Question 1

A Giffen good is a good for which

Accepted Answer

A)   an increase in the price raises the quantity demanded.
B)   the income effect outweighs the substitution effect.
C)   an increase in the price decreases the quantity demanded.
D)   Both a)  and b)  are correct.E) B) and C)
F) B) and D)

Question 2

When indifference curves are downward sloping,the marginal rate of substitution is usually constant.

Accepted Answer

A) True 
 B)False

Question 3

Draw a budget constraint that is consistent with the following prices and income.
Income = 200
PY = 50
PX = 25
a.Demonstrate how your original budget constraint would change if income increases to 500.
b.Demonstrate how your original budget constraint would change if PY decreases to 20.
c.Demonstrate how your original budget constraint would change if PX increases to 40.

Accepted Answer

The answer of Draw a budget constraint that is consistent...

Question 4

Figure 21-5

-Refer to Figure 21-5.Assume that a consumer faces the budget constraint shown in graph (a) in January and the budget constraint shown in graph (b) in February.If the consumer's income has remained constant,what has happened to prices between January and February?

Accepted Answer

A)   The price of X has fallen, but there could not have been a change in the price of Y.
B)   The price of Y has fallen, but there could not have been a change in the price of X.
C)   The price of X has fallen, and the price of Y has risen.
D)   The price of Y has fallen, and the price of X has risen.E) All of the above
F) None of the above

Question 5

When two goods are perfect complements,the indifference curves are

Accepted Answer

A)   positively sloped.
B)   negatively sloped.
C)   straight lines.
D)   right angles.E) A) and B)
F) B) and C)

Question 6

Figure 21-7
 
-Refer to Figure 21-7.Suppose a consumer has $200 in income,the price of a book is $5,and the price of a DVD is $10.What is the value of B?

Accepted Answer

A)   40
B)   20
C)   10
D)   2E) B) and D)
F) None of the above

Question 7

Suppose a consumer spends her income on two goods: music CDs and DVDs.The price of a CD is $8,and the price of a DVD is $20.If we graph the budget constraint by measuring the quantity of CDs purchased on the horizontal axis and the quantity of DVDs on the vertical axis,what is the slope of the budget constraint?

Accepted Answer

A)   -5.0
B)   -2.5
C)   -0.4
D)   The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods.E) C) and D)
F) A) and C)

Question 8

Figure 21-19
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies:
 
-Refer to Figure 21-19.Assume that the consumer has an income of $40,the price of a bag of marshmallows is $2,and the price of a bag of chocolate chips is $2.The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) A) and B)
F) A) and C)

Question 9

When we derive the demand curve for a good,we should remember that the

Accepted Answer

A)   income effect must be greater than the substitution effect.
B)   substitution effect must be greater than the income effect.
C)   substitution effect must be in the same direction as the income effect.
D)   income effect and the substitution effect may work in the same or in opposite directions.E) None of the above
F) All of the above

Question 10

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

Question 11

Indifference curves that cross violate the property of

Accepted Answer

A)   the marginal rate of substitution.
B)   transitivity.
C)   indifference curves bowing inward.
D)   They do not violate any properties of indifference curves.E) A) and B)
F) A) and C)

Question 12

Which of the following is a property of a typical indifference curve?

Accepted Answer

A)   upward sloping
B)   bowed away from the origin
C)   does not intersect another indifference curve
D)   a lower one is preferred to a higher oneE) A) and D)
F) All of the above

Question 13

A consumer who doesn't spend all of her income

Accepted Answer

A)   would be at a point outside of her budget constraint.
B)   would be at a point inside her budget constraint.
C)   must not be consuming positive quantities of all goods.
D)   must be consuming at a point where her budget constraint touches one of the axes.E) C) and D)
F) All of the above

Question 14

Karen,Tara,and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days.Ice cream costs $5 per gallon,and paperback novels cost $8 each.Karen has a budget of $80,Tara has a budget of $60,and Chelsea has a budget of $40 to spend on ice cream and paperback novels.Who can afford to purchase 5 gallons of ice cream and 8 paperback novels?

Accepted Answer

A)   Karen, Tara, and Chelsea
B)   Karen only
C)   Tara and Chelsea but not Karen
D)   none of the womenE) None of the above
F) A) and B)

Question 15

Figure 21-1
 
-Refer to Figure 21-1.Which point in the figure showing a consumer's budget constraint represents the consumer's income divided by the price of a CD?

