likely to prefer a redistribution of income from rich to poor 
C)  it is possible to demonstrate that a consumer does not prefer more to less 
D)  it facilitates the explanation of differences in consumption choices among individuals

Question 2

Graph 22-9
  
-Refer to Graph 22-9. Assume that the consumer depicted in the graph has an income of $100. If the price of chocolate chips is $5, the optimising consumer would choose to purchase:

Accepted Answer

A)  13 marshmallows and 7 chocolate chips 
B)  10 marshmallows and 10 chocolate chips 
C)  8 marshmallows and 12 chocolate chips 
D)  6 marshmallows and 14 chocolate chips 
A)  13 marshmallows and 7 chocolate chips 
B)  10 marshmallows and 10 chocolate chips 
C)  8 marshmallows and 12 chocolate chips 
D)  6 marshmallows and 14 chocolate chips

Question 3

An indifference curve can be thought of as an equal-utility curve.

Accepted Answer

A) True 
 B)False

Question 4

Graph 22-8
  
-Refer to Graph 22-8. If the consumer is currently at point B on the graph shown, a change to point C as a result of a decrease in the price of potato chips would show the:

Accepted Answer

A)  price effect 
B)  budget effect 
C)  substitution effect 
D)  income effect 
A)  price effect 
B)  budget effect 
C)  substitution effect 
D)  income effect

Question 5

A consumer is equally happy at all points on any given indifference curve.

Accepted Answer

A) True 
 B)False

Question 6

Graph 22-3
 
-Refer to Graph 22-3. If the budget constraint is $120 then from the panel (b) we can determine that the:

Accepted Answer

A)  price of X is $30 and the price of Y is $7.50 
B)  price of Y is $30 and the price of X is $7.50 
C)  price of X is $4 and the price of Y is $16 
D)  price of Y is $4 and the price of X is $16 
A)  price of X is $30 and the price of Y is $7.50 
B)  price of Y is $30 and the price of X is $7.50 
C)  price of X is $4 and the price of Y is $16 
D)  price of Y is $4 and the price of X is $16

Question 7

An optimising consumer will select a consumption bundle in which utility is maximised:

Accepted Answer

A)  and prices are minimised 
B)  and income is maximised 
C)  and indifference curves are linear 
D)  subject to constraints imposed by her budget 
A)  and prices are minimised 
B)  and income is maximised 
C)  and indifference curves are linear 
D)  subject to constraints imposed by her budget

Question 8

A bowed shaped indifference curve reflects a consumer's:

Accepted Answer

A)  greater willingness to give up a good that she has an abundance of 
B)  lower willingness to give up a good that she has an abundance of 
C)  desire to specialise in the consumption of one good over another 
D)  unwillingness to substitute one good for another 
A)  greater willingness to give up a good that she has an abundance of 
B)  lower willingness to give up a good that she has an abundance of 
C)  desire to specialise in the consumption of one good over another 
D)  unwillingness to substitute one good for another

Question 9

The slope of an indifference curve reflects the consumer's willingness to exchange one commodity for another.

Accepted Answer

A) True 
 B)False

Question 10

When economists describe preferences, they sometimes use the concept of:

Accepted Answer

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

Question 11

Indifference curves provide a way to graphically represent:

Accepted Answer

A)  the constraints faced by individuals 
B)  an individual's preferences 
C)  the relative price of commodities 
D)  an income level sufficient to make an individual happy 
A)  the constraints faced by individuals 
B)  an individual's preferences 
C)  the relative price of commodities 
D)  an income level sufficient to make an individual happy

Question 12

Assume that a consumer faces the budget constraints shown.
   a. Assuming that income is the same on both occasions, describe the difference in relative prices between panel a and panel b.
b. If income in panel b is 240, what is the price of good X?
c. If income in panel a is 120, what is the price of good Y?
d. Estimate the relative price of good Y in panel a and panel b.

