Question 1

The following diagram shows a budget constraint for a particular consumer. 
If the price of X is $10,what is the price of Y?

Accepted Answer

A)   $15
B)   $25
C)   $35
D)   $70E) A) and B)
F) All of the above

Question 2

The indifference curves for nickels and dimes are straight lines.

Accepted Answer

A) True 
 B)False

Question 3

Utility measures the

Accepted Answer

A)   income a consumer receives from consuming a bundle of goods.
B)   satisfaction a consumer receives from consuming a bundle of goods.
C)   satisfaction a consumer places on her budget constraint.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 4

Figure 21-2 
-Refer to Figure 21-2.Which points are affordable?

Accepted Answer

A)   W,X,and Y only
B)   Z only
C)   V,W,X,and Y only
D)   V,W,X,Y,and ZE) None of the above
F) B) and C)

Question 5

If a consumer purchases more of good A when her income falls,good A is an inferior good.

Accepted Answer

A) True 
 B)False

Question 6

Figure 21-12 
-Refer to Figure 21-12.If the consumer is currently at point A in the figure,a movement to point B as a result of a decrease in the price of potato chips represents the

Accepted Answer

A)   substitution effect.
B)   income effect.
C)   budget effect.
D)   price effect.E) All of the above
F) None of the above

Question 7

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?

Accepted Answer

A)   $100
B)   $125
C)   $200
D)   $225E) C) and D)
F) A) and B)

Question 8

The income effect of a price change is depicted by

Accepted Answer

A)   a parallel shift of the budget constraint at the old set of prices.
B)   a parallel shift of the budget constraint at the new set of prices.
C)   a movement along the budget constraint holding the level of satisfaction constant.
D)   not observable and is therefore neither a shift nor a change in the slope of the budget constraint.E) B) and C)
F) None of the above

Question 9

Assume that a college student purchases only coffee and Snickers bars.The substitution effect associated with a decrease in the price of a Snickers bar will result in

Accepted Answer

A)   an increase in the consumption of coffee only.
B)   a decrease in the consumption of coffee only.
C)   an increase in the consumption of Snickers bars and a decrease in the consumption of coffee.
D)   a decrease in the consumption of Snickers bars and an increase in the consumption of coffee.E) B) and D)
F) All of the above

Question 10

Scenario 21-1
Suppose the price of hot wings is $10,the price of beer is $1,and the consumer's income is $50.In addition,suppose the consumer's budget constraint illustrates hot wings on the horizontal axis and beer on the vertical axis.
-Refer to Scenario 21-1.If the consumer's income rises to $60,then the budget line for hot wings and beer would

Accepted Answer

A)   now intersect the horizontal axis at 6 orders of hot wings and the vertical axis at 60 beers.
B)   not change.
C)   now intersect the horizontal axis at 4 orders of hot wings and the vertical axis at 16 beers.
D)   rotate outward along the beer axis.E) None of the above
F) A) and B)

Question 11

The consumer's optimum is where

Accepted Answer

A)   MUx/MUy = Py/Px.
B)   MUx/Py = MUy/Px.
C)   Px/MUx = Py/MUy.
D)   MUx/MUy = Px/Py.E) A) and B)
F) C) and D)

Question 12

Figure 21-8   
-Refer to Figure 21-8.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) B) and C)
F) A) and D)

Question 13

Wilbur consumes two goods,bacon and eggs.He has maximized his utility given his income.Eggs costs $2 per dozen,and he consumes them to the point where the marginal utility he receives is 6.Bacon cost $4 per serving,and the relationship between the marginal utility that Wilbur gets from eating bacon and the number of servings he eats per month is as follows:

How many servings of bacon does Wilbur buy each month?

Accepted Answer

A)   1
B)   2
C)   3
D)   4E) All of the above
F) A) and B)

Question 14

As long as a consumer remains on the same indifference curve,

Accepted Answer

A)   she is indifferent to all points that lie on any other indifference curve.
B)   her preferences will not affect the marginal rate of substitution.
C)   she is unable to decide which bundle of goods to choose.
D)   she is indifferent among the points on that curve.E) All of the above
F) B) and C)

Question 15

Jonathan is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires.When the income effect dominates the substitution effect,an increase in the interest rate on savings will cause him to

Accepted Answer

A)   decrease his savings rate.
B)   increase his savings rate.
C)   continue saving at the current rate.
D)   Any of the above could be correct.E) None of the above
F) All of the above

Question 16

Figure 21-2 
-Refer to Figure 21-2.A consumer that chooses to spend all of her income could be at which point(s) on the budget constraint?

