Question 1

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 B)
F) A) and C)

Question 2

Economists have found evidence of a Giffen good when studying the consumption of rice in the Chinese province of Hunan.

Accepted Answer

A) True 
 B)False

Question 3

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin. 
-Refer to Figure 21-31. Suppose point A was Kevin's optimum last week, and point B is his optimum this week. What happened between last week and this week?

Accepted Answer

The price ...

Question 4

Consumer theory provides the foundation for understanding demand curves because

Accepted Answer

A)   each point on a demand curve represents an optimal choice point.
B)   consumers purchase more inferior goods than normal goods.
C)   increases in income cause the budget constraint to rotate inward along one axis, which changes the consumer's purchases.
D)   increases in income cause the budget constraint to rotate outward along one axis, which changes the consumer's purchases.E) B) and C)
F) A) and D)

Question 5

Pepsi and pizza are normal goods. When the price of pizza rises, the substitution effect causes Pepsi to be relatively

Accepted Answer

A)   more expensive, so the consumer buys more Pepsi.
B)   more expensive, so the consumer buys less Pepsi.
C)   less expensive, so the consumer buys more Pepsi.
D)   less expensive, so the consumer buys less Pepsi.E) B) and C)
F) C) and D)

Question 6

Figure 21-2
The downward­sloping line on the figure represents a consumer's budget constraint. 
-Refer to Figure 21-2. A consumer who chooses to spend all of her income could be at which point(s)  on the figure?

Accepted Answer

A)   V only
B)   Z only
C)   V, W, X, or Y only
D)   W, X, or Y onlyE) A) and B)
F) A) and C)

Question 7

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

Question 8

The substitution effect of an increase in the interest rate will result in an increase in

Accepted Answer

A)   consumption when young and increase in savings when young.
B)   consumption when old and an increase in savings when young.
C)   consumption when young and an increase in savings when old.
D)   savings when old and an increase in consumption when old.E) A) and B)
F) A) and C)

Question 9

If a consumer experiences a decrease in income, the new budget constraint will have the same slope as the old budget constraint.

Accepted Answer

A) True 
 B)False

Question 10

Economic theory predicts that an increase in wages

Accepted Answer

A)   will cause a wage earner to work more.
B)   will cause a wage earner to work less.
C)   will cause a wage earner to be more productive.
D)   might cause a wage earner to work more or work less.E) A) and D)
F) C) and D)

Question 11

Which of the following is most likely an inferior good?

Accepted Answer

A)   an antique car
B)   gasoline
C)   a bus ticket
D)   an airline ticketE) B) and D)
F) A) and D)

Question 12

An inferior good is one in which

Accepted Answer

A)   the average consumer chooses not to consume.
B)   the good is not equally valued by all consumers.
C)   an increase in income increases consumption of the good.
D)   an increase in income decreases consumption of the good.E) None of the above
F) A) and D)

Question 13

If a consumer purchases more of good B when his income rises, good B is an inferior good.

Accepted Answer

A) True 
 B)False

Question 14

At a consumer's optimal choice, the consumer chooses the combination of goods such that the ratio of the marginal utilities equals the ratio of the prices.

Accepted Answer

A) True 
 B)False

Question 15

Suppose a consumer spends his income on CDs and DVDs. If his income decreases, the budget constraint for CDs and DVDs will

Accepted Answer

A)   shift outward, parallel to the original budget constraint.
B)   shift inward, parallel to the original budget constraint.
C)   rotate outward along the CD axis because he can afford more CDs.
D)   rotate outward along the DVD axis because he can afford more DVDs.E) All of the above
F) A) and D)

Question 16

The slope at any point on an indifference curve equals the absolute price at which a consumer is willing to substitute one good for the other.

Accepted Answer

A) True 
 B)False

Question 17

If leisure were an inferior good, then labor supply curves

Accepted Answer

A)   would all be negatively sloped.
B)   would all be positively sloped.
C)   would all be vertical.
D)   could still be positively or negatively sloped.E) All of the above
F) A) and D)

Question 18

Figure 21-29
The figure below illustrates the preferences of a representative consumer, Nathaniel. 
-Refer to Figure 21-29. Interest rates increase by 4 percent. Nathaniel's optimal choice point moves from A to B. Nathaniel consumes

Accepted Answer

A)   less while he is younger and saves more than he did before interest rates increased.
B)   more while he is younger and saves more than he did before interest rates increased.
C)   less while he is younger and saves less than he did before interest rates increased.
D)   more while he is younger and saves less than he did before interest rates increased.E) None of the above
F) A) and D)

Question 19

When the price of a good increases, all else equal, the higher price

Accepted Answer

A)   reduces the consumer's set of buying opportunities.
B)   leads to a parallel shift of the budget constraint.
C)   will necessarily lead to an increase in the consumption of goods whose price did not change.
D)   generally discourages the consumption of inferior goods.E) All of the above
F) A) and D)

Question 20

The theory of consumer choice is representative of how consumers make decisions but is not intended to be a literal account of the process.

Accepted Answer

A) True 
 B)False

Exam 21: The Theory of Consumer Choice

Figure 21-2 The downward­sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. A consumer who chooses to spend all of her income could be at which point(s) on the figure?

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If leisure were an inferior good, then labor supply curves

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When the price of a good increases, all else equal, the higher price

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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. Suppose point A was Kevin's optimum last week, and point B is his optimum this week. What happened between last week and this week?

Correct AnswerverifiedThe price ...View AnswerShow Answer

Consumer theory provides the foundation for understanding demand curves because

Correct AnswerverifiedShow Answer

Economists have found evidence of a Giffen good when studying the consumption of rice in the Chinese province of Hunan.

Correct AnswerverifiedShow Answer

Figure 21-29 The figure below illustrates the preferences of a representative consumer, Nathaniel. -Refer to Figure 21-29. Interest rates increase by 4 percent. Nathaniel's optimal choice point moves from A to B. Nathaniel consumes

Correct AnswerverifiedShow Answer

The slope at any point on an indifference curve equals the absolute price at which a consumer is willing to substitute one good for the other.

Correct AnswerverifiedShow Answer

Economic theory predicts that an increase in wages

Correct AnswerverifiedShow Answer

An inferior good is one in which

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Which of the following is most likely an inferior good?

Correct AnswerverifiedShow Answer

The theory of consumer choice is representative of how consumers make decisions but is not intended to be a literal account of the process.

Correct AnswerverifiedShow Answer

The substitution effect of an increase in the interest rate will result in an increase in

Correct AnswerverifiedShow Answer

At a consumer's optimal choice, the consumer chooses the combination of goods such that the ratio of the marginal utilities equals the ratio of the prices.

Correct AnswerverifiedShow Answer

Pepsi and pizza are normal goods. When the price of pizza rises, the substitution effect causes Pepsi to be relatively

Correct AnswerverifiedShow Answer

Suppose a consumer spends his income on CDs and DVDs. If his income decreases, the budget constraint for CDs and DVDs will

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

If a consumer experiences a decrease in income, the new budget constraint will have the same slope as the old budget constraint.

Correct AnswerverifiedShow Answer

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

If a consumer purchases more of good B when his income rises, good B is an inferior good.

Correct AnswerverifiedShow Answer

Figure 21-2 The downwardsloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. A consumer who chooses to spend all of her income could be at which point(s) on the figure?

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