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

Question 2

Figure 21-21 
-Refer to Figure 21-21. Suppose that a consumer is originally at point R. Then the price of good X decreases. Which of the following represents the substitution effect of the price decrease?

Accepted Answer

A)  the movement from point R to point S
B)  the movement from point R to point T
C)  the movement from point T to point S
D)  None of the above is correct.E) A) and B)
F) All of the above

Question 3

Figure 21-32 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. 
-Refer to Figure 21-32. Which of the four labeled points is Hannah's optimum?

Accepted Answer

Point B is...

Question 4

Evaluate the following statement, "Warren Buffet is the second richest person in the world. He doesn't face any constraint on his ability to purchase commodities he wants."

Accepted Answer

All people face scarcity of re...

Question 5

Jake experiences an increase in his wages. The hours of labor that he supplies to the market would decrease if

Accepted Answer

A)  the income effect is larger than the substitution effect.
B)  the substitution effect is larger than the income effect.
C)  neither the income effect nor the substitution effect apply to Harry's labor-leisure tradeoff.
D)  Jake views both labor and leisure as inferior goods.E) A) and B)
F) A) and C)

Question 6

For Antonio, the income effect of an interest-rate increase is stronger than the substitution effect. In response to a higher interest rate, will Antonio save more or will he save less?

Accepted Answer

In response to a hig...

Question 7

Figure 21-32 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. 
-Refer to Figure 21-32. What is the value of the interest rate that Hannah earns on her saving?

Accepted Answer

The intere...

Question 8

For a typical consumer, most indifference curves are bowed inward.

Accepted Answer

A) True 
 B)False

Question 9

A consumer consumes two normal goods, coffee and chocolate. The price of coffee rises. The income effect, by itself, suggests that the consumer will consume

Accepted Answer

A)  more coffee and more chocolate.
B)  less coffee and less chocolate.
C)  more coffee and less chocolate.
D)  less coffee and more chocolate.E) A) and C)
F) All of the above

Question 10

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

Question 11

The slope of the budget constraint reveals the relative price of good X compared to good Y.

Accepted Answer

A) True 
 B)False

Question 12

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.    
-Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price of good Y only?

Accepted Answer

A)  graph a
B)  graph b
C)  graph c
D)  graph dE) A) and C)
F) A) and B)

Question 13

Figure 21-12 
-Refer to Figure 21-12. If the consumer moves from bundle V to bundle X, the

Accepted Answer

A)  marginal rate of substitution remains constant.
B)  total utility remains constant.
C)  total utility increases.
D)  Both a)  and b)  are correct.E) All of the above
F) None of the above

Question 14

Figure 21-10 
-Refer to Figure 21-10. Which of the following statements is not correct?

Accepted Answer

A)  Bundles on Indifference Curve 3 are preferred to bundles on Indifference Curve 1.
B)  The consumer is indifferent between bundles A and E because they contain the same number of donuts.
C)  The consumer is indifference between bundles B and C.
D)  The consumer prefers bundle C to bundle D.E) C) and D)
F) A) and D)

Question 15

Two economists found empirical evidence that when the price of rice decreased in the Hunan province of China, local residents consumed less rice than before the price decrease. The study provides a real-world example of a(n)

Accepted Answer

A)  normal good.
B)  inferior good that is not a Giffen good.
C)  Giffen good.
D)  luxury good.E) All of the above
F) B) and D)

Question 16

Giffen goods have positively-sloped demand curves because they are

Accepted Answer

A)  normal goods for which the income effect outweighs the substitution effect.
B)  normal goods for which the substitution effect outweighs the income effect.
C)  inferior goods for which the income effect outweighs the substitution effect.
D)  inferior goods for which the substitution effect outweighs the income effect.E) None of the above
F) B) and C)

Question 17

A consumer

Accepted Answer

A)  is equally satisfied with any indifference curve.
B)  prefers indifference curves with positive slopes.
C)  prefers higher indifference curves to lower indifference curves.
D)  prefers indifference curves that are straight lines to indifference curves that are right angles.E) None of the above
F) B) and C)

Question 18

Assume Victoria's indifference curves are bowed outward but her indifference curves satisfy the other three properties of indifference curves. As Victoria moves from right to left along the horizontal axis, her marginal rate of substitution

Accepted Answer

A)  increases.
B)  decreases.
C)  remains constant.
D)  increases, then decreases.E) A) and D)
F) A) and C)

Question 19

Figure 21-14   
-Refer to Figure 21-14. Which of the following statements is correct?

