Question 1

A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

Accepted Answer

A)  perfect substitutes.
B)  perfect complements.
C)  very close substitutes.
D)  very close complements.E) A) and D)
F) C) and D)

Question 2

A Giffen good is one in which the quantity demanded rises as the price rises because the income effect

Accepted Answer

A)  reinforces the substitution effect.
B)  reinforces and is greater than the substitution effect.
C)  counteracts but is smaller than the substitution effect.
D)  counteracts and is greater than the substitution effect.E) B) and C)
F) A) and B)

Question 3

Which of the following is not true? Indifference curves

Accepted Answer

A)  are downward sloping.
B)  that are closer to the origin are preferable to indifference curves further from the origin.
C)  are bowed in toward the origin.
D)  do not cross.E) B) and D)
F) B) and C)

Question 4

A consumer's preferences for right shoes and left shoes can be represented by indifference curves that are

Accepted Answer

A)  bowed out from the origin
B)  bowed in towards the origin
C)  straight lines
D)  right anglesE) A) and B)
F) C) and D)

Question 5

Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis.Suppose that you have $100 today and expect to receive $100 one year from today.Your money market account pays an annual interest rate of 25%,and you may borrow money at that interest rate.Suppose now that the interest rate decreases to 10%.What happens to the slope of your budget constraint relative to when the interest rate was $25%?

Accepted Answer

A)  it becomes steeper
B)  it becomes flatter
C)  it doesn't change because the budget constraint shifts in parallel to the original budget constraint
D)  it doesn't change because the budget constraint shifts out parallel to the original budget constraintE) None of the above
F) B) and C)

Question 6

Indifference curves tend to be bowed inward because of diminishing

Accepted Answer

A)  marginal rates of substitution.
B)  demand for the good as prices rise.
C)  income.
D)  Both a and b are correct.E) A) and B)
F) A) and C)

Question 7

Figure 21-6
 
-Refer to Figure 21-6.The consumer is likely to select the consumption bundle at

Accepted Answer

A)  point B
B)  point C
C)  point D
D)  point EE) All of the above
F) B) and D)

Question 8

Figure 21-9
 
-Refer to Figure 21-9.Assume that the consumer depicted in the figure has an income of $100 and currently optimizes at point A.When the price of marshmallows decreases to $5,which point will the optimizing consumer choose?

Accepted Answer

A)  Point A
B)  Point B
C)  Point C
D)  Point DE) None of the above
F) B) and D)

Question 9

The income effect of a price change is depicted by

Accepted Answer

A)  a parallel shift of the budget constraint at the old set of prices.
B)  a parallel shift of the budget constraint at the new set of prices.
C)  a movement along the budget constraint holding the level of satisfaction constant.
D)  not observable and is therefore neither a shift nor a change in the slope of the budget constraint.E) C) and D)
F) A) and C)

Question 10

As one moves down a typical indifference curve,the marginal rate of substitution

Accepted Answer

A)  increases.
B)  decreases.
C)  is constant.
D)  will switch from positive to negative.E) A) and B)
F) B) and D)

Question 11

If the price of a good increases,all else equal,consumers perceive

Accepted Answer

A)  an increase in purchasing power if the good is an inferior good.
B)  an increase in income if the price increase occurs for a normal good.
C)  a decrease in purchasing power.
D)  a net gain in purchasing power if they decrease consumption of some goods.E) A) and B)
F) B) and C)

Question 12

A way to describe the consumer's optimum other than "the marginal rate of substitution for two goods is equal to their relative price ratio",is

Accepted Answer

A)  MUₓ/MUᵧ = Pᵧ/Pₓ.
B)  MUₓ/Pᵧ = MUᵧ/Pₓ.
C)  MUₓ/Pₓ = MUᵧ/Pᵧ.
D)  MUᵧ/MUₓ = Pₓ/Pᵧ.E) A) and C)
F) None of the above

Question 13

The price of gin has risen from $7 to $9 per bottle,the price of cocktail onions has fallen from $6 to $5 per jar,and Elizabeth's income has stayed fixed at $46 per week.Since the price changes,Elizabeth has been buying 4 bottles of gin and 2 jars of cocktail onions per week.At the original prices,4 bottles of gin and 2 jars of cocktail onions would have

Accepted Answer

A)  exactly exhausted her income.
B)  cost more than her income.
C)  cost less than her income.
D)  could have maximized her satisfaction given her budget constraint.E) A) and B)
F) A) and C)

Question 14

When leisure is a normal good,the income effect from a decrease in wages is evident in

Accepted Answer

A)  a desire to consume more leisure.
B)  a desire to consume less leisure.
C)  an upward-sloping labor supply curve.
D)  a shift in labor demand.E) A) and C)
F) B) and C)

Question 15

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

Accepted Answer

A)  now intersect the horizontal axis at 6 pizzas and the vertical axis at 60 colas.
B)  not change.
C)  now intersect the horizontal axis at 4 pizzas and the vertical axis at 16 colas.
D)  rotate outward along the cola axis.E) C) and D)
F) A) and D)

Question 16

Assume that a consumer faces the following budget constraints.
  
