Question 1

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) B) and D)
F) A) and B)

Question 2

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. 
-Refer to Figure 21-31. For Kevin, are sweaters and shirts substitutes, complements, or neither?

Accepted Answer

Kevin purchases 28 sweaters at...

Question 3

Alicia is a vegetarian, so she does not eat beef. That is, beef provides no additional utility to Alicia. She loves potatoes, however. If we illustrate Alicia's indifference curves by drawing beef on the horizontal axis and potatoes 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) B) and D)
F) None of the above

Question 4

A consumer's preferences for $1 bills and $20 bills can be represented by indifference curves that are

Accepted Answer

A)  bowed out from the origin.
B)  bowed in toward the origin.
C)  straight lines.
D)  right angles.E) A) and B)
F) B) and C)

Question 5

Figure 21-1 The downward-sloping line on the figure represents a consumer's budget
constraint. 
-Refer to Figure 21-1. If the price of a CD is $12, then the consumer's income amounts to

Accepted Answer

A)  $140.
B)  $180.
C)  $210.
D)  $240.E) None of the above
F) A) and B)

Question 6

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point illustrating the new marginal rate of substitution is called the

Accepted Answer

A)  income effect.
B)  substitution effect.
C)  Giffen good effect.
D)  inferior good effect.E) C) and D)
F) A) and B)

Question 7

When we derive the demand curve for a good, we should remember that the

Accepted Answer

A)  income effect must be greater than the substitution effect.
B)  substitution effect must be greater than the income effect.
C)  substitution effect must be in the same direction as the income effect.
D)  income effect and the substitution effect may work in the same or in opposite directions.E) B) and D)
F) A) and D)

Question 8

When indifference curves are bowed in toward the origin,

Accepted Answer

A)  consumers are more inclined to trade away goods they have in abundance.
B)  an increase in income will shift the indifference curve away from the origin.
C)  a decrease in income will shift the indifference curve toward the origin.
D)  Both b)  and c)  are correct.E) C) and D)
F) A) and B)

Question 9

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) C) and D)
F) A) and D)

Question 10

A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

Accepted Answer

A)  perfect substitutes.
B)  perfect complements.
C)  very close substitutes.
D)  very close complements.E) A) and B)
F) All of the above

Question 11

A consumer's optimal choice occurs when the

Accepted Answer

A)  consumer's valuation of the two goods equals the market's valuation of the two goods.
B)  consumer minimizes her expenditures.
C)  consumer attains the highest indifference curve.
D)  consumer's valuation of the two goods exceeds the market's valuation of the two goods.E) A) and B)
F) All of the above

Question 12

Figure 21-10 
-Refer to Figure 21-10. When comparing bundle B to bundle C, the consumer

Accepted Answer

A)  prefers bundle B because it contains more donuts.
B)  is indifferent between the two bundles.
C)  prefers bundle C because it contains more cake.
D)  In order to compare bundle B to bundle C, we must know the prices of cake and donuts.E) A) and B)
F) A) and C)

Question 13

The marginal rate of substitution is the slope of the indifference curve.

Accepted Answer

A) True 
 B)False

Question 14

Consider the indifference curve map for nickels and quarters. Assume nickels are on the horizontal axis and quarters are on the vertical axis. The indifference curves for nickels and quarters are

Accepted Answer

A)  straight lines with slope of -1/5.
B)  straight lines with a slope of -1.
C)  straight lines with a slope of -5.
D)  L shaped.E) None of the above
F) A) and D)

Question 15

If a consumer consumes two goods, X and Y, and has indifference curves that are bowed inward, the consumer's optional choice occurs when

Accepted Answer

A)  he consumes the maximum affordable quantity of good X.
B)  he consumes the maximum affordable quantity of good Y.
C)  his indifference curve is tangent to his budget constraint.
D)  his indifference curve lies entirely above his budget constraint.E) B) and C)
F) A) and D)

Question 16

Figure 21-32 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. 
-Refer to Figure 21-32. Of the four labeled points, which is (are) affordable to Hannah?

Accepted Answer

Points B a...

Question 17

A worker with a backward-bending labor supply curve responds to an increase in wages by working more hours.

Accepted Answer

A) True 
 B)False

Question 18

On a graph we draw indifference curves to illustrate Steven's preferences for steak and broccoli. If two of Steven's indifference curves cross, then it cannot be the case that Steven

Accepted Answer

A)  regards steak and broccoli as complements.
B)  spends more of his income on steak than on broccoli.
C)  likes steak and likes broccoli.
D)  always prefers more steak to less steak and more broccoli to less broccoli.E) B) and C)
F) None of the above

Question 19

Indifference curves graphically represent

Accepted Answer

A)  an income level sufficient to allow an individual to achieve a given level of satisfaction.
B)  the constraints faced by individuals.
C)  an individual's preferences.
D)  the relative price of commodities.E) B) and C)
F) A) and D)

Question 20

Assume that goods X and Y are not Giffen goods. ​If the price of good X falls, a consumer will definitely

Accepted Answer

A)  ​consume more of good X because her budget constraint has rotated outward.
B)  consume more of good X because her budget ​constraint has shifted outward.
C)  ​consume more of good Y because her budget constraint has rotated outward.
D)  ​consume more of good Y because her budget constraint has shifted outward.E) A) and B)
F) None of the above

Exam 21: The Theory of Consumer Choice

A worker with a backward-bending labor supply curve responds to an increase in wages by working more hours.

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On a graph we draw indifference curves to illustrate Steven's preferences for steak and broccoli. If two of Steven's indifference curves cross, then it cannot be the case that Steven

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If a consumer consumes two goods, X and Y, and has indifference curves that are bowed inward, the consumer's optional choice occurs when

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Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. For Kevin, are sweaters and shirts substitutes, complements, or neither?

Correct AnswerverifiedKevin purchases 28 sweaters at...View AnswerShow Answer

Figure 21-10 -Refer to Figure 21-10. When comparing bundle B to bundle C, the consumer

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Assume that goods X and Y are not Giffen goods. ​If the price of good X falls, a consumer will definitely

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Consumer theory provides the foundation for understanding demand curves because

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The marginal rate of substitution is the slope of the indifference curve.

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Figure 21-32 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. -Refer to Figure 21-32. Of the four labeled points, which is (are) affordable to Hannah?

Correct AnswerverifiedPoints B a...View AnswerShow Answer

Consider the indifference curve map for nickels and quarters. Assume nickels are on the horizontal axis and quarters are on the vertical axis. The indifference curves for nickels and quarters are

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Indifference curves graphically represent

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When indifference curves are bowed in toward the origin,

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A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

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A consumer's preferences for $1 bills and $20 bills can be represented by indifference curves that are

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Figure 21-1 The downward-sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-1. If the price of a CD is $12, then the consumer's income amounts to

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

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A consumer's optimal choice occurs when the

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The change in consumption that results when a price change moves the consumer along a given indifference curve to a point illustrating the new marginal rate of substitution is called the

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When we derive the demand curve for a good, we should remember that the

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Giffen goods have positively-sloped demand curves because they are

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Kevin purchases 28 sweaters at...
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Assume that goods X and Y are not Giffen goods. If the price of good X falls, a consumer will definitely

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Points B a...
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