Question 1

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming _____ peanut butter and ______ chocolate.

Accepted Answer

A)  less; more 
B)  more; less 
C)  more; more 
D)  less; less

Question 2

A bar owner must decide how best to raise revenues. A cover charge will allow him to offer cheaper drink prices. If the owner does decide to require a cover charge and offer cheaper drinks, how much should it be to avoid losing customers? Explain.

Accepted Answer

The answer of A bar owner must decide how best...

Question 3

Which statement is TRUE?

Accepted Answer

A)  The income effect of a wage increase is to consume less leisure. 
B)  The substitution effect of a wage decrease is to consume less leisure. 
C)  The price of leisure decreases with a decrease in wages. 
D)  The price of leisure increases with an increase in income.

Question 4

If the marginal utility per dollar for hamburgers is 2, and the marginal utility per dollar for pizza is 1, then this consumer should consume more hamburgers.

Accepted Answer

A) True 
 B)False

Question 5

The slope of the indifference curve is equal to the marginal rate of substitution.

Accepted Answer

A) True 
 B)False

Question 6

Use the following to answer questions:
Figure: Income and Substitution Effects 
-(Figure: Income and Substitution Effects) Refer to the figure. The consumer is initially in equilibrium at Point A then moves to Point B. What is the substitution effect from the price change?

Accepted Answer

A)  the reduction of the number of music downloads by three 
B)  the reduction of the number of music downloads by four 
C)  the increase of the number of music downloads by one 
D)  the increase of the number of music downloads by three

Question 7

If another unit of good X gives a consumer 15 additional units of satisfaction, and another unit of good Y gives 45 additional units of satisfaction, the MRS is equal to one-third.

Accepted Answer

A) True 
 B)False

Question 8

If the marginal utility per dollar for hamburgers is higher than the marginal utility per dollar for tacos, then to maximize utility the consumer should only consume hamburgers.

Accepted Answer

A) True 
 B)False

Question 9

Amy purchased four cantaloupes at $2 each and three watermelons at $4 each. If Amy is following the optimal consumption rule, the marginal utility of the fourth cantaloupe and third watermelon are:

Accepted Answer

A)  12 and 24, respectively. 
B)  4 and 3, respectively. 
C)  40 and 10, respectively. 
D)  6 and 8, respectively.

Question 10

Use the following to answer questions:
Figure: Optimal Choice 2 
-(Figure: Optimal Choice 2) Refer to the figure. This figure represents indifference curves of a consumer who purchases flip-flops and sneakers. If the dotted line represents this consumer's budget constraint, then bundle D on the graph:

Accepted Answer

A)  results in a lower level of overall utility than bundle E. 
B)  is preferred to point E but is unattainable. 
C)  has a higher marginal rate of substitution than bundle E. 
D)  maximizes total utility.

Question 11

Figure: Work Leisure  Refer to the figure. Which statement is FALSE?

Accepted Answer

A)  At 13 hours of leisure and income of $45.19, the worker earns a wage of $4.17 an hour. 
B)  The labor supply curve is downward sloping. 
C)  The substitution effect dominates the income effect. 
D)  This worker chooses to work more hours if paid higher wages.

Question 12

If you purchase a ticket to a concert but then lose the ticket, a rational consumer would:

Accepted Answer

A)  not repurchase the ticket since the lost ticket is a sunk cost. 
B)  always repurchase the ticket as long as the price hasn't changed. 
C)  repurchase the ticket as long as the price hasn't changed and the income effect is high. 
D)  repurchase the ticket as long as the price hasn't changed and the income effect is low.

Question 13

Figure: Labor Supply 2  Refer to the figure. The figure represents the budget constraint and indifference curves for the labor-leisure decision of a consumer when the wage rate falls from $20 to $10. For this worker:

Accepted Answer

A)  the income effect will dominate and the consumer will work more. 
B)  the substitution effect will dominate and the consumer will work more. 
C)  the income effect will dominate and the consumer will work less. 
D)  the substitution effect will dominate and the consumer will work less.

