Question 1

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 2

Scenario 21-3
Diane knows that she will ultimately face retirement. Assume that Diane will experience two periods in her life, one in which she works and earns income, and one in which she is retired and earns no income. Diane can earn $250,000 during her working period and nothing in her retirement period. She must both save and consume in her work period with an interest rate of 10 percent on savings.
-Refer to Scenario 21-3.If the interest rate on savings increases,it is possible that

Accepted Answer

A)  Diane will decrease her savings in the work period.
B)  Diane will increase her savings in the work period.
C)  Diane will not change her consumption in the work period.
D)  All of the above are possible.E) A) and B)
F) A) and C)

Question 3

Consider the indifference curve map and budget constraint for two goods (B and K) .Suppose the good on the horizontal axis (K) is inferior and Giffen.When the price of the inferior good on the horizontal axis (K) increases

Accepted Answer

A)  the substitution effect causes an increase in the consumption of K and the income effect causes a decrease in the consumption of K.However, the substitution effect is less than the income effect.
B)  the substitution effect causes a decrease in the consumption of K and the income effect causes an increase in the consumption of K.However, the substitution effect is greater than the income effect.
C)  the substitution effect causes an increase in the consumption of K and the income effect causes a decrease in the consumption of K.However, the substitution effect is greater than the income effect.
D)  the substitution effect causes a decrease in the consumption of K and the income effect causes an increase in the consumption of K.However, the substitution effect is less than the income effect.E) None of the above
F) A) and B)

Question 4

When considering her budget,the highest indifference curve that a consumer can reach is the

Accepted Answer

A)  one that is tangent to the budget constraint.
B)  indifference curve farthest from the origin
C)  indifference curve that intersects the budget constraint in at least two places.
D)  None of the above is correct; consumer preferences are bounded.E) B) and C)
F) None of the above

Question 5

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 6

The labor supply curve may have a "backward bending" portion because at higher wages the

Accepted Answer

A)  income effect is smaller than the substitution effect.
B)  income effect is larger than the substitution effect.
C)  income effect is negative.
D)  Any of the above could result in a backward-bending supply curve.E) A) and D)
F) B) and C)

Question 7

Figure 21-2
 
-Refer to Figure 21-2.Which of the graphs in the figure reflects an increase in the price of good Y only?

Accepted Answer

A)  graph (a) 
B)  graph (b) 
C)  graph (c) 
D)  graph (d) E) All of the above
F) B) and D)

Question 8

Assume that a college student spends her income on books and pizza.The price of a pizza is $8.00,and the price of a book is $15.If she has $100 of income,she could choose to consume

Accepted Answer

A)  8 pizzas and 4 books.
B)  4 pizzas and 5 books.
C)  9 pizzas and 3 books.
D)  4 pizzas and 3 books.E) A) and B)
F) B) and C)

Question 9

When the indifference curve is tangent to the budget constraint,

Accepted Answer

A)  a consumer cannot be made better off without increasing her income.
B)  the consumer is likely to be at a sub-optimal level of consumption.
C)  income is at its optimum for a consumer.
D)  indifference curves are likely to intersect.E) A) and B)
F) A) and D)

Question 10

A rational consumer is likely to have maximized her

Accepted Answer

A)  preferences.
B)  marginal rate of substitution.
C)  utility.
D)  budget constraint.E) A) and C)
F) A) and D)

Question 11

John is planning ahead for retirement in a two-period world.When John is young he will earn $1 million,and when John is old and retired he will be given $50,000 from Social Security.If the interest rate between the two time periods is 7 percent,what is the slope of John's budget constraint when considering the consumption possibilities between the two periods if "consumption when young" is graphed on the horizontal axis?

Accepted Answer

A)  -0.89
B)  -1.05
C)  -1.07
D)  -1.12E) A) and D)
F) None of the above

Question 12

The following diagram shows two budget lines: A and B. 
Which of the following could explain the change in the budget line from A to B?

Accepted Answer

A)  A decrease in the price of x.
B)  An increase in the price of y.
C)  A decrease in the price of y.
D)  More than one of the above could explain this change.E) A) and D)
F) A) and B)

Question 13

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

Question 14

The substitution effect of a price change is the change in consumption that results from the movement to a different indifference curve.

Accepted Answer

A) True 
 B)False

Question 15

Suppose the price of good x falls and the consumption of good x increases.From this we can infer that

Accepted Answer

A)  x is a normal good.
B)  x is an inferior good.
C)  x is a Giffen good.
D)  None of the aboveE) A) and D)
F) B) and D)

Question 16

Assume that a person consumes two goods,Coke and Snickers.Use a graph to demonstrate how the consumer adjusts his/her optimal consumption bundle when the price of Coke decreases.Carefully label all curves and axes.What will happen to consumption if Coke is a normal good? What will happen to consumption if Coke is an inferior good? (Remember to explain the possible change when the income effect dominates and when the substitution effect dominates.)

