Question 1

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

Question 2

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) None of the above
F) B) and D)

Question 3

Mark 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 Mark's income has stayed fixed at $46 per week.Since the price changes,Mark 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

Accepted Answer

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

Question 4

You can think of an indifference curve as an

Accepted Answer

A)   equal-cost curve.
B)   equal-marginal-cost curve.
C)   equal-utility curve.
D)   equal-marginal-utility curve.E) All of the above
F) B) and C)

Question 5

Figure 21-14   
-Refer to Figure 21-14.Which of the graphs shown represent indifference curves for perfect complements?

Accepted Answer

A)   graph a
B)   graph b
C)   graph c
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 6

The goal of the consumer is to

Accepted Answer

A)   maximize utility.
B)   minimize expenses.
C)   spend more income in the current time period than in the future.
D)   All of the above are the goals of the consumer.E) A) and C)
F) A) and B)

Question 7

A rational person can have a negatively-sloped labor supply curve.

Accepted Answer

A) True 
 B)False

Question 8

Andi uses all of her income to purchase books and games.At any two points A and B on Andi's budget constraint,

Accepted Answer

A)   Andi is spending all of her income on books and games.
B)   Andi is spending one half of her income on books and the other half of her income on games.
C)   the price of books relative to the price of games is different.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 9

Answer the following questions based on the table.A consumer is able to consume the following bundles of rice and beans when the price of rice is $2 and the price of beans is $3.

a.How much is this consumer's income?
b.Draw a budget constraint given this information.Label it B.
c.Construct a new budget constraint showing the change if the price of rice falls $1.Label this C.
d.Given the original prices for rice ($2)and beans ($3),construct a new budget constraint if this consumer's income increased to $48.Label this D.

Accepted Answer

The answer of Answer the following questions based on the...

Question 10

Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal rate of substitution?

Accepted Answer

A)   the budget effect
B)   the preference effect
C)   the substitution effect
D)   the income effectE) None of the above
F) B) and C)

Question 11

The substitution effect of an increase in the interest rate will result in an increase in

Accepted Answer

A)   consumption when young and increase in savings when young.
B)   consumption when old and an increase in savings when young.
C)   consumption when young and an increase in savings when old.
D)   savings when old and an increase in consumption when old.E) A) and D)
F) All of the above

Question 12

Figure 21-8 
-Refer to Figure 21-8.You have $300 to spend on good X and good Y.If good X costs $30 and good Y costs $50,your budget constraint is

Accepted Answer

A)   AB.
B)   BC.
C)   CD.
D)   DE.E) B) and D)
F) A) and B)

Question 13

The opportunity cost of current household consumption is the

Accepted Answer

A)   wage rate.
B)   market interest rate.
C)   price of the goods consumed.
D)   explicit cost of consumption.E) B) and D)
F) C) and D)

Question 14

Indifference curves that cross would suggest that

Accepted Answer

A)   the consumer does not prefer more to less.
B)   the consumer is likely to prefer a redistribution of income from rich to poor.
C)   different individuals have different preferences for the same goods.
D)   the marginal rate of substitution is the same for both indifference curves.E) B) and D)
F) B) and C)

Question 15

Figure 21-15 
-Refer to Figure 21-15.The price of X is $20,the price of Y is $5,and the consumer's income is $40.Which point represents the consumer's optimal choice?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) A) and D)
F) All of the above

Question 16

A budget constraint illustrates the

Accepted Answer

A)   prices that a consumer chooses to pay for products he consumes.
B)   purchases made by consumers.
C)   consumption bundles that a consumer can afford.
D)   consumption bundles that give a consumer equal satisfaction.E) B) and D)
F) A) and B)

Question 17

Giffen goods have positively-sloped demand curves because they are

Accepted Answer

A)   normal goods for which the income effect outweighs the substitution effect.
B)   normal goods for which the substitution effect outweighs the income effect.
C)   inferior goods for which the income effect outweighs the substitution effect.
D)   inferior goods for which the substitution effect outweighs the income effect.E) C) and D)
F) B) and C)

Question 18

Figure 21-1 
-Refer to Figure 21-1.Which point in the figure showing a consumer's budget constraint represents the consumer's income divided by the price of a CD?

