Question 1

An indifference curve illustrates

Accepted Answer

A)   a firm's profits.
B)   a consumer's budget.
C)   a consumer's preferences.
D)   the prices of two goods.E) C) and D)
F) B) and C)

Question 2

Shelley wins $1 million in her state's lottery.If Shelley keeps working after she wins the money,we can infer that the substitution effect must exactly offset the income effect for her.

Accepted Answer

A) True 
 B)False

Question 3

Suppose Reta is planning for retirement in a two-period world.In the first period Reta is young and earns $1 million,and in the second period Reta is old and retired and earns nothing.The interest rate is initially 10 percent,but then it falls to 7 percent.After the interest rate falls,the

Accepted Answer

A)   substitution effect will induce Reta to consume more when she is young.
B)   substitution effect will induce Reta to consume less when she is young.
C)   income effect will induce Reta to consume more when she is young.
D)   change in interest rates affects the substitution effect but not the income effect.E) A) and C)
F) B) and C)

Question 4

Which of the following is an example of a Giffen good?

Accepted Answer

A)   potatoes during the Irish potato famine
B)   rice in the Chinese province of Hunan
C)   fish in Japan
D)   Both a and b are correct.E) B) and C)
F) All of the above

Question 5

Violations of the law of demand are assumed to occur

Accepted Answer

A)   regularly.
B)   only when goods are Giffen goods.
C)   only when the substitution effect dominates the income effect.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 6

Jake experiences an increase in his wages.The hours of labor that he supplies to the market would decrease if

Accepted Answer

A)   the income effect is larger than the substitution effect.
B)   the substitution effect is larger than the income effect.
C)   neither the income effect nor the substitution effect apply to Harry's labor-leisure tradeoff.
D)   Jake views both labor and leisure as inferior goods.E) B) and C)
F) A) and B)

Question 7

Figure 21-5

-Refer to Figure 21-5.In graph (b) ,if income is equal to $420,the price of good X is

Accepted Answer

A)   $1.
B)   $3.
C)   $10.
D)   $30.E) C) and D)
F) A) and B)

Question 8

Figure 21-13
 
-Refer to Figure 21-13.What is the consumer's marginal rate of substitution as she moves from B to C?

Accepted Answer

A)   4
B)   2
C)   1
D)   0.5E) All of the above
F) B) and C)

Question 9

The marginal rate of substitution between goods A and B measures the price of A relative to the price of B.

Accepted Answer

A) True 
 B)False

Question 10

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Accepted Answer

A) True 
 B)False

Question 11

The direction of the substitution effect is not influenced by whether the good is normal or inferior.

Accepted Answer

A) True 
 B)False

Question 12

Figure 21-11
 
-Refer to Figure 21-11.As the consumer moves from point A to B to C to D,the consumer's total utility

Accepted Answer

A)   remains constant.
B)   increases.
C)   decreases.
D)   first increases, then decreases.E) All of the above
F) A) and D)

Question 13

If leisure were an inferior good,then labor supply curves

Accepted Answer

A)   would all be negatively sloped.
B)   would all be positively sloped.
C)   would all be vertical.
D)   could still be positively or negatively sloped.E) None of the above
F) A) and B)

Question 14

A consumer is currently spending all of her available income on two goods: music CDs and DVDs.At her current consumption bundle,she is spending twice as much on CDs as she is on DVDs.If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs,what is the price of a DVD?

Accepted Answer

A)   $4
B)   $8
C)   $12
D)   $20E) B) and D)
F) All of the above

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 21-16
 
-Refer to Figure 21-16.When the price of X is $40,the price of Y is $40,and income is $160,Steve's optimal choice is point B.Then Steve's income increases to $320,and his optimal choice is point E.For Steve,

Accepted Answer

A)   good X is a normal good, and good Y is an inferior good.
B)   good X is an inferior good, and good Y is a normal good.
C)   both good X and good Y are normal goods.
D)   good Y is a normal good; good X is neither a normal nor an inferior good.E) A) and B)
F) A) and C)

Question 17

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.

-Refer to Figure 21-3.Which of the graphs in the figure reflects an increase in the price of good Y only?

Accepted Answer

A)   graph a
B)   graph b
C)   graph c
D)   graph dE) A) and D)
F) B) and C)

Question 18

Assume that a college student purchases only Ramen noodles and textbooks.If Ramen noodles are an inferior good and textbooks are a normal good,then the substitution effect associated with a decrease in the price of a textbook,by itself,will result in

Accepted Answer

A)   a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
B)   a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles.
C)   an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles.
D)   an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.E) A) and C)
F) None of the above

Question 19

Suppose a consumer consumes two goods,X and Y.The relative price of the two goods equals the

Accepted Answer

A)   marginal rate of substitution.
B)   rate at which the consumer will give up X to gain Y while maintaining the same level of utility.
C)   slope of the budget constraint.
D)   All of the above are correct.E) All of the above
F) A) and D)

Question 20

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.Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis.What is the slope of this budget constraint?

Accepted Answer

A)   -0.75
B)   -1.00
C)   -1.25
D)   -2.25E) A) and B)
F) B) and D)

Exam 21: The Theory of Consumer Choice.

