Question 1

Which of the following statements is not correct?

Accepted Answer

A)   If Fiona gets a higher wage and works more, the substitution effect is greater than the income effect for her.
B)   If Miguel experiences a wage decrease and works less, the income effect is greater than the substitution effect for him.
C)   If the substitution effect is greater than the income effect, the labor-supply curve is upward sloping.
D)   If the income effect is greater than the substitution effect, the labor-supply curve is downward sloping.E) B) and C)
F) A) and B)

Question 2

If we observe that a consumer's budget constraint has shifted inward, we can assume that the consumer will buy

Accepted Answer

A)   fewer normal goods and more inferior goods.
B)   more normal goods and fewer inferior goods.
C)   more normal goods and more inferior goods.
D)   fewer normal goods and fewer inferior goods.E) A) and B)
F) B) and C)

Question 3

When considering household savings, the relative price between consuming when young and consuming when old is the

Accepted Answer

A)   consumption rate.
B)   interest rate that individuals can earn on their private savings.
C)   prime rate.
D)   federal funds rate.E) A) and C)
F) C) and D)

Question 4

Which of the following statements is not correct?

Accepted Answer

A)   Reducing taxes on interest income might encourage people to save more.
B)   Reducing taxes on interest income might reduce saving.
C)   A price increase will create income and substitution effects that will both always work to reduce consumption of the good.
D)   Utility is maximized when the marginal rate of substitution between any two goods equals the relative prices of the two goods.E) None of the above
F) A) and B)

Question 5

Figure 21-2
The downward­sloping line on the figure represents a consumer's budget constraint. 
-Refer to Figure 21-2. Which of the following statements is correct?

Accepted Answer

A)   Points W, X, and Y all cost the consumer the same amount of money.
B)   Point V is unaffordable for the consumer given his budget constraint.
C)   Point Z costs less than point V.
D)   Points W, X, and Y give the consumer the same level of satisfaction.E) A) and D)
F) None of the above

Question 6

Cashews and asparagus are normal goods. When the price of asparagus falls, the substitution effect by itself causes

Accepted Answer

A)   the consumer to feel richer, so the consumer buys more cashews.
B)   the consumer to feel richer, so the consumer buys less cashews.
C)   cashews to be relatively more expensive, so the consumer buys less cashews.
D)   cashews to be relatively less expensive, so the consumer buys more cashews.E) A) and B)
F) A) and C)

Question 7

Scenario 21-2
Lawrence has recently graduated from college with a degree in journalism and economics. He has decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Lawrence is typically awake for 112 hours each week (he sleeps an average of 8 hours each day) . For each hour Lawrence spends writing, he can earn $75. Lawrence is such a good writer that he can get paid for as many hours of writing as he chooses to work.
-Refer to Scenario 21-2. If Lawrence's wage increases to $90 per hour of writing, which of the following points would fall on his budget constraint?

Accepted Answer

A)   75 hours of leisure, $2,775 of consumption
B)   80 hours of leisure, $2,400 of consumption
C)   85 hours of leisure, $2,430 of consumption
D)   90 hours of leisure, $1,650 of consumptionE) None of the above
F) All of the above

Question 8

A normal good is one

Accepted Answer

A)   the average consumer chooses to consume at a normal level.
B)   the average consumer chooses to consume over other similar goods.
C)   for which an increase in income increases consumption of the good.
D)   for which an increase in income decreases consumption of the good.E) B) and C)
F) A) and C)

Question 9

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) A) and C)

Question 10

Figure 21-6 
-Refer to Figure 21-6. Suppose a consumer has $100 in income, the price of Mt. Dew is $2, and the value of A is 200. What is the price of popcorn?

Accepted Answer

A)   $0.50
B)   $1
C)   $2
D)   $4E) A) and B)
F) A) and C)

Question 11

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Accepted Answer

A) True 
 B)False

Question 12

Figure 21-23 
-Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The demand curve can be illustrated as the movement from

Accepted Answer

A)   D to E.
B)   D to C.
C)   C to E.
D)   E to D.E) A) and C)
F) A) and D)

Question 13

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. From the figure we can determine how much income Hannah earns when young and we can determine the interest rate. Could the interest rate rise to a level at which Hannah could afford to be at point D?

Accepted Answer

No. The point (0, 40000) is the horizont...