Accepted Answer

a. The price of good Y is relatively low

Question 13

Graph 22-6
  
-Refer to Graph 22-6. In the figure shown, an optimising consumer is most likely to select the consumption bundle associated with:

Accepted Answer

A)  point A 
B)  point B 
C)  point C 
D)  point E 
A)  point A 
B)  point B 
C)  point C 
D)  point E

Question 14

The amount of a good that an individual has:

Accepted Answer

A)  is only affected by prices 
B)  affects the rate at which she is willing to trade 
C)  is only affected by income 
D)  will not affect the marginal rate of substitution 
A)  is only affected by prices 
B)  affects the rate at which she is willing to trade 
C)  is only affected by income 
D)  will not affect the marginal rate of substitution

Question 15

The slope of an indifference curve is equal to:

Accepted Answer

A)  - 1 
B)  positive, since indifference curves slope upward 
C)  the marginal rate of substitution 
D)  the same as the slope of the budget constraint at every point 
A)  - 1 
B)  positive, since indifference curves slope upward 
C)  the marginal rate of substitution 
D)  the same as the slope of the budget constraint at every point

Question 16

Which of the following statements about the budget constraint is true? The slope of the budget constraint is: (i) the rate at which a consumer can trade one good for another
(ii) equal to the slope of the highest indifference curve
(iii) constant

Accepted Answer

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

Question 17

When the price of a good rises, consumers are willing to pay for fewer units, so there is a decrease in demand.

Accepted Answer

A) True 
 B)False

Question 18

Diane knows that she will ultimately face retirement. Assume that Diane will experience two periods in her life, one in which she works and earns income, and one in which she is retired and earns no income. Diane can earn $250,000 during her work period and nothing in her retirement period. She must both save and consume in her work period with an interest rate of 10 per cent on savings.
-Refer to the information provided. Assume that Diane decides to consume $150 000 in the work period. How much will she consume in her retirement period?

Accepted Answer

A)  $110 000 
B)  $100 000 
C)  $125 000 
D)  we can't determine this from the information provided 
A)  $110 000 
B)  $100 000 
C)  $125 000 
D)  we can't determine this from the information provided

Question 19

A consumer:

Accepted Answer

A)  prefers higher indifference curves to lower indifference curves 
B)  is equally satisfied with any indifference curve 
C)  is generally unable to place all consumption bundles on an indifference curve 
D)  prefers indifference curves with positive slopes 
A)  prefers higher indifference curves to lower indifference curves 
B)  is equally satisfied with any indifference curve 
C)  is generally unable to place all consumption bundles on an indifference curve 
D)  prefers indifference curves with positive slopes

Question 20

The marginal rate of substitution is:

Accepted Answer

A)  the slope of a budget constraint 
B)  always constant 
C)  the slope of an indifference curve 
D)  the point at which the budget constraint and the indifference curve is tangent 
A)  the slope of a budget constraint 
B)  always constant 
C)  the slope of an indifference curve 
D)  the point at which the budget constraint and the indifference curve is tangent

Exam 22: The Theory of Consumer Choice

If indifference curves could cross, it would suggest that:

Graph 22-9 -Refer to Graph 22-9. Assume that the consumer depicted in the graph has an income of $100. If the price of chocolate chips is $5, the optimising consumer would choose to purchase:

An indifference curve can be thought of as an equal-utility curve.

Graph 22-8 -Refer to Graph 22-8. If the consumer is currently at point B on the graph shown, a change to point C as a result of a decrease in the price of potato chips would show the:

A consumer is equally happy at all points on any given indifference curve.

Graph 22-3 -Refer to Graph 22-3. If the budget constraint is $120 then from the panel (b) we can determine that the:

An optimising consumer will select a consumption bundle in which utility is maximised:

A bowed shaped indifference curve reflects a consumer's:

The slope of an indifference curve reflects the consumer's willingness to exchange one commodity for another.

When economists describe preferences, they sometimes use the concept of:

Indifference curves provide a way to graphically represent:

Graph 22-6 -Refer to Graph 22-6. In the figure shown, an optimising consumer is most likely to select the consumption bundle associated with:

The amount of a good that an individual has:

The slope of an indifference curve is equal to:

Which of the following statements about the budget constraint is true? The slope of the budget constraint is: (i) the rate at which a consumer can trade one good for another (ii) equal to the slope of the highest indifference curve (iii) constant

When the price of a good rises, consumers are willing to pay for fewer units, so there is a decrease in demand.

A consumer:

The marginal rate of substitution is:

Ten Lessons From 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

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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