Question 1

The substitution effect of a price change is depicted by a

Accepted Answer

A)  movement along the budget constraint holding satisfaction constant. 
B)  shift in the budget constraint at the old prices. 
C)  movement along the consumer's new indifference curve at the new prices. 
D)  movement along the original indifference curve to the point where the marginal rate of substitution equals the price ratio for the new set of prices. 
A)  movement along the budget constraint holding satisfaction constant. 
B)  shift in the budget constraint at the old prices. 
C)  movement along the consumer's new indifference curve at the new prices. 
D)  movement along the original indifference curve to the point where the marginal rate of substitution equals the price ratio for the new set of prices.

Question 2

A consumer has preferences over consumption and leisure, both of which are normal goods. When the wage decreases, the consumer chooses to consume less leisure. For this consumer the labor supply curve will

Accepted Answer

A)  slope upward. 
B)  slope backward. 
C)  be horizontal. 
D)  be vertical. 
A)  slope upward. 
B)  slope backward. 
C)  be horizontal. 
D)  be vertical.

Question 3

Figure 21-30
The graph shows two budget constraints for a consumer.  
-Refer to Figure 21-30. Suppose the price of a hamburger is $10 and Budget Constraint A applies. What is the consumer's income? What is the price of a light bulb?

Accepted Answer

The consumer's incom

Question 4

Figure 21-9  
-Refer to Figure 21-9. If the price of good X is $15, what is the price of good Y?

Accepted Answer

A)  $1,500 
B)  $50 
C)  $5 
D)  $0.50 
A)  $1,500 
B)  $50 
C)  $5 
D)  $0.50

Question 5

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

Accepted Answer

A)  is equal to the relative price ratio of the goods. 
B)  exceeds the marginal utility of each good by the greatest amount. 
C)  is less than the slope of the budget constraint. 
D)  All of the above are correct. 
A)  is equal to the relative price ratio of the goods. 
B)  exceeds the marginal utility of each good by the greatest amount. 
C)  is less than the slope of the budget constraint. 
D)  All of the above are correct.

Question 6

A typical consumer consumes both coffee and donuts. After the consumer's income decreases, the consumer consumes more coffee but fewer donuts than before. For this consumer, donuts are a normal good, but coffee is an inferior good.

Accepted Answer

A) True 
 B)False

Question 7

Figure 21-22  
-Refer to Figure 21-22. The shift from point B to point C in the figure is due to the

Accepted Answer

A)  substitution effect of an increase in the price of potato chips. 
B)  income effect of an increase in the price of potato chips. 
C)  substitution effect of a decrease in the price of potato chips. 
D)  income effect of a decrease in the price of potato chips. 
A)  substitution effect of an increase in the price of potato chips. 
B)  income effect of an increase in the price of potato chips. 
C)  substitution effect of a decrease in the price of potato chips. 
D)  income effect of a decrease in the price of potato chips.

Question 8

Katie wins $3 million in her state's lottery. If Katie drastically reduces the number of hours she works after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Accepted Answer

A) True 
 B)False

Question 9

Figure 21-32
The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income.  
-Refer to Figure 21-32. From the figure we can determine how much income Hannah earns when young and we can determine the interest rate. Could the interest rate rise to a level at which Hannah could afford to be at point D?

Accepted Answer

No. The point (0, 40000) is the horizont

Question 10

The slope of the budget constraint reveals the relative price of good X compared to good Y.

Accepted Answer

A) True 
 B)False

Question 11

A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals. How many meals could the family afford if they gave up two nights in the hotel?

Accepted Answer

A)  1 
B)  2 
C)  5 
D)  8 
A)  1 
B)  2 
C)  5 
D)  8

Question 12

A Giffen good is a good for which

Accepted Answer

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

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

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

Accepted Answer

The slope of a consumer's indi

Question 15

Evaluate the following statement, "Warren Buffet is the second richest person in the world. He doesn't face any constraint on his ability to purchase commodities he wants."

