Question 1

We can use the theory of consumer choice to analyze

Accepted Answer

A)  why most demand curves slope downward.
B)  the tradeoff between work and leisure
C)  how interest rates affect household saving.
D)  All of the above are correct.E) B) and C)
F) A) and D)

Question 2

The income 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  True

Question 3

The direction of the substitution effect is not influenced by whether the good is normal or inferior.

Accepted Answer

A) True 
 B)False

Question 4

A budget constraint illustrates bundles that a consumer prefers equally,while an indifference curve illustrates bundles that are equally affordable to a consumer.

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

Suppose Caroline is indifferent between tea and coffee as long as she consumes an equivalent amount of caffeine.Suppose that coffee has twice as much caffeine as tea.Which graph would illustrate a representative indifference curve?

Accepted Answer

A)   
B)   
C)   
D)   E) A) and D)
F) None of the above

Question 7

If goods A and B are perfect substitutes,then the marginal rate of substitution of good A for good B is constant.

Accepted Answer

A) True 
 B)False  True

Question 8

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

Question 9

The substitution effect in the work-leisure model induces a person to work less in response to higher wages,which tends to make the labor-supply curve slope upward.

Accepted Answer

A) True 
 B)False

Question 10

Utility measures the

Accepted Answer

A)  income a consumer receives from consuming a bundle of goods.
B)  satisfaction a consumer receives from consuming a bundle of goods.
C)  satisfaction a consumer places on her budget constraint.
D)  All of the above are correct.E) A) and C)
F) A) and B)

Question 11

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) A) and D)

Question 12

Which of the following statements is correct?

Accepted Answer

A)  The theory of consumer choice provides a more complete understanding of supply,just as the theory of the competitive firm provides a more complete understanding of demand.
B)  The theory of consumer choice provides a more complete understanding of demand,just as the theory of the competitive firm provides a more complete understanding of supply.
C)  Monetary theory provides a more complete understanding of demand,just as the theory of the competitive firm provides a more complete understanding of supply.
D)  The theory of public choice provides a more complete understanding of supply,just as the theory of the competitive firm provides a more complete understanding of demand.E) A) and B)
F) A) and C)

Question 13

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

Question 14

Pete consumes two goods,rice and fish.When the price of fish rises,he consumes less fish.When the price of rice rises,he consumes more rice.For Pete,

Accepted Answer

A)  fish is not a Giffen good but rice is.
B)  rice is not a Giffen good but fish is.
C)  both fish and rice are normal goods.
D)  both fish and rice are Giffen goods.E) B) and C)
F) C) and D)

Question 15

When economists describe preferences,they often use the concept of

Accepted Answer

A)  markets.
B)  income.
C)  utility.
D)  prices.E) B) and D)
F) None of the above

Question 16

Figure 21-11 
-Refer to Figure 21-11.The graph illustrates

Accepted Answer

A)  a typical budget constraint.
B)  a typical indifference curve.
C)  an indifference curve where goods X and Y are perfect complements.
D)  an indifference curve where goods X and Y are perfect substitutes.E) A) and C)
F) A) and D)

Question 17

A good is an inferior good if the consumer buys less of it when

Accepted Answer

A)  his income rises.
B)  the price of the good rises.
C)  the price of a substitute good falls.
D)  his income falls.E) B) and C)
F) A) and D) A

Question 18

Giffen goods violate the law of demand.

Accepted Answer

A) True 
 B)False

Question 19

Figure 21-10

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

Accepted Answer

A)  Bundle A provides the same utility as bundle E.
B)  Bundle A provides the same utility as bundle C.
C)  Bundle B contains more cake than bundle C.
D)  The bundles along indifference curve Indifference Curve 2 are preferred to those along indifference curve Indifference Curve 3.E) All of the above
F) A) and B)

Question 20

When two goods are perfect substitutes,the marginal rate of substitution

Accepted Answer

A)  is constant along the indifference curve.
B)  decreases as the scarcity of one good increases.
C)  increases as the scarcity of one good increases.
D)  changes to reflect the consumer's changing preferences for the goods.E) A) and B)
F) A) and C)

Exam 21: The Theory of Consumer Choice

We can use the theory of consumer choice to analyze

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedTrue

The direction of the substitution effect is not influenced by whether the good is normal or inferior.

Correct AnswerverifiedShow Answer

A budget constraint illustrates bundles that a consumer prefers equally,while an indifference curve illustrates bundles that are equally affordable to a consumer.

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

Correct AnswerverifiedShow Answer

Suppose Caroline is indifferent between tea and coffee as long as she consumes an equivalent amount of caffeine.Suppose that coffee has twice as much caffeine as tea.Which graph would illustrate a representative indifference curve?

Correct AnswerverifiedShow Answer

If goods A and B are perfect substitutes,then the marginal rate of substitution of good A for good B is constant.

Correct AnswerverifiedTrue

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

The substitution effect in the work-leisure model induces a person to work less in response to higher wages,which tends to make the labor-supply curve slope upward.

Correct AnswerverifiedShow Answer

Utility measures the

Correct AnswerverifiedShow Answer

A Giffen good is a good for which

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Pete consumes two goods,rice and fish.When the price of fish rises,he consumes less fish.When the price of rice rises,he consumes more rice.For Pete,

Correct AnswerverifiedShow Answer

When economists describe preferences,they often use the concept of

Correct AnswerverifiedShow Answer

Figure 21-11 -Refer to Figure 21-11.The graph illustrates

Correct AnswerverifiedShow Answer

A good is an inferior good if the consumer buys less of it when

Correct AnswerverifiedA

Giffen goods violate the law of demand.

Correct AnswerverifiedShow Answer

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

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When two goods are perfect substitutes,the marginal rate of substitution

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True

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Which of the following equations corresponds to an optimal choice point? (i) MRS = P_X/P_Y (ii) MU_X/MU_Y = P_X/P_Y (iii) MU_X/P_X = MU_Y/P_Y (iv) MU_X/P_Y = MU_Y/P_X

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True

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A

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