Accepted Answer

A)   V only
B)   Z only
C)   V,W,X,or Y only
D)   W,X,or Y onlyE) C) and D)
F) A) and B)

Question 17

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

Accepted Answer

A)   slope of the budget constraint.
B)   slope of an indifference curve.
C)   marginal rate of substitution.
D)   income effect.E) B) and D)
F) None of the above

Question 18

All of the following are properties of indifference curves except

Accepted Answer

A)   higher indifference curves are preferred to lower ones.
B)   indifference curves are downward sloping.
C)   indifference curves do not cross.
D)   indifference curves are bowed outward.E) C) and D)
F) B) and D)

Question 19

Consider the indifference curve map and budget constraint for two goods,X and Y.Suppose the good on the horizontal axis,X,is normal.When the price of X increases

Accepted Answer

A)   the substitution effect and income effect both cause an increase in the consumption of X.
B)   the substitution effect causes a decrease in the consumption of X,and the income effect causes an increase in the consumption of X.However,the substitution effect is greater than the income effect.
C)   the substitution effect causes an increase in the consumption of X,and the income effect causes a decrease in the consumption of X.However,the substitution effect is greater than the income effect.
D)   the substitution effect and income effect both cause a decrease in the consumption of X.E) All of the above
F) B) and C)

Question 20

Jake faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old.Jake experiences a decrease in the current interest rate he earns on his savings.Jake 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 D)
F) C) and D)

Exam 21: The Theory of Consumer Choice

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

Correct Answer
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Utility measures the

Correct Answer
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All of the following are properties of indifference curves except

Correct Answer
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Jonathan is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires.When the income effect dominates the substitution effect,an increase in the interest rate on savings will cause him to

Correct Answer
verified

Figure 21-2 -Refer to Figure 21-2.A consumer that chooses to spend all of her income could be at which point(s) on the budget constraint?

Correct Answer
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If a consumer purchases more of good A when her income falls,good A is an inferior good.

Correct Answer
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Figure 21-2 -Refer to Figure 21-2.Which points are affordable?

Correct Answer
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Consider the indifference curve map and budget constraint for two goods,X and Y.Suppose the good on the horizontal axis,X,is normal.When the price of X increases

Correct Answer
verified

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

Correct Answer
verified

The following diagram shows a budget constraint for a particular consumer. If the price of X is $10,what is the price of Y?

Correct Answer
verified

Assume that a college student purchases only coffee and Snickers bars.The substitution effect associated with a decrease in the price of a Snickers bar will result in

Correct Answer
verified

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?

Correct Answer
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The income effect of a price change is depicted by

Correct Answer
verified

Figure 21-8 -Refer to Figure 21-8.Which of the graphs shown represent indifference curves for perfect complements?

Correct Answer
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The indifference curves for nickels and dimes are straight lines.

Correct Answer
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The consumer's optimum is where

Correct Answer
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Figure 21-12 -Refer to Figure 21-12.If the consumer is currently at point A in the figure,a movement to point B as a result of a decrease in the price of potato chips represents the

Correct Answer
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As long as a consumer remains on the same indifference curve,

Correct Answer
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Correct Answer
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Exam 21: The Theory of Consumer Choice

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

Correct AnswerverifiedShow Answer

Utility measures the

Correct AnswerverifiedShow Answer

All of the following are properties of indifference curves except

Correct AnswerverifiedShow Answer

Jonathan is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires.When the income effect dominates the substitution effect,an increase in the interest rate on savings will cause him to

Correct AnswerverifiedShow Answer

Figure 21-2 -Refer to Figure 21-2.A consumer that chooses to spend all of her income could be at which point(s) on the budget constraint?

Correct AnswerverifiedShow Answer

If a consumer purchases more of good A when her income falls,good A is an inferior good.

Correct AnswerverifiedShow Answer

Figure 21-2 -Refer to Figure 21-2.Which points are affordable?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Consider the indifference curve map and budget constraint for two goods,X and Y.Suppose the good on the horizontal axis,X,is normal.When the price of X increases

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The following diagram shows a budget constraint for a particular consumer. If the price of X is $10,what is the price of Y?

Correct AnswerverifiedShow Answer

Assume that a college student purchases only coffee and Snickers bars.The substitution effect associated with a decrease in the price of a Snickers bar will result in

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The income effect of a price change is depicted by

Correct AnswerverifiedShow Answer

Figure 21-8 -Refer to Figure 21-8.Which of the graphs shown represent indifference curves for perfect complements?

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The indifference curves for nickels and dimes are straight lines.

Correct AnswerverifiedShow Answer

The consumer's optimum is where

Correct AnswerverifiedShow Answer

Figure 21-12 -Refer to Figure 21-12.If the consumer is currently at point A in the figure,a movement to point B as a result of a decrease in the price of potato chips represents the

Correct AnswerverifiedShow Answer

As long as a consumer remains on the same indifference curve,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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