Accepted Answer

All people face scarcity of re

Question 16

Figure 21-24
The figure shows three indifference curves and a budget constraint for a certain consumer named Steve.  
-Refer to Figure 21-24. At his optimum, Steve is willing to give up about

Accepted Answer

A)  0.75 pounds of pears for 1 pound of apples. 
B)  0.75 pounds of apples for 1 pound of pears. 
C)  1.20 pounds of pears for 1 pound of apples. 
D)  1.20 pounds of apples for 1 pound of pears. 
A)  0.75 pounds of pears for 1 pound of apples. 
B)  0.75 pounds of apples for 1 pound of pears. 
C)  1.20 pounds of pears for 1 pound of apples. 
D)  1.20 pounds of apples for 1 pound of pears.

Question 17

When the price of an inferior good increases,

Accepted Answer

A)  both the income and substitution effects encourage the consumer to purchase more of the good. 
B)  both the income and substitution effects encourage the consumer to purchase less of the good. 
C)  the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good. 
D)  the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages the consumer to purchase more of the good. 
A)  both the income and substitution effects encourage the consumer to purchase more of the good. 
B)  both the income and substitution effects encourage the consumer to purchase less of the good. 
C)  the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good. 
D)  the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages the consumer to purchase more of the good.

Question 18

When considering household savings, the relative price between consuming when young and consuming when old is the

Accepted Answer

A)  consumption rate. 
B)  interest rate that individuals can earn on their private savings. 
C)  prime rate. 
D)  federal funds rate. 
A)  consumption rate. 
B)  interest rate that individuals can earn on their private savings. 
C)  prime rate. 
D)  federal funds rate.

Question 19

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 a decrease 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 20

Figure 21-24
The figure shows three indifference curves and a budget constraint for a certain consumer named Steve.  
-Refer to Figure 21-24. Suppose the price of pears, the price of apples, and Steve's income remain constant, and Steve moves from point B to point C. In doing so, Steve

Accepted Answer

A)  becomes better off. 
B)  moves from a point that is not optimal to a point that is optimal. 
C)  gives up some apples to get some pears. 
D)  All of the above are correct. 
A)  becomes better off. 
B)  moves from a point that is not optimal to a point that is optimal. 
C)  gives up some apples to get some pears. 
D)  All of the above are correct.

Exam 21: The Theory of Consumer Choice

The substitution effect of a price change is depicted by a

A consumer has preferences over consumption and leisure, both of which are normal goods. When the wage decreases, the consumer chooses to consume less leisure. For this consumer the labor supply curve will

Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. Suppose the price of a hamburger is $10 and Budget Constraint A applies. What is the consumer's income? What is the price of a light bulb?

Figure 21-9 -Refer to Figure 21-9. If the price of good X is $15, what is the price of good Y?

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

A typical consumer consumes both coffee and donuts. After the consumer's income decreases, the consumer consumes more coffee but fewer donuts than before. For this consumer, donuts are a normal good, but coffee is an inferior good.

Figure 21-22 -Refer to Figure 21-22. The shift from point B to point C in the figure is due to the

Katie wins $3 million in her state's lottery. If Katie drastically reduces the number of hours she works after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

The slope of the budget constraint reveals the relative price of good X compared to good Y.

A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals. How many meals could the family afford if they gave up two nights in the hotel?

A Giffen good is a good for which

When economists describe preferences, they often use the concept of

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

Evaluate the following statement, "Warren Buffet is the second richest person in the world. He doesn't face any constraint on his ability to purchase commodities he wants."

Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. At his optimum, Steve is willing to give up about

When the price of an inferior good increases,

When considering household savings, the relative price between consuming when young and consuming when old is 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 a decrease in income?

Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. Suppose the price of pears, the price of apples, and Steve's income remain constant, and Steve moves from point B to point C. In doing so, Steve

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 Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

Frontiers of Microeconomics

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