Question 1

Dave consumes two normal goods,X and Y,and is currently at an optimum.If the price of good X falls,we can predict with certainty that

Accepted Answer

A)   Dave will consume more of both goods because his real income has risen.
B)   the substitution effect will be positive for good X and negative for good Y.
C)   Dave may consume more or less of good X, but he will consume less of good Y.
D)   the substitution effect will offset the income effect for good X.E) All of the above
F) B) and C)

Question 2

Using indifference curves and budget constraints,graphically illustrate the substitution and income effect that would result from a change in the price of a normal good.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> The graph above illustrates a...

Question 3

Figure 21-10
 
-Refer to Figure 21-10.A person that chooses to consume bundle C is likely to

Accepted Answer

A)   receive higher total satisfaction at bundle C than at bundle A.
B)   spend more on bundle C than bundle A.
C)   receive higher marginal utility from cake than from donuts.
D)   receive higher marginal utility from donuts than from cake.E) A) and B)
F) A) and C)

Question 4

When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs

Accepted Answer

A)   along the highest attainable indifference curve.
B)   where the indifference curve is tangent to the budget constraint.
C)   where the marginal utility per dollar spent is the same for both X and Y.
D)   All of the above are correct.E) None of the above
F) All of the above

Question 5

Suppose that Harry likes pears twice as much as apples,meaning that he is always indifferent between consuming one pear or two apples.Harry's indifference curves for pears and apples are

Accepted Answer

A)   right angles.
B)   bowed inward.
C)   bowed outward.
D)   downward-sloping straight lines.E) B) and D)
F) None of the above

Question 6

Which of the following equations corresponds to an optimal choice point?
(i) MRS = PX/PY
(ii) MUX/MUY = PX/PY
(iii) MUX/PX = MUY/PY
(iv) MUX/PY = MUY/PX

Accepted Answer

A)   (i)  only
B)   (i) , (ii) , and (iii)  only
C)   (ii)  and (iv)  only
D)   (i) , (ii) , (iii) , and (iv) E) B) and D)
F) All of the above

Question 7

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.

-Refer to Figure 21-3.Which of the graphs in the figure reflects a decrease in the price of good Y only?

Accepted Answer

A)   graph a
B)   graph b
C)   graph c
D)   graph dE) A) and B)
F) None of the above

Question 8

An optimizing consumer will select the consumption bundle in which the

Accepted Answer

A)   ratio of total utilities is equal to the relative price ratio.
B)   ratio of income to price equals the marginal rate of substitution.
C)   marginal rate of substitution is equal to the relative price ratio of the goods.
D)   marginal rate of substitution is equal to marginal utility.E) B) and C)
F) A) and B)

Question 9

The bowed shape of the indifference curve reflects the consumer's

Accepted Answer

A)   unwillingness to give up a good that he already has in large quantity.
B)   unwillingness to purchase a good that he already has in large quantity.
C)   greater willingness to give up a good that he already has in large quantity.
D)   greater willingness to purchase a good that he already has in large quantity.E) A) and D)
F) B) and C)

Question 10

The slope of the budget constraint reveals the relative price of good X compared to good Y.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

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) C) and D)
F) None of the above

Question 13

Figure 21-10
 
-Refer to Figure 21-10.Which of the following statements is correct?

Accepted Answer

A)   If a consumer moves from bundle C to bundle A, her loss of cake cannot be compensated for by an increase in donuts.
B)   Bundle E is preferred to all other points identified in the figure.
C)   Because more is preferred to less, bundle C may be preferred to bundle E in some circumstances for this consumer.
D)   Even though bundle E has more of both goods than bundle B, we could draw a different set of indifference curves in which bundle B is preferred to bundle E.E) A) and D)
F) A) and C)

Question 14

If consumers purchase more of a good when their income rises,the good is a normal good.

