Question 1

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Accepted Answer

A) True 
 B)False

Question 2

A consumer's optimal choice is affected by income,prices of goods,and preferences.

Accepted Answer

A) True 
 B)False

Question 3

A budget constraint shows

Accepted Answer

A)  the maximum utility that a consumer can achieve for a given level of income. 
B)  a series of bundles that cost the consumer the same amount of money. 
C)  a series of bundles that give the consumer the same level of utility. 
D)  All of the above are correct.

Question 4

All points on a demand curve are optimal consumption points.

Accepted Answer

A) True 
 B)False

Question 5

Figure 21-10
 
-Refer to Figure 21-10.Which of the following comparisons is correct regarding the marginal rate of substitution (MRS)of donuts for cake?

Accepted Answer

A)  The MRS is greater between bundles A and B than between bundles B and C. 
B)  The MRS is greater between bundles B and C than between bundles A and B. 
C)  The MRS is the same between bundles A and B and bundles B and C because all three bundles lie on the same indifference curve. 
D)  The MRS is greater between bundles E and B than between bundles B and D.

Question 6

Suppose the only two goods that Brett consumes are wine and cheese.When wine sells for $10 a bottle and cheese sell for $10 a pound,he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100.One day the price of wine falls to $5 a bottle,and the price of cheese increases to $20 a pound,while his income does not change.If you illustrate wine on the vertical axis and cheese on the horizontal axis,then

Accepted Answer

A)  the slope of Brett's budget has not changed. 
B)  the slope of Brett's budget constraint is flatter at the new prices. 
C)  the slope of Brett's budget constraint is steeper at the new prices. 
D)  Brett's budget constraint has shifted in a parallel fashion to the budget constraint with the old prices.

Question 7

Figure 21-6
 
-Refer to Figure 21-6.Suppose the price of popcorn is $2,the price of Mt.Dew is $4,the value of A is 30,and the value of B is 15.How much income does the consumer have?

Accepted Answer

A)  $120 
B)  $80 
C)  $60 
D)  $30

Question 8

When Adam's income increases,he purchases more tickets to Broadway musicals than he did before his income increased.For Adam,Broadway musicals are a(n)

Accepted Answer

A)  normal good. 
B)  inferior good that is not a Giffen good. 
C)  Giffen good. 
D)  optimal good.

Question 9

Figure 21-24
 
-Refer to Figure 21-24.Anna experiences an increase in her hourly wage.Her optimal choice point moves from A to B.For Anna,

Accepted Answer

A)  her labor supply curve is backward bending. 
B)  her labor supply curve is upward sloping. 
C)  leisure is an inferior good. 
D)  both a and c are correct.

Question 10

Figure 21-2
 
-Refer to Figure 21-2.Which points are affordable?

Accepted Answer

A)  W, X, and Y only 
B)  Z only 
C)  V, W, X, and Y only 
D)  V, W, X, Y, and Z

Question 11

Scenario 21-1
Suppose the price of hot wings is $10, the price of beer is $1, and the consumer's income is $50. In addition, suppose the consumer's budget constraint illustrates hot wings on the horizontal axis and beer on the vertical axis.
-Refer to Scenario 21-1.If the consumer's income rises to $60,then the budget line for hot wings and beer would

Accepted Answer

A)  now intersect the horizontal axis at 6 orders of hot wings and the vertical axis at 60 beers. 
B)  not change. 
C)  now intersect the horizontal axis at 4 orders of hot wings and the vertical axis at 16 beers. 
D)  rotate outward along the beer axis.

Question 12

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.

Question 13

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 14

The slope of the budget constraint is all of the following except

Accepted Answer

A)  the relative price of two goods. 
B)  the rate at which a consumer can afford to trade one good for another. 
C)  the marginal rate of substitution. 
D)  constant.

Question 15

A consumer has preferences over two goods,X and Y.Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves)and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis.At the consumer's current consumption bundle,the consumer is spending all available income,and the marginal rate of substitution is greater than the slope of the budget constraint.We can conclude that the consumer

Accepted Answer

A)  is currently maximizing satisfaction subject to the budget constraint. 
B)  could increase satisfaction by consuming more X and less Y. 
C)  could increase satisfaction by consuming less X and more Y. 
D)  could purchase more X and more Y and increase total satisfaction.

Question 16

Good X is a Giffen good.When the price of X increases,the consumer will consume

Accepted Answer

A)  more X. 
B)  the same amount of X. 
C)  less X. 
D)  more or less X depending on the size of the income effect relative to the size of the substitution effect.

Question 17

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

Accepted Answer

A) True 
 B)False

Question 18

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

Accepted Answer

A)  People face trade-offs. 
B)  Governments can sometimes improve market outcomes. 
C)  Trade can make everyone better off. 
D)  Markets are usually a good way to organize economic activity.

Question 19

If a consumer purchases more of good A when her income falls,good A is an inferior good.

Accepted Answer

A) True 
 B)False

Question 20

For a typical consumer,most indifference curves are bowed inward.

Accepted Answer

A) True 
 B)False

Exam 21: The Theory of Consumer Choice.

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

A consumer's optimal choice is affected by income,prices of goods,and preferences.

A budget constraint shows

All points on a demand curve are optimal consumption points.

Figure 21-10 -Refer to Figure 21-10.Which of the following comparisons is correct regarding the marginal rate of substitution (MRS) of donuts for cake?

Figure 21-6 -Refer to Figure 21-6.Suppose the price of popcorn is $2,the price of Mt.Dew is $4,the value of A is 30,and the value of B is 15.How much income does the consumer have?

When Adam's income increases,he purchases more tickets to Broadway musicals than he did before his income increased.For Adam,Broadway musicals are a(n)

Figure 21-24 -Refer to Figure 21-24.Anna experiences an increase in her hourly wage.Her optimal choice point moves from A to B.For Anna,

Figure 21-2 -Refer to Figure 21-2.Which points are affordable?

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?

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.

The slope of the budget constraint is all of the following except

Good X is a Giffen good.When the price of X increases,the consumer will consume

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

If a consumer purchases more of good A when her income falls,good A is an inferior good.

For a typical consumer,most indifference curves are bowed inward.