Jake experiences an increase in his wages.The hours of labor that he supplies to the market would decrease if

Correct Answer
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An indifference curve illustrates

Correct Answer
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If leisure were an inferior good,then labor supply curves

Correct Answer
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Which of the following is an example of a Giffen good?

Correct Answer
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Assume that a college student purchases only Ramen noodles and textbooks.If Ramen noodles are an inferior good and textbooks are a normal good,then the substitution effect associated with a decrease in the price of a textbook,by itself,will result in

Correct Answer
verified

Suppose Reta is planning for retirement in a two-period world.In the first period Reta is young and earns $1 million,and in the second period Reta is old and retired and earns nothing.The interest rate is initially 10 percent,but then it falls to 7 percent.After the interest rate falls,the

Correct Answer
verified

A consumer is currently spending all of her available income on two goods: music CDs and DVDs.At her current consumption bundle,she is spending twice as much on CDs as she is on DVDs.If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs,what is the price of a DVD?

Correct Answer
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Figure 21-13 -Refer to Figure 21-13.What is the consumer's marginal rate of substitution as she moves from B to C?

Correct Answer
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Figure 21-11 -Refer to Figure 21-11.As the consumer moves from point A to B to C to D,the consumer's total utility

Correct Answer
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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."

Correct Answer
verified
All people face scarcity of re...
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Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3.Which of the graphs in the figure reflects an increase in the price of good Y only?

Correct Answer
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Suppose a consumer consumes two goods,X and Y.The relative price of the two goods equals the

Correct Answer
verified

Figure 21-16 -Refer to Figure 21-16.When the price of X is $40,the price of Y is $40,and income is $160,Steve's optimal choice is point B.Then Steve's income increases to $320,and his optimal choice is point E.For Steve,

Correct Answer
verified

Figure 21-5 -Refer to Figure 21-5.In graph (b) ,if income is equal to $420,the price of good X is

Correct Answer
verified

Violations of the law of demand are assumed to occur

Correct Answer
verified

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Correct Answer
verified

Shelley wins $1 million in her state's lottery.If Shelley keeps working after she wins the money,we can infer that the substitution effect must exactly offset the income effect for her.

Correct Answer
verified

Correct Answer
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The marginal rate of substitution between goods A and B measures the price of A relative to the price of B.

Correct Answer
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The direction of the substitution effect is not influenced by whether the good is normal or inferior.

Correct Answer
verified

Exam 21: The Theory of Consumer Choice.

Jake experiences an increase in his wages.The hours of labor that he supplies to the market would decrease if

Correct AnswerverifiedShow Answer

An indifference curve illustrates

Correct AnswerverifiedShow Answer

If leisure were an inferior good,then labor supply curves

Correct AnswerverifiedShow Answer

Which of the following is an example of a Giffen good?

Correct AnswerverifiedShow Answer

Assume that a college student purchases only Ramen noodles and textbooks.If Ramen noodles are an inferior good and textbooks are a normal good,then the substitution effect associated with a decrease in the price of a textbook,by itself,will result in

Correct AnswerverifiedShow Answer

Suppose Reta is planning for retirement in a two-period world.In the first period Reta is young and earns $1 million,and in the second period Reta is old and retired and earns nothing.The interest rate is initially 10 percent,but then it falls to 7 percent.After the interest rate falls,the

Correct AnswerverifiedShow Answer

A consumer is currently spending all of her available income on two goods: music CDs and DVDs.At her current consumption bundle,she is spending twice as much on CDs as she is on DVDs.If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs,what is the price of a DVD?

Correct AnswerverifiedShow Answer

Figure 21-13 -Refer to Figure 21-13.What is the consumer's marginal rate of substitution as she moves from B to C?

Correct AnswerverifiedShow Answer

Figure 21-11 -Refer to Figure 21-11.As the consumer moves from point A to B to C to D,the consumer's total utility

Correct AnswerverifiedShow Answer

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."

Correct AnswerverifiedAll people face scarcity of re...View AnswerShow Answer

Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3.Which of the graphs in the figure reflects an increase in the price of good Y only?

Correct AnswerverifiedShow Answer

Suppose a consumer consumes two goods,X and Y.The relative price of the two goods equals the

Correct AnswerverifiedShow Answer

Figure 21-16 -Refer to Figure 21-16.When the price of X is $40,the price of Y is $40,and income is $160,Steve's optimal choice is point B.Then Steve's income increases to $320,and his optimal choice is point E.For Steve,

Correct AnswerverifiedShow Answer

Figure 21-5 -Refer to Figure 21-5.In graph (b) ,if income is equal to $420,the price of good X is

Correct AnswerverifiedShow Answer

Violations of the law of demand are assumed to occur

Correct AnswerverifiedShow Answer

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Correct AnswerverifiedShow Answer

Shelley wins $1 million in her state's lottery.If Shelley keeps working after she wins the money,we can infer that the substitution effect must exactly offset the income effect for her.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The marginal rate of substitution between goods A and B measures the price of A relative to the price of B.

Correct AnswerverifiedShow Answer

The direction of the substitution effect is not influenced by whether the good is normal or inferior.

Correct AnswerverifiedShow Answer

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All people face scarcity of re...
View Answer

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