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> If Coke is a normal good,the consumptio...

Question 17

Pepsi and pizza are normal goods.When the price of pizza falls,the substitution effect causes a

Accepted Answer

A)  shift to a lower indifference curve and the consumer buys less Pepsi.
B)  shift to a higher indifference curve and the consumer buys more Pepsi.
C)  movement along the indifference curve and the consumer buys more Pepsi.
D)  movement along the indifference curve and the consumer buys less Pepsi.E) A) and D)
F) C) and D)

Question 18

A Giffen good can be explained as a good for which an increase in the price

Accepted Answer

A)  decreases the quantity supplied.
B)  increases the quantity supplied.
C)  decreases the quantity demanded.
D)  increases the quantity demanded.E) None of the above
F) A) and D)

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

Question 20

As more units of an item are purchased,everything else equal,marginal satisfaction from consuming additional units will tend to

Accepted Answer

A)  decrease at the same rate for all consumers.
B)  decrease but at different rates for different people.
C)  increase at the same rate for all consumers.
D)  increase but at a decreasing rate for all consumers.E) A) and B)
F) B) and C)

Exam 21: The Theory of Consumer Choice

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

Correct Answer
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When considering her budget,the highest indifference curve that a consumer can reach is the

Correct Answer
verified

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?

Correct Answer
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Correct Answer
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Suppose the price of good x falls and the consumption of good x increases.From this we can infer that

Correct Answer
verified

Consider the indifference curve map and budget constraint for two goods (B and K) .Suppose the good on the horizontal axis (K) is inferior and Giffen.When the price of the inferior good on the horizontal axis (K) increases

Correct Answer
verified

Pepsi and pizza are normal goods.When the price of pizza falls,the substitution effect causes a

Correct Answer
verified

Correct Answer
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When the indifference curve is tangent to the budget constraint,

Correct Answer
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Correct Answer
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If Coke is a normal good,the consumptio...
View Answer

The substitution effect of a price change is the change in consumption that results from the movement to a different indifference curve.

Correct Answer
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Figure 21-2 -Refer to Figure 21-2.Which of the graphs in the figure reflects an increase in the price of good Y only?

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

Correct Answer
verified

Assume that a college student spends her income on books and pizza.The price of a pizza is $8.00,and the price of a book is $15.If she has $100 of income,she could choose to consume

Correct Answer
verified

The labor supply curve may have a "backward bending" portion because at higher wages the

Correct Answer
verified

A rational consumer is likely to have maximized her

Correct Answer
verified

Indifference curves graphically represent

Correct Answer
verified

A Giffen good can be explained as a good for which an increase in the price

Correct Answer
verified

As more units of an item are purchased,everything else equal,marginal satisfaction from consuming additional units will tend to

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

Correct AnswerverifiedShow Answer

When considering her budget,the highest indifference curve that a consumer can reach is the

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose the price of good x falls and the consumption of good x increases.From this we can infer that

Correct AnswerverifiedShow Answer

Consider the indifference curve map and budget constraint for two goods (B and K) .Suppose the good on the horizontal axis (K) is inferior and Giffen.When the price of the inferior good on the horizontal axis (K) increases

Correct AnswerverifiedShow Answer

Pepsi and pizza are normal goods.When the price of pizza falls,the substitution effect causes a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When the indifference curve is tangent to the budget constraint,

Correct AnswerverifiedShow Answer

Correct Answerverified If Coke is a normal good,the consumptio...View AnswerShow Answer

The substitution effect of a price change is the change in consumption that results from the movement to a different indifference curve.

Correct AnswerverifiedShow Answer

Figure 21-2 -Refer to Figure 21-2.Which of the graphs in the figure reflects an increase in the price of good Y only?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume that a college student spends her income on books and pizza.The price of a pizza is $8.00,and the price of a book is $15.If she has $100 of income,she could choose to consume

Correct AnswerverifiedShow Answer

The labor supply curve may have a "backward bending" portion because at higher wages the

Correct AnswerverifiedShow Answer

A rational consumer is likely to have maximized her

Correct AnswerverifiedShow Answer

Indifference curves graphically represent

Correct AnswerverifiedShow Answer

A Giffen good can be explained as a good for which an increase in the price

Correct AnswerverifiedShow Answer

As more units of an item are purchased,everything else equal,marginal satisfaction from consuming additional units will tend to

Correct AnswerverifiedShow Answer

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If Coke is a normal good,the consumptio...
View Answer

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