Question 1

Which of the following is not a property of a typical indifference curve?

Accepted Answer

A)   downward sloping
B)   bowed away from the origin
C)   do not intersect
D)   higher ones are preferred to lower onesE) All of the above
F) A) and C)

Question 2

A consumer who doesn't spend all of her income

Accepted Answer

A)   would be at a point outside of her budget constraint.
B)   would be at a point inside her budget constraint.
C)   must not be consuming positive quantities of all goods.
D)   must be consuming at a point where her budget constraint touches one of the axes.E) A) and B)
F) A) and C)

Question 3

Economic theory predicts that an increase in wages

Accepted Answer

A)   will cause a wage earner to work more.
B)   will cause a wage earner to work less.
C)   will cause a wage earner to be more productive.
D)   might cause a wage earner to work more or work less.E) B) and D)
F) A) and B)

Question 4

Figure 21-2 
-Refer to Figure 21-2.Which of the following statements is not correct?

Accepted Answer

A)   Points W,X,and Y all cost the consumer the same amount of money.
B)   Point Z is unaffordable for the consumer given his budget constraint.
C)   Point V costs less than point Z.
D)   Points W,X,and Y give the consumer the same level of satisfaction.E) None of the above
F) All of the above

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Figure 21-7 
-Refer to Figure 21-7.Which of the following statements is not true for a consumer who moves from bundle B to bundle C?

Accepted Answer

A)   At bundle C the consumer would be willing to give up a larger amount of cake in exchange for a donut than at bundle B.
B)   The marginal rate of substitution at bundles B and C are the same since the points lie on the same indifference curve.
C)   The consumer is willing to sacrifice donuts to obtain cake.
D)   The consumer receives the same level of satisfaction at bundles B and C.E) All of the above
F) A) and D)

Question 7

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 8

If consumers purchase more of a good when their income rises,the good is a normal good.

Accepted Answer

A) True 
 B)False

Question 9

If income decreases and prices are unchanged,the consumer's budget constraint

Accepted Answer

A)   remains the same.
B)   shifts outward.
C)   shifts inward.
D)   rotates outward along the horizontal axis.E) B) and C)
F) A) and B)

Question 10

Katie wins $1 million in her state's lottery.If Katie drastically reduces the number of hours she works after she wins the money,we can infer that the income effect is larger than the substitution effect for her.

Accepted Answer

A) True 
 B)False

Question 11

How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving?

Accepted Answer

A)   They all relate to macroeconomics.
B)   They all relate to monetary economics.
C)   They all relate to the theory of consumer choice.
D)   They are not related to each other in any way.E) A) and C)
F) All of the above

Question 12

Good X is an inferior good but not 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.E) B) and C)
F) C) and D)

Question 13

Irene is a vegetarian,so she does not eat pork.That is,pork provides no additional utility to Irene.She loves broccoli,however.If we illustrate Irene's indifference curves by drawing broccoli on the horizontal axis and pork on the vertical axis,her indifference curves will

Accepted Answer

A)   slope downward.
B)   be vertical straight lines.
C)   slope upward.
D)   be horizontal straight lines.E) None of the above
F) C) and D)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

When considering household saving,the relative price between consuming when young and consuming when old is the

Accepted Answer

A)   consumption rate.
B)   interest rate that individuals can earn on their private savings.
C)   prime rate.
D)   federal funds rate.E) B) and C)
F) A) and C)

Question 16

A normal good is one in which

Accepted Answer

A)   the average consumer chooses to consume at a normal level.
B)   the average consumer chooses to consume the good over other similar goods.
C)   an increase in income increases consumption of the good.
D)   an increase in income decreases consumption of the good.E) B) and C)
F) A) and D)

Question 17

A consumer has preferences over two goods: books and movies.The two bundles shown in the table below lie on the same indifference curve for the consumer.

Which of the following bundles could not lie on the same indifference curve with A and B and satisfy the four properties of indifference curves?

