Question 1

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 labor­leisure tradeoff.
D)   Jake views both labor and leisure as inferior goods.E) A) and C)
F) A) and D)

Question 2

For Meg, the substitution effect of an interest-rate increase is stronger than the income effect. In response to a higher interest rate, will Meg save more or will she save less?

Accepted Answer

In response to a hig...

Question 3

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

Accepted Answer

A)   A.
B)   B.
C)   D.
D)   E.E) A) and B)
F) All of the above

Question 4

Figure 21-18  Py/Px. B)  MRSxy = Px/Py. C)  MRSxy  Px/Py." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-18. Bundle B represents a point where

Accepted Answer

A)   MRSxy > Py/Px.
B)   MRSxy = Px/Py.
C)   MRSxy 
D)   MRSxy > Px/Py.E) B) and C)
F) B) and D)

Question 5

When a consumer spends less time enjoying leisure and more time working, she has

Accepted Answer

A)   lower income and therefore cannot afford more consumption.
B)   lower income and therefore can afford more consumption.
C)   higher income and therefore cannot afford more consumption.
D)   higher income and therefore can afford more consumption.E) B) and C)
F) None of the above

Question 6

Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save

Accepted Answer

A)   less in the current period if the substitution effect is greater than the income effect.
B)   less in the current period if the income effect is greater than the substitution effect.
C)   more in the current period if the substitution effect is greater than the income effect.
D)   more in the current period, regardless of the sizes of the income and substitution effects.E) B) and C)
F) None of the above

Question 7

If a good is a Giffen good, then

Accepted Answer

A)   the supply curve is downward sloping.
B)   the demand curve is upward sloping.
C)   the demand curve is horizontal.
D)   there is no optimal level of consumption for the consumer.E) A) and B)
F) B) and C)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: 
-Refer to Figure 21-20. Assume that the consumer has an income of $40, the price of a bag of marshmallows is $2, and the price of a bag of chocolate chips is $2. The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?

Accepted Answer

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

Question 10

Which of the following examples would illustrate a backward-sloping labor supply-curve?

Accepted Answer

A)   An increase in a person's wages results in the person working fewer hours per week.
B)   A decrease in a person's wages results in the person working more hours per week.
C)   An increase in a person's wages results in the person working more hours per week.
D)   Both a and b are correct.E) A) and D)
F) None of the above

Question 11

Consumer theory provides the foundation for understanding demand curves because

Accepted Answer

A)   each point on a demand curve represents an optimal choice point.
B)   consumers purchase more inferior goods than normal goods.
C)   increases in income cause the budget constraint to rotate inward along one axis, which changes the consumer's purchases.
D)   increases in income cause the budget constraint to rotate outward along one axis, which changes the consumer's purchases.E) All of the above
F) A) and D)

Question 12

The goal of the consumer is to

Accepted Answer

A)   maximize utility.
B)   be on the highest indifference curve.
C)   maximize satisfaction.
D)   All of the above are the goals of the consumer.E) None of the above
F) A) and B)

Question 13

The following diagram shows a budget constraint for a particular consumer.  If the price of X is $20, then what is the price of Y?

Accepted Answer

A)   $15
B)   $25
C)   $35
D)   $70E) A) and B)
F) A) and C)

Question 14

The theory of consumer choice is representative of how consumers make decisions but is not intended to be a literal account of the process.

Accepted Answer

A) True 
 B)False

Question 15

Suppose a consumer has an income of $800 per month and that she spends her entire income each month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4. Which of the following combinations of beers and bratwursts represents a point that would lie directly on the consumer's budget constraint?