Accepted Answer

A)   point A
B)   point C
C)   point D
D)   point EE) A) and D)
F) B) and D)

Question 16

When two goods are perfect substitutes,the

Accepted Answer

A)   indifference curve is a downward-sloping straight line.
B)   marginal rate of substitution is constant.
C)   indifference curve is a vertical straight line.
D)   Both a and b are correct.E) A) and B)
F) A) and C)

Question 17

When two goods are perfect complements,the indifference curve is

Accepted Answer

A)   a horizontal straight line.
B)   bowed outward.
C)   a downward-sloping straight line.
D)   a right angle.E) A) and B)
F) A) and C)

Question 18

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) C) and D)
F) All of the above

Question 19

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

Question 20

A consumer's optimal choice occurs when the

Accepted Answer

A)   consumer's valuation of the two goods equals the market's valuation of the two goods.
B)   consumer minimizes her expenditures.
C)   consumer attains the highest indifference curve.
D)   consumer's valuation of the two goods exceeds the market's valuation of the two goods.E) B) and D)
F) B) and C)

Exam 21: The Theory of Consumer Choice.

Indifference curves that cross violate the property of

Correct Answer
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A Giffen good is a good for which

Correct Answer
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A consumer's optimal choice occurs when the

Correct Answer
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Correct Answer
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Figure 21-5 -Refer to Figure 21-5.Assume that a consumer faces the budget constraint shown in graph (a) in January and the budget constraint shown in graph (b) in February.If the consumer's income has remained constant,what has happened to prices between January and February?

Correct Answer
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Indifference curves graphically represent

Correct Answer
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At the consumer's optimum

Correct Answer
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When two goods are perfect complements,the indifference curves are

Correct Answer
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Which of the following is a property of a typical indifference curve?

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When we derive the demand curve for a good,we should remember that the

Correct Answer
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Figure 21-7 -Refer to Figure 21-7.Suppose a consumer has $200 in income,the price of a book is $5,and the price of a DVD is $10.What is the value of B?

Correct Answer
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A consumer who doesn't spend all of her income

Correct Answer
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When two goods are perfect substitutes,the

Correct Answer
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Figure 21-1 -Refer to Figure 21-1.Which point in the figure showing a consumer's budget constraint represents the consumer's income divided by the price of a CD?

Correct Answer
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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?

Correct Answer
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When two goods are perfect complements,the indifference curve is

Correct Answer
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When indifference curves are downward sloping,the marginal rate of substitution is usually constant.

Correct Answer
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Correct Answer
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Exam 21: The Theory of Consumer Choice.

Indifference curves that cross violate the property of

Correct AnswerverifiedShow Answer

A Giffen good is a good for which

Correct AnswerverifiedShow Answer

A consumer's optimal choice occurs when the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 21-5 -Refer to Figure 21-5.Assume that a consumer faces the budget constraint shown in graph (a) in January and the budget constraint shown in graph (b) in February.If the consumer's income has remained constant,what has happened to prices between January and February?

Correct AnswerverifiedShow Answer

Indifference curves graphically represent

Correct AnswerverifiedShow Answer

At the consumer's optimum

Correct AnswerverifiedShow Answer

When two goods are perfect complements,the indifference curves are

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is a property of a typical indifference curve?

Correct AnswerverifiedShow Answer

When we derive the demand curve for a good,we should remember that the

Correct AnswerverifiedShow Answer

Figure 21-7 -Refer to Figure 21-7.Suppose a consumer has $200 in income,the price of a book is $5,and the price of a DVD is $10.What is the value of B?

Correct AnswerverifiedShow Answer

A consumer who doesn't spend all of her income

Correct AnswerverifiedShow Answer

When two goods are perfect substitutes,the

Correct AnswerverifiedShow Answer

Figure 21-1 -Refer to Figure 21-1.Which point in the figure showing a consumer's budget constraint represents the consumer's income divided by the price of a CD?

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

When two goods are perfect complements,the indifference curve is

Correct AnswerverifiedShow Answer

When indifference curves are downward sloping,the marginal rate of substitution is usually constant.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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