Accepted Answer

A)   point A
B)   point C
C)   point D
D)   point EE) B) and C)
F) A) and D)

Question 19

If we observe that a consumer's budget constraint has shifted inward,we can assume that the consumer will buy

Accepted Answer

A)   fewer normal goods and more inferior goods.
B)   more normal goods and fewer inferior goods.
C)   more normal goods and more inferior goods.
D)   fewer normal goods and fewer inferior goods.E) None of the above
F) C) and D)

Question 20

Suppose that Elmer's hourly wage increases,and he decides to work fewer hours.For Elmer,the substitution effect of the wage change is

Accepted Answer

A)   only partially offset by the income effect.
B)   more than offset by the income effect.
C)   exactly offset by the income effect.
D)   We do not have enough information with which to answer the question.E) B) and D)
F) All of the above

Exam 21: The Theory of Consumer Choice

Indifference curves that cross would suggest that

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

Correct Answer
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A rational person can have a negatively-sloped labor supply curve.

Correct Answer
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Andi uses all of her income to purchase books and games.At any two points A and B on Andi's budget constraint,

Correct Answer
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Figure 21-15 -Refer to Figure 21-15.The price of X is $20,the price of Y is $5,and the consumer's income is $40.Which point represents the consumer's optimal choice?

Correct Answer
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You can think of an indifference curve as an

Correct Answer
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The substitution effect of an increase in the interest rate will result in an increase in

Correct Answer
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Figure 21-8 -Refer to Figure 21-8.You have $300 to spend on good X and good Y.If good X costs $30 and good Y costs $50,your budget constraint is

Correct Answer
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The goal of the consumer is to

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

Correct Answer
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Suppose that Elmer's hourly wage increases,and he decides to work fewer hours.For Elmer,the substitution effect of the wage change is

Correct Answer
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The opportunity cost of current household consumption is the

Correct Answer
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If we observe that a consumer's budget constraint has shifted inward,we can assume that the consumer will buy

Correct Answer
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Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal rate of substitution?

Correct Answer
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Figure 21-14 -Refer to Figure 21-14.Which of the graphs shown represent indifference curves for perfect complements?

Correct Answer
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Correct Answer
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A budget constraint illustrates the

Correct Answer
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Figure 21-1 -Refer to Figure 21-1.Which point in the figure showing a consumer's budget constraint represents the consumer's income divided by the price of a CD?

Correct Answer
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Giffen goods have positively-sloped demand curves because they are

Correct Answer
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Exam 21: The Theory of Consumer Choice

Indifference curves that cross would suggest that

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 rational person can have a negatively-sloped labor supply curve.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Andi uses all of her income to purchase books and games.At any two points A and B on Andi's budget constraint,

Correct AnswerverifiedShow Answer

Figure 21-15 -Refer to Figure 21-15.The price of X is $20,the price of Y is $5,and the consumer's income is $40.Which point represents the consumer's optimal choice?

Correct AnswerverifiedShow Answer

You can think of an indifference curve as an

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The substitution effect of an increase in the interest rate will result in an increase in

Correct AnswerverifiedShow Answer

Figure 21-8 -Refer to Figure 21-8.You have $300 to spend on good X and good Y.If good X costs $30 and good Y costs $50,your budget constraint is

Correct AnswerverifiedShow Answer

The goal of the consumer is to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that Elmer's hourly wage increases,and he decides to work fewer hours.For Elmer,the substitution effect of the wage change is

Correct AnswerverifiedShow Answer

The opportunity cost of current household consumption is the

Correct AnswerverifiedShow Answer

If we observe that a consumer's budget constraint has shifted inward,we can assume that the consumer will buy

Correct AnswerverifiedShow Answer

Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal rate of substitution?

Correct AnswerverifiedShow Answer

Figure 21-14 -Refer to Figure 21-14.Which of the graphs shown represent indifference curves for perfect complements?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A budget constraint illustrates the

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Figure 21-1 -Refer to Figure 21-1.Which point in the figure showing a consumer's budget constraint represents the consumer's income divided by the price of a CD?

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Giffen goods have positively-sloped demand curves because they are

Correct AnswerverifiedShow Answer

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