Accepted Answer

A)   160 beers and 200 bratwursts
B)   40 beers and 50 bratwursts
C)   80 beers and 100 bratwursts
D)   80 beers and 0 bratwurstsE) A) and B)
F) A) and C)

Question 16

The income effect of a price change is unaffected by whether the good is a normal or inferior good.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Pete consumes two goods, rice and fish. When the price of fish rises, he consumes less fish. When the price of rice rises, he consumes more rice. For Pete,

Accepted Answer

A)   fish is not a Giffen good but rice is.
B)   rice is not a Giffen good but fish is.
C)   both fish and rice are normal goods.
D)   both fish and rice are Giffen goods.E) A) and C)
F) All of the above

Question 19

A Giffen good is a good for which

Accepted Answer

A)   a decrease in the price decreases the quantity demanded.
B)   the substitution effect outweighs the income effect.
C)   an increase in the price decreases the quantity demanded.
D)   Both a)  and b)  are correct.E) None of the above
F) B) and D)

Question 20

An increase in a consumer's income

Accepted Answer

A)   increases the slope of the consumer's budget constraint.
B)   has no effect on the slope of the consumer's budget constraint.
C)   decreases the slope of the consumer's budget constraint.
D)   has no effect on the consumer's budget constraint.E) C) and D)
F) All of the above

Exam 21: The Theory of Consumer Choice

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

Correct Answer
verified

A Giffen good is a good for which

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

Figure 21-18 -Refer to Figure 21-18. Bundle B represents a point where

Correct Answer
verified

Consumer theory provides the foundation for understanding demand curves because

Correct Answer
verified

The theory of consumer choice is representative of how consumers make decisions but is not intended to be a literal account of the process.

Correct Answer
verified

If a good is a Giffen good, then

Correct Answer
verified

For Meg, the substitution effect of an interest-rate increase is stronger than the income effect. In response to a higher interest rate, will Meg save more or will she save less?

Correct Answer
verified
In response to a hig...
View Answer

Correct Answer
verified

Which of the following examples would illustrate a backward-sloping labor supply-curve?

Correct Answer
verified

The following diagram shows a budget constraint for a particular consumer. If the price of X is $20, then what is the price of Y?

Correct Answer
verified

The goal of the consumer is to

Correct Answer
verified

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

Correct Answer
verified

The income effect of a price change is unaffected by whether the good is a normal or inferior good.

Correct Answer
verified

Pete consumes two goods, rice and fish. When the price of fish rises, he consumes less fish. When the price of rice rises, he consumes more rice. For Pete,

Correct Answer
verified

Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save

Correct Answer
verified

When a consumer spends less time enjoying leisure and more time working, she has

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

An increase in a consumer's income

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

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

Correct AnswerverifiedShow Answer

A Giffen good is a good for which

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

Figure 21-18 -Refer to Figure 21-18. Bundle B represents a point where

Correct AnswerverifiedShow Answer

Consumer theory provides the foundation for understanding demand curves because

Correct AnswerverifiedShow Answer

The theory of consumer choice is representative of how consumers make decisions but is not intended to be a literal account of the process.

Correct AnswerverifiedShow Answer

If a good is a Giffen good, then

Correct AnswerverifiedShow Answer

For Meg, the substitution effect of an interest-rate increase is stronger than the income effect. In response to a higher interest rate, will Meg save more or will she save less?

Correct AnswerverifiedIn response to a hig...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following examples would illustrate a backward-sloping labor supply-curve?

Correct AnswerverifiedShow Answer

The following diagram shows a budget constraint for a particular consumer. If the price of X is $20, then what is the price of Y?

Correct AnswerverifiedShow Answer

The goal of the consumer is to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The income effect of a price change is unaffected by whether the good is a normal or inferior good.

Correct AnswerverifiedShow Answer

Pete consumes two goods, rice and fish. When the price of fish rises, he consumes less fish. When the price of rice rises, he consumes more rice. For Pete,

Correct AnswerverifiedShow Answer

Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save

Correct AnswerverifiedShow Answer

When a consumer spends less time enjoying leisure and more time working, she has

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in a consumer's income

Correct AnswerverifiedShow Answer

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In response to a hig...
View Answer

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