Question 1

Economic studies of lottery winners and people who have inherited large amounts of money show that

Accepted Answer

A)   the income effect of winning the lottery or inheriting large amounts of money likely outweighs the substitution effect for most people.
B)   the substitution effect of winning the lottery or inheriting large amounts of money likely outweighs the income effect for most people.
C)   most people view leisure as an inferior good.
D)   most people's labor supply is unaffected by changes in wealth.E) B) and C)
F) C) and D)

Question 2

A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume

Accepted Answer

A)   more popcorn and more Pepsi.
B)   less popcorn and less Pepsi.
C)   more popcorn and less Pepsi.
D)   less popcorn and more Pepsi.E) B) and C)
F) A) and C)

Question 3

When the price of a normal 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) B) and C)
F) A) and B)

Question 4

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 5

An individual's demand curve for a good is derived by varying the

Accepted Answer

A)   income level and observing the resulting total utility derived from both goods.
B)   price of one good and observing the resulting quantities of the other good.
C)   budget line to the left and calculating the loss in total utility.
D)   price of one good and observing the resulting quantities demanded of that good.E) C) and D)
F) A) and C)

Question 6

A typical indifference curve is upward sloping.

Accepted Answer

A) True 
 B)False

Question 7

Scenario 21-3
Scott knows that he will ultimately face retirement. Assume that Scott will experience two periods in his life, one in which he works and earns income, and one in which he is retired and earns no income. Scott can earn $250,000 during his working period and nothing in his retirement period. He must both save and consume in his 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)   Scott will decrease his savings in the work period.
B)   Scott will increase his savings in the work period.
C)   Scott will not change his consumption in the work period.
D)   All of the above are possible.E) B) and C)
F) B) and D)

Question 8

Figure 21-7 
-Refer to Figure 21-7. Suppose the price of a book is $15, the price of a DVD is $10, the value of A is 5, and the value of B is 7.5. How much income does the consumer have?

Accepted Answer

A)   $150
B)   $100
C)   $75
D)   $37.50E) B) and C)
F) All of the above

Question 9

The substitution effect from an increase in wages is evident in a

Accepted Answer

A)   decrease in labor demand.
B)   desire to consume less leisure.
C)   desire to consume more leisure.
D)   backward-bending labor supply curve.E) A) and C)
F) C) and D)

Question 10

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin. 
-Refer to Figure 21-31. If Kevin's income is $1,260 and point A is his optimum, then what is the price of a shirt?

Accepted Answer

The price ...

Question 11

If we observe that William's budget constraint has moved inward, then we know for certain that

Accepted Answer

A)   his income must have decreased.
B)   he will be indifferent between goods X and Y.
C)   the price of one or both of the goods must have increased.
D)   his utility will decrease.E) None of the above
F) A) and B)

Question 12

Figure 21-24
The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. 
-Refer to Figure 21-24. About what percentage of his income is Steve spending on apples when he is at his optimum?

Accepted Answer

A)   33.3 percent
B)   38.2 percent
C)   44.4 percent
D)   56.7 percentE) B) and C)
F) All of the above

Question 13

Mark spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Mark's income has stayed fixed at $46 per week. If you measure gin on the vertical axis and cocktail olives on the horizontal axis, then the budget constraint

Accepted Answer

A)   is steeper after the price changes.
B)   is flatter after the price changes.
C)   is the same after the price changes.
D)   shifts in a parallel fashion to the old budget constraint after the price changes.E) All of the above
F) A) and D)

Question 14

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

Question 15

The income effect of a price change is unaffected by whether the good is a normal or inferior good.