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 126, what is the price of good X?
c.If income in Panel A is 84, what is the price of good Y?
d.Assuming that the price of good X is the same on both occasions, describe the difference in income and price of good Y between Panel A and Panel B.

Accepted Answer

a. The price of good Y is relatively hig...

Question 17

Higher indifference curves are preferred to lower ones as long as the

Accepted Answer

A)  marginal rate of substitution is diminishing.
B)  products in the bundle are "bads."
C)  products in the bundle are "goods."
D)  budget constraint does not shift.E) All of the above
F) A) and B)

Question 18

Beer and pretzels are normal goods.When the price of beer falls,the income effect causes

Accepted Answer

A)  the consumer to feel richer, so the consumer buys more pretzels.
B)  the consumer to feel richer, so the consumer buys less pretzels.
C)  pretzels to be relatively more expensive, so the consumer buys more pretzels.
D)  pretzels to be relatively less expensive, so the consumer buys less pretzels.E) B) and C)
F) A) and C)

Question 19

Explain the difference between inferior and normal goods.As a developing economy experiences increases in income (measured by GDP)what would you predict to happen to demand for inferior goods?

Accepted Answer

Normal goods are those in which consumpt...

Question 20

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

Accepted Answer

A)  the consumer is currently maximizing satisfaction.
B)  the consumer could increase satisfaction by consuming more x and less y.
C)  the consumer could increase satisfaction by consuming less x and more y.
D)  the consumer could purchase more x and more y and increase total satisfaction.E) B) and C)
F) A) and C)

Exam 21: The Theory of Consumer Choice

If the price of a good increases,all else equal,consumers perceive

Correct Answer
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Correct Answer
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When leisure is a normal good,the income effect from a decrease in wages is evident in

Correct Answer
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Indifference curves tend to be bowed inward because of diminishing

Correct Answer
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Correct Answer
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a. The price of good Y is relatively hig...
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Figure 21-6 -Refer to Figure 21-6.The consumer is likely to select the consumption bundle at

Correct Answer
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A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

Correct Answer
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A consumer's preferences for right shoes and left shoes can be represented by indifference curves that are

Correct Answer
verified

Which of the following is not true? Indifference curves

Correct Answer
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Correct Answer
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Beer and pretzels are normal goods.When the price of beer falls,the income effect causes

Correct Answer
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Correct Answer
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Higher indifference curves are preferred to lower ones as long as the

Correct Answer
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A way to describe the consumer's optimum other than "the marginal rate of substitution for two goods is equal to their relative price ratio",is

Correct Answer
verified

The income effect of a price change is depicted by

Correct Answer
verified

Explain the difference between inferior and normal goods.As a developing economy experiences increases in income (measured by GDP)what would you predict to happen to demand for inferior goods?

Correct Answer
verified
Normal goods are those in which consumpt...
View Answer

Figure 21-9 -Refer to Figure 21-9.Assume that the consumer depicted in the figure has an income of $100 and currently optimizes at point A.When the price of marshmallows decreases to $5,which point will the optimizing consumer choose?

Correct Answer
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Correct Answer
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A Giffen good is one in which the quantity demanded rises as the price rises because the income effect

Correct Answer
verified

As one moves down a typical indifference curve,the marginal rate of substitution

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

If the price of a good increases,all else equal,consumers perceive

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When leisure is a normal good,the income effect from a decrease in wages is evident in

Correct AnswerverifiedShow Answer

Indifference curves tend to be bowed inward because of diminishing

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The price of good Y is relatively hig...View AnswerShow Answer

Figure 21-6 -Refer to Figure 21-6.The consumer is likely to select the consumption bundle at

Correct AnswerverifiedShow Answer

A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

Correct AnswerverifiedShow Answer

A consumer's preferences for right shoes and left shoes can be represented by indifference curves that are

Correct AnswerverifiedShow Answer

Which of the following is not true? Indifference curves

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Beer and pretzels are normal goods.When the price of beer falls,the income effect causes

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Higher indifference curves are preferred to lower ones as long as the

Correct AnswerverifiedShow Answer

A way to describe the consumer's optimum other than "the marginal rate of substitution for two goods is equal to their relative price ratio",is

Correct AnswerverifiedShow Answer

The income effect of a price change is depicted by

Correct AnswerverifiedShow Answer

Explain the difference between inferior and normal goods.As a developing economy experiences increases in income (measured by GDP)what would you predict to happen to demand for inferior goods?

Correct AnswerverifiedNormal goods are those in which consumpt...View AnswerShow Answer

Figure 21-9 -Refer to Figure 21-9.Assume that the consumer depicted in the figure has an income of $100 and currently optimizes at point A.When the price of marshmallows decreases to $5,which point will the optimizing consumer choose?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A Giffen good is one in which the quantity demanded rises as the price rises because the income effect

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As one moves down a typical indifference curve,the marginal rate of substitution

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a. The price of good Y is relatively hig...
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Normal goods are those in which consumpt...
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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