Question 1

An indifference curve illustrates

Accepted Answer

A)   a firm's profits.
B)   a consumer's budget.
C)   a consumer's preferences.
D)   the prices of two goods.E) B) and C)
F) A) and D)

Question 2

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 substitution effect associated with a decrease in the price of a textbook,by itself,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) B) and C)
F) A) and B)

Question 3

The indifference curves for left shoes and right shoes are right angles.

Accepted Answer

A) True 
 B)False

Question 4

Figure 21-5

-Refer to Figure 21-5.In graph (b) ,if income is equal to $420,the price of good Y is

Accepted Answer

A)   $1.
B)   $3.
C)   $10.
D)   $30.E) A) and B)
F) A) and C)

Question 5

List and briefly explain each of the four properties of indifference curves.

Accepted Answer

1: Higher indifference curves are prefer...

Question 6

The two "goods" used when economists analyze labor supply are

Accepted Answer

A)   work and leisure.
B)   work and consumption.
C)   saving and consumption.
D)   leisure and consumption.E) B) and C)
F) A) and D)

Question 7

If Hector's marginal rate of substitution between pens and pencils is constant,regardless of how many pens and pencils he has,then his indifference curves

Accepted Answer

A)   are right angles.
B)   are straight lines.
C)   slope upward.
D)   cross one another at certain points.E) B) and D)
F) B) and C)

Question 8

The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer.  What is the marginal rate of substitution between points A and B?

Accepted Answer

A)   2/5
B)   1
C)   5/2
D)   3E) None of the above
F) C) and D)

Question 9

When the price of an inferior good decreases,

Accepted Answer

A)   both the income and substitution effects encourage the consumer to purchase more of the good.
B)   both the income and substitution effects encourage the consumer to purchase less of the good.
C)   the income effect encourages the consumer to purchase more of the good,and the substitution effect encourages the consumer to purchase less of the good.
D)   the income effect encourages the consumer to purchase less of the good,and the substitution effect encourages the consumer to purchase more of the good.E) C) and D)
F) None of the above

Question 10

When Ryan has an income of $2,000,he consumes 30 units of good A and 50 units of good B.After Ryan's income decreases to $1,500,he consumes 23 units of good A and 55 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) B) and C)
F) A) and D)

Question 11

Figure 21-20 
-Refer to Figure 21-20.Suppose that a consumer is originally at point R.Then the price of good X decreases.Which of the following represents the substitution effect of the price decrease?

Accepted Answer

A)   the movement from point R to point S
B)   the movement from point R to point T
C)   the movement from point T to point S
D)   None of the above is correct.E) A) and D)
F) None of the above

Question 12

Figure 21-1.The figure shows three indifference curves and a budget constraint for a certain consumer named Jack. 
-Refer to Figure 21-1.At his optimum,Jack is buying

Accepted Answer

A)   0.6 pounds of apples.
B)   2.0 pounds of apples.
C)   4.5 pounds of apples.
D)   5.5 pounds of apples.E) None of the above
F) All of the above

Question 13

Figure 21-13 
-Refer to Figure 21-13.As the consumer moves from A to B to C,the consumer's total utility

Accepted Answer

A)   increases.
B)   decreases.
C)   remains constant.
D)   first increases,then decreases.E) B) and C)
F) None of the above

Question 14

Suppose the price of good X falls.As a result,the quantity demanded for good X increases for a particular consumer.For this consumer,the substitution effect induced the consumer to purchase more X while the income effect induced the consumer to purchase less X.We can infer that X is a(n)

Accepted Answer

A)   normal good.
B)   inferior good.
C)   Giffen good.
D)   luxury good.E) A) and C)
F) B) and C)

Question 15

All Giffen goods are

Accepted Answer

A)   inferior goods,and all inferior goods are Giffen goods.
B)   inferior goods,but not all inferior goods are Giffen goods.
C)   normal goods,but not all normal goods are Giffen goods.
D)   normal goods,and all normal goods are Giffen goods.E) C) and D)
F) B) and C)

Question 16

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

Question 17

Figure 21-8 
-Refer to Figure 21-8.You have $600 to spend on good X and good Y.If good X costs $100 and good Y costs $100,your budget constraint is

Accepted Answer

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

Question 18

Figure 21-10 
-Refer to Figure 21-10.Which of the following statements is not true for a consumer who moves from bundle B to bundle C?

Accepted Answer

A)   At bundle C the consumer would be willing to give up a larger amount of cake in exchange for a donut than at bundle B.
B)   The marginal rate of substitution at bundles B and C are the same since the points lie on the same indifference curve.
C)   The consumer is willing to sacrifice donuts to obtain cake.
D)   The consumer receives the same level of satisfaction at bundles B and C.E) B) and C)
F) A) and B)

Question 19

Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs.If the price of a CD is $9,the price of a DVD is $18,and she is currently consuming 10 CDs and 5 DVDs,what is the consumer's income?

Accepted Answer

A)   $90
B)   $180
C)   $270
D)   $360E) None of the above
F) A) and D)

Question 20

How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving?

Accepted Answer

A)   They all relate to macroeconomics.
B)   They all relate to monetary economics.
C)   They all relate to the theory of consumer choice.
D)   They are not related to each other in any way.E) B) and C)
F) C) and D)

Exam 21: The Theory of Consumer Choice

How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving?

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List and briefly explain each of the four properties of indifference curves.

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The indifference curves for left shoes and right shoes are right angles.

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The two "goods" used when economists analyze labor supply are

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Figure 21-20 -Refer to Figure 21-20.Suppose that a consumer is originally at point R.Then the price of good X decreases.Which of the following represents the substitution effect of the price decrease?

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When Ryan has an income of $2,000,he consumes 30 units of good A and 50 units of good B.After Ryan's income decreases to $1,500,he consumes 23 units of good A and 55 units of good B.Which of the following statements is correct?

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An indifference curve illustrates

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All Giffen goods are

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Figure 21-8 -Refer to Figure 21-8.You have $600 to spend on good X and good Y.If good X costs $100 and good Y costs $100,your budget constraint is

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Suppose the price of good X falls.As a result,the quantity demanded for good X increases for a particular consumer.For this consumer,the substitution effect induced the consumer to purchase more X while the income effect induced the consumer to purchase less X.We can infer that X is a(n)

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Figure 21-10 -Refer to Figure 21-10.Which of the following statements is not true for a consumer who moves from bundle B to bundle C?

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The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer. What is the marginal rate of substitution between points A and B?

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If Hector's marginal rate of substitution between pens and pencils is constant,regardless of how many pens and pencils he has,then his indifference curves

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Figure 21-13 -Refer to Figure 21-13.As the consumer moves from A to B to C,the consumer's total utility

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When the price of an inferior good decreases,

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Figure 21-5 -Refer to Figure 21-5.In graph (b) ,if income is equal to $420,the price of good Y is

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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 substitution effect associated with a decrease in the price of a textbook,by itself,will result in

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Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs.If the price of a CD is $9,the price of a DVD is $18,and she is currently consuming 10 CDs and 5 DVDs,what is the consumer's income?

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

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Figure 21-1.The figure shows three indifference curves and a budget constraint for a certain consumer named Jack. -Refer to Figure 21-1.At his optimum,Jack is buying

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