Accepted Answer

A) True 
 B)False

Question 16

Good X is an inferior good but not a Giffen good. When the price of X increases, the consumer will consume

Accepted Answer

A)   more X.
B)   the same amount of X.
C)   less X.
D)   more or less X depending on the size of the income effect relative to the size of the substitution effect.E) A) and D)
F) All of the above

Question 17

You can think of an indifference curve as an

Accepted Answer

A)   equal-cost curve.
B)   equal-marginal-cost curve.
C)   equal-utility curve.
D)   equal-marginal-utility curve.E) B) and D)
F) A) and B)

Question 18

Which of the following does not represent a tradeoff facing a consumer?

Accepted Answer

A)   choosing to purchase more of all goods
B)   choosing to spend more time on leisure and less time on work
C)   choosing to spend more now and consume less in the future
D)   choosing to purchase less of one good in order to purchase more of another goodE) A) and C)
F) A) and B)

Question 19

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

Accepted Answer

A)   $1.
B)   $3.
C)   $10.
D)   $30.E) All of the above
F) A) and B)

Question 20

On a graph we draw a consumer's budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then

Accepted Answer

A)   an apple costs twice as much as a light bulb.
B)   the opportunity cost of a light bulb is 2 apples.
C)   the opportunity cost of an apple is one-half of a light bulc.
D)   All of the above are correct.E) None of the above
F) B) and D)

Exam 21: The Theory of Consumer Choice

Correct Answer
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An individual's demand curve for a good is derived by varying the

Correct Answer
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When the price of a normal good decreases,

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

Correct Answer
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Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. About what percentage of his income is Steve spending on apples when he is at his optimum?

Correct Answer
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A typical indifference curve is upward sloping.

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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?

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

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

Good X is an inferior good but not a Giffen good. When the price of X increases, the consumer will consume

Correct Answer
verified

The substitution effect from an increase in wages is evident in a

Correct Answer
verified

The income effect of a price change is unaffected by whether the good is a normal or inferior good.

Correct Answer
verified

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If Kevin's income is $1,260 and point A is his optimum, then what is the price of a shirt?

Correct Answer
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The price ...
View Answer

On a graph we draw a consumer's budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then

Correct Answer
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A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume

Correct Answer
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Figure 21-7 -Refer to Figure 21-7. Suppose the price of a book is $15, the price of a DVD is $10, the value of A is 5, and the value of B is 7.5. How much income does the consumer have?

Correct Answer
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Which of the following does not represent a tradeoff facing a consumer?

Correct Answer
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You can think of an indifference curve as an

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Correct Answer
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Economic studies of lottery winners and people who have inherited large amounts of money show that

Correct Answer
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Exam 21: The Theory of Consumer Choice

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An individual's demand curve for a good is derived by varying the

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When the price of a normal good decreases,

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If we observe that William's budget constraint has moved inward, then we know for certain that

Correct AnswerverifiedShow Answer

Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. About what percentage of his income is Steve spending on apples when he is at his optimum?

Correct AnswerverifiedShow Answer

A typical indifference curve is upward sloping.

Correct AnswerverifiedShow Answer

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

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

Good X is an inferior good but not a Giffen good. When the price of X increases, the consumer will consume

Correct AnswerverifiedShow Answer

The substitution effect from an increase in wages is evident in a

Correct AnswerverifiedShow Answer

The income effect of a price change is unaffected by whether the good is a normal or inferior good.

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. If Kevin's income is $1,260 and point A is his optimum, then what is the price of a shirt?

Correct AnswerverifiedThe price ...View AnswerShow Answer

On a graph we draw a consumer's budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then

Correct AnswerverifiedShow Answer

A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume

Correct AnswerverifiedShow Answer

Figure 21-7 -Refer to Figure 21-7. Suppose the price of a book is $15, the price of a DVD is $10, the value of A is 5, and the value of B is 7.5. How much income does the consumer have?

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Which of the following does not represent a tradeoff facing a consumer?

Correct AnswerverifiedShow Answer

You can think of an indifference curve as an

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Correct AnswerverifiedShow Answer

Economic studies of lottery winners and people who have inherited large amounts of money show that

Correct AnswerverifiedShow Answer

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The price ...
View Answer

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