Accepted Answer

A)   1 movie and 5 books
B)   3 movies and 3 books
C)   5 movies and 1 book
D)   1 movie and 7 booksE) B) and D)
F) A) and B)

Question 18

If the consumer's income and all prices simultaneously double,then the optimum consumption bundle will

Accepted Answer

A)   shift outward relative to the old optimum.
B)   move leftward along the old budget constraint.
C)   not change.
D)   shift inward relative to the old optimum.E) A) and B)
F) C) and D)

Question 19

In the work-leisure model,suppose consumption and leisure are both normal goods.The income effect of a wage increase results in the worker choosing to

Accepted Answer

A)   work less than before.
B)   work more than before.
C)   possibly work more or less than before.
D)   work more than before with a higher level of consumption.E) None of the above
F) A) and C)

Question 20

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%? The slope

Accepted Answer

A)   becomes steeper.
B)   becomes flatter.
C)   doesn't change because the budget constraint shifts in parallel to the original budget constraint.
D)   doesn't change because the budget constraint shifts out parallel to the original budget constraint.E) A) and B)
F) A) and C)

Exam 21: The Theory of Consumer Choice

If the consumer's income and all prices simultaneously double,then the optimum consumption bundle will

Correct Answer
verified

Economic theory predicts that an increase in wages

Correct Answer
verified

Good X is an inferior good but not a Giffen good.When the price of X increases,the consumer will consume

Correct Answer
verified

A consumer who doesn't spend all of her income

Correct Answer
verified

A normal good is one in which

Correct Answer
verified

Irene is a vegetarian,so she does not eat pork.That is,pork provides no additional utility to Irene.She loves broccoli,however.If we illustrate Irene's indifference curves by drawing broccoli on the horizontal axis and pork on the vertical axis,her indifference curves will

Correct Answer
verified

How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving?

Correct Answer
verified

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

Correct Answer
verified

If income decreases and prices are unchanged,the consumer's budget constraint

Correct Answer
verified

A consumer has preferences over two goods: books and movies.The two bundles shown in the table below lie on the same indifference curve for the consumer. Which of the following bundles could not lie on the same indifference curve with A and B and satisfy the four properties of indifference curves?

Correct Answer
verified

In the work-leisure model,suppose consumption and leisure are both normal goods.The income effect of a wage increase results in the worker choosing to

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Katie wins $1 million in her state's lottery.If Katie drastically reduces the number of hours she works after she wins the money,we can infer that the income effect is larger than the substitution effect for her.

Correct Answer
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Correct Answer
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Which of the following is not a property of a typical indifference curve?

Correct Answer
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Figure 21-2 -Refer to Figure 21-2.Which of the following statements is not correct?

Correct Answer
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When considering household saving,the relative price between consuming when young and consuming when old is the

Correct Answer
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Figure 21-7 -Refer to Figure 21-7.Which of the following statements is not true for a consumer who moves from bundle B to bundle C?

Correct Answer
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If consumers purchase more of a good when their income rises,the good is a normal good.

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

If the consumer's income and all prices simultaneously double,then the optimum consumption bundle will

Correct AnswerverifiedShow Answer

Economic theory predicts that an increase in wages

Correct AnswerverifiedShow Answer

Good X is an inferior good but not a Giffen good.When the price of X increases,the consumer will consume

Correct AnswerverifiedShow Answer

A consumer who doesn't spend all of her income

Correct AnswerverifiedShow Answer

A normal good is one in which

Correct AnswerverifiedShow Answer

Irene is a vegetarian,so she does not eat pork.That is,pork provides no additional utility to Irene.She loves broccoli,however.If we illustrate Irene's indifference curves by drawing broccoli on the horizontal axis and pork on the vertical axis,her indifference curves will

Correct AnswerverifiedShow Answer

How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If income decreases and prices are unchanged,the consumer's budget constraint

Correct AnswerverifiedShow Answer

A consumer has preferences over two goods: books and movies.The two bundles shown in the table below lie on the same indifference curve for the consumer. Which of the following bundles could not lie on the same indifference curve with A and B and satisfy the four properties of indifference curves?

Correct AnswerverifiedShow Answer

In the work-leisure model,suppose consumption and leisure are both normal goods.The income effect of a wage increase results in the worker choosing to

Correct AnswerverifiedShow Answer

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

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

Katie wins $1 million in her state's lottery.If Katie drastically reduces the number of hours she works after she wins the money,we can infer that the income effect is larger than the substitution effect for her.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not a property of a typical indifference curve?

Correct AnswerverifiedShow Answer

Figure 21-2 -Refer to Figure 21-2.Which of the following statements is not correct?

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When considering household saving,the relative price between consuming when young and consuming when old is the

Correct AnswerverifiedShow Answer

Figure 21-7 -Refer to Figure 21-7.Which of the following statements is not true for a consumer who moves from bundle B to bundle C?

Correct AnswerverifiedShow Answer

If consumers purchase more of a good when their income rises,the good is a normal good.

Correct AnswerverifiedShow Answer

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