Question 1

Figure 21-11 
-Refer to Figure 21-11.As the consumer moves from point A to B to C to D,the consumer's marginal rate of substitution

Accepted Answer

A)   remains constant.
B)   increases.
C)   decreases.
D)   first increases,then decreases.E) A) and C)
F) A) and B)

Question 2

The slope of a consumer's budget constraint is unaffected by a change in income.

Accepted Answer

A) True 
 B)False

Question 3

When Stanley has an income of $1,000,he consumes 30 units of good A and 50 units of good B.After Stanley's income increases to $1,500,he consumes 60 units of good A and 45 units of good B.Which of the following statements is correct?

Accepted Answer

A)   Both goods A and B are normal goods.
B)   Both goods A and B are inferior goods.
C)   Good A is a normal good,and good B is an inferior good.
D)   Good A is an inferior good,and good B is a normal good.E) All of the above
F) C) and D)

Question 4

When indifference curves are bowed inward,the marginal rate of substitution varies at each point on the indifference curve.

Accepted Answer

A) True 
 B)False

Question 5

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 6

At the consumer's optimum

Accepted Answer

A)   the budget constraint will have a slope of MUx/Px.
B)   it is still possible for the consumer to increase his consumption of both goods.
C)   the indifference curve will intersect the budget constraint at the midpoint of the budget constraint.
D)   the slope of the indifference curve is equal to the slope of the budget constraint.E) A) and C)
F) None of the above

Question 7

Figure 21-6 
-Refer to Figure 21-6.Suppose a consumer has $100 in income,the price of popcorn is $2,and the value of B is 100.What is the price of Mt.Dew?

Accepted Answer

A)   $1
B)   $2
C)   $5
D)   $100E) None of the above
F) All of the above

Question 8

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

Question 9

Which of the following is most likely an inferior good?

Accepted Answer

A)   an antique car
B)   gasoline
C)   a bus ticket
D)   an airline ticketE) B) and D)
F) A) and B)

Question 10

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

Accepted Answer

A)   is equal to the relative price ratio of the goods.
B)   exceeds the marginal utility of each good by the greatest amount.
C)   is less than the slope of the budget constraint.
D)   All of the above are correct.E) All of the above
F) A) and D)

Question 11

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

Accepted Answer

A)   less 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)   both a and b are correct.E) None of the above
F) A) and B)

Question 12

If the interest rate rises,an individual could choose to

Accepted Answer

A)   increase consumption when young.
B)   increase consumption when old.
C)   decrease consumption when young.
D)   Any of the above could be correct.E) B) and C)
F) C) and D)

Question 13

Assume that a college student purchases only Ramen noodles and textbooks.If Ramen noodles are an inferior good and textbooks are a normal good,then the income effect associated with a decrease in the price of a textbook will result in

Accepted Answer

A)   a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
B)   a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles.
C)   an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles.
D)   an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.E) All of the above
F) A) and C)

Question 14

Suppose a consumer spends her income on two goods: music CDs and DVDs.The consumer has $200 to allocate to these two goods,the price of a CD is $10,and the price of a DVD is $20.What is the maximum number of DVDs the consumer can purchase?

Accepted Answer

A)   10
B)   20
C)   40
D)   50E) A) and B)
F) A) and C)

Question 15

The substitution effect from an increase in wages is evident in a

Accepted Answer

A)   decrease in labor demand.
B)   desire to consume less leisure.
C)   desire to consume more leisure.
D)   backward-bending labor supply curve.E) A) and B)
F) A) and C)

Question 16

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

Question 17

The indifference curves for perfect substitutes are right angles.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

Figure 21-7 
-Refer to Figure 21-7.Suppose a consumer has $500 in income,the price of a book is $10,and the value of B is 50.What is the price of a DVD?

Accepted Answer

A)   $5
B)   $10
C)   $50
D)   $100E) A) and B)
F) None of the above

Question 20

Figure 21-23 
-Refer to Figure 21-23.Fiona experiences an increase in her hourly wage.Her optimal choice point moves from A to B.For Fiona,

Accepted Answer

A)   her labor supply curve is backward bending.
B)   her labor supply curve is upward sloping.
C)   leisure is a normal good.
D)   both a and c are correct.E) A) and D)
F) C) and D)

Exam 21: The Theory of Consumer Choice

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

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The substitution effect from an increase in wages is evident in a

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Suppose a consumer spends her income on two goods: music CDs and DVDs.The consumer has $200 to allocate to these two goods,the price of a CD is $10,and the price of a DVD is $20.What is the maximum number of DVDs the consumer can purchase?

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Which of the following is most likely an inferior good?

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An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

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The indifference curves for perfect substitutes are right angles.

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Figure 21-6 -Refer to Figure 21-6.Suppose a consumer has $100 in income,the price of popcorn is $2,and the value of B is 100.What is the price of Mt.Dew?

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Figure 21-11 -Refer to Figure 21-11.As the consumer moves from point A to B to C to D,the consumer's marginal rate of substitution

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The slope of a consumer's budget constraint is unaffected by a change in income.

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If a good is a Giffen good,then

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When indifference curves are bowed inward,the marginal rate of substitution varies at each point on the indifference curve.

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When Stanley has an income of $1,000,he consumes 30 units of good A and 50 units of good B.After Stanley's income increases to $1,500,he consumes 60 units of good A and 45 units of good B.Which of the following statements is correct?

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Figure 21-23 -Refer to Figure 21-23.Fiona experiences an increase in her hourly wage.Her optimal choice point moves from A to B.For Fiona,

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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?

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Figure 21-7 -Refer to Figure 21-7.Suppose a consumer has $500 in income,the price of a book is $10,and the value of B is 50.What is the price of a DVD?

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Assume that a college student purchases only Ramen noodles and textbooks.If Ramen noodles are an inferior good and textbooks are a normal good,then the income effect associated with a decrease in the price of a textbook will result in

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

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

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If the interest rate rises,an individual could choose to

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At the consumer's optimum

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In response to a hig...
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