Accepted Answer

A)  The indifference curves represented in graph a are perfect substitutes.
B)  The indifference curves represented in graph b are perfect complements.
C)  The indifference curves represented in graph c are neither perfect substitutes not perfect complements.
D)  All of the above are correct.E) A) and C)
F) A) and B)

Question 20

A consumer consumes two normal goods, sandwiches and milk. When the price of milk is $0.50 per glass, the consumer purchases 40 glasses. When the price rises to $0.65 per glass, the consumer purchases 30 glasses. We can use the information provided by the consumer's optimum choices to derive the

Accepted Answer

A)  demand curve for milk.
B)  demand curve for sandwiches.
C)  supply curve for milk.
D)  labor-leisure tradeoff.E) A) and B)
F) A) and C)

Exam 21: The Theory of Consumer Choice

Giffen goods have positively-sloped demand curves because they are

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Figure 21-21 -Refer to Figure 21-21. Suppose that a consumer is originally at point R. Then the price of good X decreases. Which of the following represents the substitution effect of the price decrease?

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The slope of the budget constraint reveals the relative price of good X compared to good Y.

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Two economists found empirical evidence that when the price of rice decreased in the Hunan province of China, local residents consumed less rice than before the price decrease. The study provides a real-world example of a(n)

Correct AnswerverifiedShow Answer

A consumer consumes two normal goods, sandwiches and milk. When the price of milk is $0.50 per glass, the consumer purchases 40 glasses. When the price rises to $0.65 per glass, the consumer purchases 30 glasses. We can use the information provided by the consumer's optimum choices to derive the

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For a typical consumer, most indifference curves are bowed inward.

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A consumer consumes two normal goods, coffee and chocolate. The price of coffee rises. The income effect, by itself, suggests that the consumer will consume

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We can use the theory of consumer choice to analyze

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Figure 21-12 -Refer to Figure 21-12. If the consumer moves from bundle V to bundle X, the

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For Antonio, the income effect of an interest-rate increase is stronger than the substitution effect. In response to a higher interest rate, will Antonio save more or will he save less?

Correct AnswerverifiedIn response to a hig...View AnswerShow Answer

Evaluate the following statement, "Warren Buffet is the second richest person in the world. He doesn't face any constraint on his ability to purchase commodities he wants."

Correct AnswerverifiedAll people face scarcity of re...View AnswerShow Answer

Figure 21-32 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. -Refer to Figure 21-32. Which of the four labeled points is Hannah's optimum?

Correct AnswerverifiedPoint B is...View AnswerShow Answer

A consumer

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Assume Victoria's indifference curves are bowed outward but her indifference curves satisfy the other three properties of indifference curves. As Victoria moves from right to left along the horizontal axis, her marginal rate of substitution

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Figure 21-32 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. -Refer to Figure 21-32. What is the value of the interest rate that Hannah earns on her saving?

Correct AnswerverifiedThe intere...View AnswerShow Answer

If leisure were an inferior good, then labor supply curves

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Figure 21-10 -Refer to Figure 21-10. Which of the following statements is not correct?

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Figure 21-14 -Refer to Figure 21-14. Which of the following statements is correct?

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Jake experiences an increase in his wages. The hours of labor that he supplies to the market would decrease if

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Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price of good Y only?

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In response to a hig...
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All people face scarcity of re...
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Point B is...
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The intere...
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