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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.

A) True
B) False

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If an increase in the interest rate lowers savings, then


A) the substitution effect is greater than the income effect.
B) the income effect is greater than the substitution effect.
C) the income effect and the substitution effect move in the same direction.
D) we are unable to determine the sizes of the income and substitution effects without more information.

E) B) and C)
F) A) and D)

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

A) True
B) False

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If the price of bread is zero and the price of cheese is positive, then the budget constraint between bread (on the horizontal axis) and cheese (on the vertical axis) would


A) be vertical.
B) coincide with the vertical axis.
C) coincide with the horizontal axis.
D) be horizontal.

E) B) and C)
F) None of the above

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D

All Giffen goods are


A) inferior goods, and all inferior goods are Giffen goods.
B) inferior goods, but not all inferior goods are Giffen goods.
C) normal goods, but not all normal goods are Giffen goods.
D) normal goods, and all normal goods are Giffen goods.

E) All of the above
F) C) and D)

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If a consumer purchases more of good X and good Y after her income increases, then neither good X nor good Y is an inferior good for her.

A) True
B) False

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Thomas faces prices of $6 for a unit of good X and $30 for a unit of good Y. At his optimum, Thomas is willing to give up 1 unit of good Y for units of good X.

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A family on a trip budgets $800 for meals and gasoline. If the price of a meal for the family is $50, how many meals can the family buy if they do not buy any gasoline?


A) 8
B) 16
C) 24
D) 32

E) A) and C)
F) A) and B)

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B

Figure 21-8 Figure 21-8 -Refer to Figure 21-8. You have $600 to spend on good X and good Y. If good X costs $100 and good Y costs $100, your budget constraint is A) AB. B) BC. C) CD. D) DE. -Refer to Figure 21-8. You have $600 to spend on good X and good Y. If good X costs $100 and good Y costs $100, your budget constraint is


A) AB.
B) BC.
C) CD.
D) DE.

E) A) and B)
F) A) and C)

Correct Answer

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Figure 21-7 Figure 21-7 -Refer to Figure 21-7. Suppose a consumer has $200 in income, the price of a book is $5, and the price of a DVD is $10. What is the value of A? A) 40 B) 20 C) 10 D) 2 -Refer to Figure 21-7. Suppose a consumer has $200 in income, the price of a book is $5, and the price of a DVD is $10. What is the value of A?


A) 40
B) 20
C) 10
D) 2

E) B) and C)
F) A) and B)

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

A) True
B) False

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True

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. If you save all your money, how much money will you have one year from today?


A) $100
B) $125
C) $200
D) $225

E) A) and C)
F) None of the above

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When a consumer experiences a price increase for an inferior good, if the income effect is


A) greater than the substitution effect, the demand curve will be downward sloping.
B) greater than the substitution effect, the demand curve will be upward sloping.
C) less than the substitution effect, the demand curve will be upward sloping.
D) less than the substitution effect but the substitution effect is positive, the demand curve will be upward sloping.

E) C) and D)
F) None of the above

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The substitution effect of a wage decrease in the work-leisure model results in the worker choosing to


A) work less than before.
B) work more than before.
C) possibly work more or less than before.
D) work more with a higher level of consumption.

E) B) and D)
F) B) and C)

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If the relative price of a concert ticket is three times the price of a meal at a good restaurant, then the opportunity cost of a concert ticket can be measured by the


A) slope of the budget constraint.
B) slope of an indifference curve.
C) marginal rate of substitution.
D) income effect.

E) A) and B)
F) All of the above

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The indifference curves for nickels and dimes are straight lines.

A) True
B) False

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Which of the following statements is correct?


A) The theory of consumer choice provides a more complete understanding of supply, just as the theory of the competitive firm provides a more complete understanding of demand.
B) The theory of consumer choice provides a more complete understanding of demand, just as the theory of the competitive firm provides a more complete understanding of supply.
C) Monetary theory provides a more complete understanding of demand, just as the theory of the competitive firm provides a more complete understanding of supply.
D) The theory of public choice provides a more complete understanding of supply, just as the theory of the competitive firm provides a more complete understanding of demand.

E) B) and C)
F) None of the above

Correct Answer

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Figure 21-17 Figure 21-17 -Refer to Figure 21-17. When the price of X is $6, the price of Y is $24, and income is $48, Paul's optimal choice is point C. Then the price of Y decreases to $8. Paul's new optimal choice is point A) A. B) B. C) D. D) E. -Refer to Figure 21-17. When the price of X is $6, the price of Y is $24, and income is $48, Paul's optimal choice is point C. Then the price of Y decreases to $8. Paul's new optimal choice is point


A) A.
B) B.
C) D.
D) E.

E) All of the above
F) B) and C)

Correct Answer

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

A) True
B) False

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


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

E) B) and D)
F) All of the above

Correct Answer

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Showing 1 - 20 of 440

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