Question 14

If the marginal utility per dollar for hamburgers is higher than the marginal utility per dollar for tacos, then in order to maximize utility the consumer should only consume hamburgers.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following methods have been used to reduce the disincentive effects of welfare on labor supply?
I. The government reduces welfare benefits by $1 of every $1 of labor income earned.
II. The government limits the amount of time that someone can collect welfare.
III. The government provides an Earned Income Tax Credit that supplements the income of the working poor.

Accepted Answer

A)  I and III only 
B)  II and III only 
C)  II only 
D)  I, II, and III

Question 16

At the consumer's optimal consumption bundle, the MRSXY is 4, and the marginal utility of good X is 8. What is the marginal utility of good Y?

Accepted Answer

A)  1/2 
B)  2 
C)  24 
D)  16

Question 17

Use the following to answer questions:
Figure: Budget Constraint 2 
-Figure: Budget Constraints 3  Refer to the figure. What could have caused the shift in the budget constraint?

Accepted Answer

A)  The price of music downloads decreased. 
B)  The price of movie downloads increased. 
C)  This consumer's income increased. 
D)  This consumer's income decreased.

Question 18

Use the following to answer questions:
Figure: Coffee and Comic Books 
-(Figure: Coffee and Comic Books) Refer to the figure. A consumer has $5 to spend on comic books (priced at $1 per comic book) and coffee (priced at $1 per cup). Using the figure, how many comic books and cups of coffee will this consumer purchase?

Accepted Answer

A)  three comic books and two cups of coffee 
B)  two comic books and three cups of coffee

Question 19

A worker might respond to a higher wage by working less.

Accepted Answer

A) True 
 B)False

Question 20

Use the following to answer questions:
Figure: Indifference Curve 
-(Figure: Indifference Curve) Refer to the figure. This figure represents the indifference curve of a consumer who purchases flip-flops and sneakers. Which statement is TRUE?

Accepted Answer

A)  The consumer would prefer bundle C to bundle A. 
B)  A consumer is indifferent between bundle B and bundle A. 
C)  Bundle E is not utility maximizing. 
D)  Bundle B generates the highest utility out of all the points shown.

Exam 25: Consumer Choice

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming _ peanut butter and __ chocolate.

A bar owner must decide how best to raise revenues. A cover charge will allow him to offer cheaper drink prices. If the owner does decide to require a cover charge and offer cheaper drinks, how much should it be to avoid losing customers? Explain.

Which statement is TRUE?

If the marginal utility per dollar for hamburgers is 2, and the marginal utility per dollar for pizza is 1, then this consumer should consume more hamburgers.

The slope of the indifference curve is equal to the marginal rate of substitution.

Use the following to answer questions: Figure: Income and Substitution Effects -(Figure: Income and Substitution Effects) Refer to the figure. The consumer is initially in equilibrium at Point A then moves to Point B. What is the substitution effect from the price change?

If another unit of good X gives a consumer 15 additional units of satisfaction, and another unit of good Y gives 45 additional units of satisfaction, the MRS is equal to one-third.

If the marginal utility per dollar for hamburgers is higher than the marginal utility per dollar for tacos, then to maximize utility the consumer should only consume hamburgers.

Amy purchased four cantaloupes at $2 each and three watermelons at $4 each. If Amy is following the optimal consumption rule, the marginal utility of the fourth cantaloupe and third watermelon are:

Figure: Work Leisure Refer to the figure. Which statement is FALSE?

If you purchase a ticket to a concert but then lose the ticket, a rational consumer would:

Figure: Labor Supply 2 Refer to the figure. The figure represents the budget constraint and indifference curves for the labor-leisure decision of a consumer when the wage rate falls from $20 to $10. For this worker:

If the marginal utility per dollar for hamburgers is higher than the marginal utility per dollar for tacos, then in order to maximize utility the consumer should only consume hamburgers.

At the consumer's optimal consumption bundle, the MRS_XY is 4, and the marginal utility of good X is 8. What is the marginal utility of good Y?

Use the following to answer questions: Figure: Budget Constraint 2 -Figure: Budget Constraints 3 Refer to the figure. What could have caused the shift in the budget constraint?

A worker might respond to a higher wage by working less.

Use the following to answer questions: Figure: Indifference Curve -(Figure: Indifference Curve) Refer to the figure. This figure represents the indifference curve of a consumer who purchases flip-flops and sneakers. Which statement is TRUE?