Question 14

If we observe that Jamie's budget constraint has moved outward, then we know for certain that

Accepted Answer

A)   her income must have increased.
B)   she will be indifferent between goods X and Y.
C)   the price of one or both of the goods must have decreased.
D)   she can reach a higher indifference curve.E) C) and D)
F) A) and C)

Question 15

Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes

Accepted Answer

A)   the consumer to feel richer, so the consumer buys more granola bars.
B)   the consumer to feel richer, so the consumer buys fewer granola bars.
C)   granola bars to be relatively more expensive, so the consumer buys more granola bars.
D)   granola bars to be relatively less expensive, so the consumer buys fewer granola bars.E) A) and D)
F) A) and C)

Question 16

For a typical consumer, indifference curves can intersect if they satisfy the property of transitivity.

Accepted Answer

A) True 
 B)False

Question 17

A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?

Accepted Answer

A)   $4
B)   $8
C)   $12
D)   $20E) All of the above
F) A) and B)

Question 18

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 19

Figure 21-30
The graph shows two budget constraints for a consumer. 
-Refer to Figure 21-30. What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

Accepted Answer

A decrease in the pr...

Question 20

A consumer's indifference curves are right angles when, for the consumer, the goods in question are .

Accepted Answer

The answer of A consumer's indifference curves are right angles...

Exam 21: The Theory of Consumer Choice

If we observe that a consumer's budget constraint has shifted inward, we can assume that the consumer will buy

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

Correct Answer
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When considering household savings, the relative price between consuming when young and consuming when old is the

Correct Answer
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Which of the following statements is not correct?

Correct Answer
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Correct Answer
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No. The point (0, 40000) is the horizont...
View Answer

Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

Correct Answer
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A decrease in the pr...
View Answer

Figure 21-2 The downwardsloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which of the following statements is correct?

Correct Answer
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A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?

Correct Answer
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If we observe that Jamie's budget constraint has moved outward, then we know for certain that

Correct Answer
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A normal good is one

Correct Answer
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Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes

Correct Answer
verified

Figure 21-6 -Refer to Figure 21-6. Suppose a consumer has $100 in income, the price of Mt. Dew is $2, and the value of A is 200. What is the price of popcorn?

Correct Answer
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Which of the following statements is not correct?

Correct Answer
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Figure 21-23 -Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The demand curve can be illustrated as the movement from

Correct Answer
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A consumer's indifference curves are right angles when, for the consumer, the goods in question are .

Correct Answer
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Correct Answer
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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 Answer
verified
Kevin purchases 28 sweaters at...
View Answer

Cashews and asparagus are normal goods. When the price of asparagus falls, the substitution effect by itself causes

Correct Answer
verified

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Correct Answer
verified

For a typical consumer, indifference curves can intersect if they satisfy the property of transitivity.

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

If we observe that a consumer's budget constraint has shifted inward, we can assume that the consumer will buy

Correct AnswerverifiedShow Answer

The income effect of a price change is depicted by

Correct AnswerverifiedShow Answer

When considering household savings, the relative price between consuming when young and consuming when old is the

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedNo. The point (0, 40000) is the horizont...View AnswerShow Answer

Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

Correct AnswerverifiedA decrease in the pr...View AnswerShow Answer

Figure 21-2 The downward­sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?

Correct AnswerverifiedShow Answer

If we observe that Jamie's budget constraint has moved outward, then we know for certain that

Correct AnswerverifiedShow Answer

A normal good is one

Correct AnswerverifiedShow Answer

Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes

Correct AnswerverifiedShow Answer

Figure 21-6 -Refer to Figure 21-6. Suppose a consumer has $100 in income, the price of Mt. Dew is $2, and the value of A is 200. What is the price of popcorn?

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Figure 21-23 -Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The demand curve can be illustrated as the movement from

Correct AnswerverifiedShow Answer

A consumer's indifference curves are right angles when, for the consumer, the goods in question are .

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Cashews and asparagus are normal goods. When the price of asparagus falls, the substitution effect by itself causes

Correct AnswerverifiedShow Answer

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Correct AnswerverifiedShow Answer

For a typical consumer, indifference curves can intersect if they satisfy the property of transitivity.

Correct AnswerverifiedShow Answer

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No. The point (0, 40000) is the horizont...
View Answer

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A decrease in the pr...
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Figure 21-2 The downwardsloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which of the following statements is correct?

Correct Answer
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Kevin purchases 28 sweaters at...
View Answer

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