Accepted Answer

A) True 
 B)False

Question 15

Laura consumes only beer and chips.Her indifference curves are all bowed inward.Consider the bundles (2,6) ,(4,4) ,and (6,2) .If Laura is indifferent between (2,6) and (6,2) ,then Laura must

Accepted Answer

A)   prefer (4,4)  to (6,2) .
B)   be indifferent between (4,4)  and (6,2) .
C)   prefer (6,2)  to (4,4) .
D)   prefer (2,6)  to (4,4) .E) A) and B)
F) A) and C)

Question 16

Just as the theory of the competitive firm provides a more complete understanding of supply,the theory of consumer choice provides a more complete understanding of

Accepted Answer

A)   demand.
B)   profits.
C)   production possibility frontiers.
D)   wages.E) B) and D)
F) B) and C)

Question 17

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.

-Refer to Figure 21-3.Which of the graphs in the figure reflects a decrease in the price of good X only?

Accepted Answer

A)   graph a
B)   graph b
C)   graph c
D)   graph dE) B) and C)
F) None of the above

Question 18

A Giffen good is one in which the quantity demanded rises as the price rises because the income effect

Accepted Answer

A)   reinforces the substitution effect.
B)   reinforces and is greater than the substitution effect.
C)   counteracts but is smaller than the substitution effect.
D)   counteracts and is greater than the substitution effect.E) All of the above
F) C) and D)

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50,then

Accepted Answer

A)   this is the last candy bar John will purchase since the marginal utility is less than the price.
B)   the opportunity cost of the candy bar is less than $1.50.
C)   if John purchases and consumes the candy bar his total satisfaction will go down because the marginal utility is less than the price.
D)   there is not enough information to determine if John will or will not purchase the candy bar.E) A) and D)
F) All of the above

Exam 21: The Theory of Consumer Choice.

Figure 21-10 -Refer to Figure 21-10.Which of the following statements is correct?

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Suppose that Harry likes pears twice as much as apples,meaning that he is always indifferent between consuming one pear or two apples.Harry's indifference curves for pears and apples are

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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?

Correct AnswerverifiedShow Answer

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

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Dave consumes two normal goods,X and Y,and is currently at an optimum.If the price of good X falls,we can predict with certainty that

Correct AnswerverifiedShow Answer

The bowed shape of the indifference curve reflects the consumer's

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The slope of the budget constraint reveals the relative price of good X compared to good Y.

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When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs

Correct AnswerverifiedShow Answer

Which of the following equations corresponds to an optimal choice point? (i) MRS = PX/PY (ii) MUX/MUY = PX/PY (iii) MUX/PX = MUY/PY (iv) MUX/PY = MUY/PX

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Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3.Which of the graphs in the figure reflects a decrease in the price of good X only?

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Figure 21-10 -Refer to Figure 21-10.A person that chooses to consume bundle C is likely to

Correct AnswerverifiedShow Answer

Just as the theory of the competitive firm provides a more complete understanding of supply,the theory of consumer choice provides a more complete understanding of

Correct AnswerverifiedShow Answer

If consumers purchase more of a good when their income rises,the good is a normal good.

Correct AnswerverifiedShow Answer

A Giffen good is one in which the quantity demanded rises as the price rises because the income effect

Correct AnswerverifiedShow Answer

Using indifference curves and budget constraints,graphically illustrate the substitution and income effect that would result from a change in the price of a normal good.

Correct Answerverified The graph above illustrates a...View AnswerShow Answer

Laura consumes only beer and chips.Her indifference curves are all bowed inward.Consider the bundles (2,6) ,(4,4) ,and (6,2) .If Laura is indifferent between (2,6) and (6,2) ,then Laura must

Correct AnswerverifiedShow Answer

Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3.Which of the graphs in the figure reflects a decrease in the price of good Y only?

Correct AnswerverifiedShow Answer

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50,then

Correct AnswerverifiedShow Answer

An optimizing consumer will select the consumption bundle in which the

Correct AnswerverifiedShow Answer

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The graph above illustrates a...
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