Question 1

The slope of an indifference curve is

Accepted Answer

A)  the rate of change of consumer's preferences.
B)  the marginal rate of preference.
C)  the marginal rate of substitution.
D)  always equal to the slope of the budget constraint.E) B) and D)
F) A) and C)

Question 2

If the interest rate rises,the household could choose to

Accepted Answer

A)  increase consumption when young.
B)  increase consumption when old.
C)  decrease consumption when young.
D)  Any of the above could be correct.E) A) and C)
F) None of the above

Question 3

Explain the relationship between the budget constraint and indifference curve at consumer optimum.

Accepted Answer

Since the budget constraint is tangent t...

Question 4

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

Accepted Answer

A) True 
 B)False

Question 5

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X

Accepted Answer

A)  is equal to the marginal utility per dollar saved on good X.
B)  is greater than the marginal utility per dollar spent on good Y.
C)  is equal to the marginal utility per dollar spent on good Y.
D)  is less than the marginal utility per dollar spent on good Y.E) None of the above
F) All of the above

Question 6

Suppose that you have $100 today and expect to receive $100 one year from today.Your money market account pays an annual interest rate of 25%,and you may borrow money at that interest rate.Suppose that you borrow $60 and spend $160 today.After you repay your loan one year from today,how much money will you have available for consumption one year from today?

Accepted Answer

A)  $0
B)  $25
C)  $50
D)  $75E) All of the above
F) A) and D)

Question 7

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)  he feels less well off.
D)  his income falls.E) B) and C)
F) All of the above

Question 8

A decrease in income will cause a shift in the budget constraint

Accepted Answer

A)  outward.
B)  towards the good most consumed.
C)  towards the good least consumed.
D)  inward.E) All of the above
F) C) and D)

Question 9

The marginal rate of substitution between two goods always equals the

Accepted Answer

A)  marginal utility of one divided by the marginal utility of the other.
B)  marginal utility of one times the marginal utility of the other.
C)  price of one good divided by the price of the other.
D)  Both a and c are correct.E) All of the above
F) A) and D)

Question 10

Suppose a consumer spends her income on two goods: music CDs and DVDs.If 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 CDs the consumer can purchase?

Accepted Answer

A)  10
B)  20
C)  40
D)  50E) A) and B)
F) None of the above

Question 11

If goods X and Y are perfect complements,then if the price of good Y falls,changes in the amount of goods X and Y purchased are due

Accepted Answer

A)  strictly to the substitution effect.
B)  strictly to the income effect.
C)  to both the income and substitution effects
D)  strictly to the complement effect.E) C) and D)
F) All of the above

Question 12

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution is called

Accepted Answer

A)  the income effect.
B)  the substitution effect.
C)  the Giffen good effect.
D)  the inferior good effect.E) C) and D)
F) A) and D)

Question 13

A consumer's preferences for $1 bills and $20 bills can be represented by indifference curves that are

Accepted Answer

A)  bowed out from the origin
B)  bowed in towards the origin
C)  straight lines
D)  right anglesE) C) and D)
F) A) and B)

Question 14

When indifference curves are bowed in toward the origin,

Accepted Answer

A)  a consumer is less inclined to trade away goods they are lacking.
B)  a consumer's willingness to trade away goods they have in abundance diminishes.
C)  an increase in income will shift the indifference curve away from the origin.
D)  a decrease in income will shift the indifference curve away from the origin.E) None of the above
F) B) and D)

Question 15

An outward shift of the budget constraint will cause a consumer to buy

Accepted Answer

A)  fewer normal goods and more inferior goods.
B)  more normal goods and fewer inferior goods.
C)  more normal goods and more inferior goods.
D)  fewer normal goods and fewer inferior goods.E) All of the above
F) B) and C)

Question 16

A fall in the price of DVD players leads consumers to buy more DVD players.From this information we can conclude that DVD players

Accepted Answer

A)  are normal goods.
B)  are inferior goods.
C)  are Giffen goods.
D)  None of the above is correct.E) C) and D)
F) B) and C)

Question 17

The income effect of an increase in the interest rate (when "Consumption when young" and "Consumption when old" are both normal goods) will result in

Accepted Answer

A)  an increase in saving when young.
B)  an increase in saving when old.
C)  a decrease in saving when young.
D)  a decrease in saving when old.E) All of the above
F) A) and D)

Question 18

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) B) and C)

Question 19

The slope of the budget constraint is determined by the

Accepted Answer

A)  relative price of the goods measured on the axes.
B)  relative price of the goods measured on the axes and the consumer's income.
C)  endowment of productive resources.
D)  preferences of the consumer.E) None of the above
F) All of the above

Question 20

Figure 21-3
 
-Refer to Figure 21-3.Assume that a consumer faces both budget constraints in graph (a) and graph (b) on two different occasions.If her income has remained constant,what has happened to prices?

