Question 1

In an indifference curve diagram, the quantities of good Y are measured along the vertical axis and the quantities of good X are measured along the horizontal axis. The marginal rate of substitution is defined as

Accepted Answer

A)  how much good Y you must give up to get one more unit of good X. 
B)  how much good Y you are willing to give up to get one more unit of good X. 
C)  the relative price of good Y in terms of good X. 
D)  how much you prefer to substitute good X for good Y.

Question 2

The combinations of gasoline and coffee along one of Sam's indifference curves are combinations

Accepted Answer

A)  which require the same total expenditure. 
B)  that he can afford with his $60.00 income. 
C)  among which he is "indifferent." 
D)  that give him the same marginal rate of substitution.

Question 3

-The figure above shows Ronald's budget line. He has a weekly income of $20 and he spends it on hot dogs and hamburgers. The relative price of a hamburger is ________.

Accepted Answer

A)  1/2 hot dog 
B)  5 hot dogs 
C)  $20 
D)  2 hot dogs

Question 4

Which of the following statements is FALSE?

Accepted Answer

A)  When the relative price of a good falls, the substitution effect always leads the consumer to substitute more of that good for the other good. 
B)  For a normal good, the income effect reinforces the substitution effect. 
C)  For an inferior good, the income effect offsets the substitution effect. 
D)  For an inferior good, the income effect is positive.

Question 5

In order for you to consider steak and lobster to be perfect substitutes, their prices per pound must be identical.

Accepted Answer

A) True 
 B)False

Question 6

-The indifference curve in the above figure

Accepted Answer

A)  illustrates two goods that are perfect substitutes. 
B)  illustrates two goods that are perfect complements. 
C)  violates assumptions about preferences. 
D)  None of the above statements is correct.

Question 7

-In the above figure, income is $8, the price of a soft drink is $1, and the initial price of a milkshake is $2. If the price of a milkshake decreases to $1, the substitution effect is the movement from point ________ to point ________.

Accepted Answer

A)  a; b 
B)  b; d 
C)  b; c 
D)  a; c

Question 8

When your budget line is just tangent to your indifference curve, you are at your best affordable point.

Accepted Answer

A) True 
 B)False

Question 9

-In the above figure, the rise in the price of a gallon of gasoline that created the movement from point C to point A would be shown as a movement ________ along the demand curve for ________.

Accepted Answer

A)  upward; coffee 
B)  downward; coffee 
C)  upward; gasoline 
D)  downward; gasoline

Question 10

Joe has $50 to spend on pizza and movies. If movies are $5 each and a pizza is $10 then, assuming he spends all his money, he can buy which of the following bundle of goods?

Accepted Answer

A)  6 movies and 2 pizzas 
B)  8 movies and 4 pizzas 
C)  2 movies and 6 pizzas 
D)  6 movies and 4 pizzas

Question 11

Suppose the price of coffee is $3 each, the price of bagels is $2 each and a person's budget is $40. The relative price of coffee is

Accepted Answer

A)  1.5 bagels. 
B)  2/3 of a bagel. 
C)  13.33 bagels. 
D)  20 bagels.

Question 12

Beta Alpha Psi is an accounting student professional organization with chapters on 279 campuses nationwide. Suppose each meeting the local chapter has $30 to spend on pizza and soda. If pizza costs $8 and the chapter buys 3, how much money can be spent on soda?

Accepted Answer

A)  $6 
B)  $30 
C)  $24 
D)  $3

Question 13

-The figure above shows Sam's budget line. Which of the following would result in Sam's budget line rotating inward and not changing its vertical intercept?

Accepted Answer

A)  a decline in his preference for coffee 
B)  a fall in the price of a gallon of gasoline 
C)  a decrease in Sam's income 
D)  an increase in the price of a pound of coffee

Question 14

The substitution effect from a rise in the price of pizza

Accepted Answer

A)  leads to a movement along the fixed budget line, due to a change in relative prices. 
B)  increases the quantity demanded of pizza. 
C)  decreases the quantity demanded of pizza. 
D)  Both answers A and B are correct.

Question 15

-Consider the budget line in the above figure. If the consumer's income is $240, then the price of a movie is

Accepted Answer

A)  $24 per movie. 
B)  $12 per movie. 
C)  $10 per movie. 
D)  More information is needed to determine the price of a movie.

Question 16

-In the above figure, the movement from point C to point A is the result of

Accepted Answer

A)  a decrease in the price of coffee. 
B)  an increase in the price of coffee. 
C)  a decrease in the price of gasoline. 
D)  an increase in the price of gasoline.

Question 17

The magnitude of the slope of the budget line is the ratio of

Accepted Answer

A)  a price to its quantity. 
B)  a quantity to its price. 
C)  two prices. 
D)  two marginal rates of substitution.

Question 18

-The curve in the above figure shows alternative combinations of gasoline and coffee that Sam likes equally well. This curve is called

Accepted Answer

A)  a budget line. 
B)  a demand curve. 
C)  a consumption curve. 
D)  an indifference curve.

Question 19

-In the above figure, Brendan originally consumes at point A. If his income rises and both compact discs and haircuts are normal goods then he will begin consuming at a point such as

Accepted Answer

A)  F. 
B)  B. 
C)  C. 
D)  D.

Question 20

The income effect for an inferior good

Accepted Answer

A)  is negative. 
B)  is zero. 
C)  is positive. 
D)  could be negative, zero, or positive.

Exam 9: Possibilities, Preferences, and Choices