Accepted Answer

A)  The price of X in graph (a)  is higher than the price of X in graph (b) .
B)  The price of Y in graph (a)  is higher than the price of Y in graph (b) .
C)  The prices of both X and Y are lower in graph (a) .
D)  None of the above are true.E) All of the above
F) A) and D)

Exam 21: The Theory of Consumer Choice

When indifference curves are bowed in toward the origin,

Correct Answer
verified

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X

Correct Answer
verified

The income effect of an increase in the interest rate (when "Consumption when young" and "Consumption when old" are both normal goods) will result in

Correct Answer
verified

If goods X and Y are perfect complements,then if the price of good Y falls,changes in the amount of goods X and Y purchased are due

Correct Answer
verified

A consumer's preferences for $1 bills and $20 bills can be represented by indifference curves that are

Correct Answer
verified

If the interest rate rises,the household could choose to

Correct Answer
verified

Figure 21-3 -Refer to Figure 21-3.Assume that a consumer faces both budget constraints in graph (a) and graph (b) on two different occasions.If her income has remained constant,what has happened to prices?

Correct Answer
verified

A fall in the price of DVD players leads consumers to buy more DVD players.From this information we can conclude that DVD players

Correct Answer
verified

Suppose a consumer spends her income on two goods: music CDs and DVDs.If 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 CDs the consumer can purchase?

Correct Answer
verified

The slope of an indifference curve is

Correct Answer
verified

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution is called

Correct Answer
verified

Correct Answer
verified

An outward shift of the budget constraint will cause a consumer to buy

Correct Answer
verified

The slope of the budget constraint is determined by the

Correct Answer
verified

A decrease in income will cause a shift in the budget constraint

Correct Answer
verified

The marginal rate of substitution between two goods always equals the

Correct Answer
verified

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

Correct Answer
verified

If leisure were an inferior good,then labor supply curves

Correct Answer
verified

Explain the relationship between the budget constraint and indifference curve at consumer optimum.

Correct Answer
verified
Since the budget constraint is tangent t...
View Answer

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

When indifference curves are bowed in toward the origin,

Correct AnswerverifiedShow Answer

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X

Correct AnswerverifiedShow Answer

The income effect of an increase in the interest rate (when "Consumption when young" and "Consumption when old" are both normal goods) will result in

Correct AnswerverifiedShow Answer

If goods X and Y are perfect complements,then if the price of good Y falls,changes in the amount of goods X and Y purchased are due

Correct AnswerverifiedShow Answer

A consumer's preferences for $1 bills and $20 bills can be represented by indifference curves that are

Correct AnswerverifiedShow Answer

If the interest rate rises,the household could choose to

Correct AnswerverifiedShow Answer

Figure 21-3 -Refer to Figure 21-3.Assume that a consumer faces both budget constraints in graph (a) and graph (b) on two different occasions.If her income has remained constant,what has happened to prices?

Correct AnswerverifiedShow Answer

A fall in the price of DVD players leads consumers to buy more DVD players.From this information we can conclude that DVD players

Correct AnswerverifiedShow Answer

Suppose a consumer spends her income on two goods: music CDs and DVDs.If 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 CDs the consumer can purchase?

Correct AnswerverifiedShow Answer

The slope of an indifference curve is

Correct AnswerverifiedShow Answer

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution is called

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An outward shift of the budget constraint will cause a consumer to buy

Correct AnswerverifiedShow Answer

The slope of the budget constraint is determined by the

Correct AnswerverifiedShow Answer

A decrease in income will cause a shift in the budget constraint

Correct AnswerverifiedShow Answer

The marginal rate of substitution between two goods always equals the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If leisure were an inferior good,then labor supply curves

Correct AnswerverifiedShow Answer

Explain the relationship between the budget constraint and indifference curve at consumer optimum.

Correct AnswerverifiedSince the budget constraint is tangent t...View AnswerShow Answer

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

Correct AnswerverifiedShow Answer

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Since the budget constraint is tangent t...
View Answer

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