Question 1

For Brent, the income effect of a wage increase is stronger than the substitution effect. In response to a wage increase, will Brent work more hours or will he work fewer hours?

Accepted Answer

In response to a wag...

Question 2

The theory of consumer choice

Accepted Answer

A)  underlies the concept of the demand for a particular good.
B)  underlies the concept of the supply of a particular good.
C)  ignores, for the sake of simplicity, the trade-offs that consumers face.
D)  can be applied to many questions about household decisions, but it cannot be applied to questions concerning wages and labor supply.E) A) and B)
F) None of the above

Question 3

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 B)
F) None of the above

Question 4

Bundle A contains 10 units of good X and 5 units of good Y. Bundle B contains 5 units of good X and 10 units of good Y. Bundle C contains 10 units of good X and 10 units of good Y. The consumer is indifferent between bundle A and bundle B. Assume that the consumer's preferences satisfy the four properties of indifference curves. Which of the following statements is correct?

Accepted Answer

A)  The consumer must prefer bundle C to either bundle A or B.
B)  Bundle A and bundle B lie on the same indifference curve.
C)  The consumer must prefer bundle B to bundle C.
D)  Both a)  and b)  are correct.E) None of the above
F) C) and D)

Question 5

Figure 21-26 
-Refer to Figure 21-26. Rhonda experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Rhonda,

Accepted Answer

A)  her labor supply curve is backward bending.
B)  her labor supply curve is upward sloping.
C)  leisure is a normal good.
D)  both a and c are correct.E) All of the above
F) B) and C)

Question 6

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) A) and B)

Question 7

Figure 21-5
(a) 
(b)  y/Px) ? A) 1/4 B) 1/3 C) 3 D) 4" class="answers-bank-image d-inline" rel="preload" > y/Px) ? A) 1/4 B) 1/3 C) 3 D) 4" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-5. In graph (a) , what is the price of good Y relative to the price of good X (i.e., Py/Px) ?

Accepted Answer

A)  1/4
B)  1/3
C)  3
D)  4E) C) and D)
F) B) and C)

Question 8

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

Question 9

The income 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 backward.

Accepted Answer

A) True 
 B)False

Question 10

The indifference curves for left shoes and right shoes are right angles.

Accepted Answer

A) True 
 B)False

Question 11

Laura consumes only beer and chips. Her indifference curves are all bowed inward. Consider the bundles (2,6) , (4,4) , and (6,2) . If Laura is indifferent between (2,6)  and (6,2) , then Laura must

Accepted Answer

A)  prefer (4,4)  to (6,2) .
B)  be indifferent between (4,4)  and (6,2) .
C)  prefer (6,2)  to (4,4) .
D)  prefer (2,6)  to (4,4) .E) B) and D)
F) None of the above

Question 12

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50, then

Accepted Answer

A)  this is the last candy bar John will purchase since the marginal utility is less than the price.
B)  the opportunity cost of the candy bar is less than $1.50.
C)  if John purchases and consumes the candy bar his total satisfaction will go down because the marginal utility is less than the price.
D)  there is not enough information to determine if John will or will not purchase the candy bar.E) B) and C)
F) A) and D)

Question 13

What are the two effects of a change in a price that a consumer experiences?

Accepted Answer

A)  the income effect and the budget effect
B)  the complement effect and the substitute effect
C)  the price effect and the preference effect
D)  the income effect and the substitution effectE) B) and C)
F) A) and B)

Question 14

The following diagram shows a budget constraint for a particular consumer.  If the price of X is $5, what is the consumer's income?

Accepted Answer

A)  $10
B)  $30
C)  $150
D)  $300E) A) and B)
F) A) and C)

Question 15

Suppose Reta is planning for retirement in a two-period world. In the first period Reta is young and earns $1 million, and in the second period Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

Accepted Answer

A)  substitution effect will induce Reta to consume more when she is young.
B)  substitution effect will induce Reta to consume less when she is young.
C)  income effect will induce Reta to consume more when she is young.
D)  change in interest rates affects the substitution effect but not the income effect.E) None of the above
F) A) and D)

Question 16

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

Question 17

Figure 21-6 
-Refer to Figure 21-6. Suppose the price of popcorn is $2, the price of Mt. Dew is $4, the value of A is 30, and the value of B is 15. How much income does the consumer have?

Accepted Answer

A)  $120
B)  $80
C)  $60
D)  $30E) A) and C)
F) B) and C)

Question 18

A Giffen good is a good for which an increase in the price

Accepted Answer

A)  decreases the quantity supplied.
B)  increases the quantity supplied.
C)  decreases the quantity demanded.
D)  increases the quantity demanded.E) C) and D)
F) B) and C)

Question 19

A Giffen good is one for which the quantity demanded rises as the price rises because the income effect

Accepted Answer

A)  reinforces the substitution effect.
B)  reinforces and is greater than the substitution effect.
C)  counteracts but is smaller than the substitution effect.
D)  counteracts and is greater than the substitution effect.E) C) and D)
F) A) and B)

Question 20

Figure 21-4
In each case, the budget constraint moves from BC-1 to BC-2.    
-Refer to Figure 21-4. Which of the graphs in the figure could reflect a simultaneous increase in the price of good X and decrease in the price of good Y?

Accepted Answer

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

Exam 21: The Theory of Consumer Choice

Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4. Which of the graphs in the figure could reflect a simultaneous increase in the price of good X and decrease in the price of good Y?

Correct Answer
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Figure 21-26 -Refer to Figure 21-26. Rhonda experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Rhonda,

Correct Answer
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A Giffen good is one for which the quantity demanded rises as the price rises because the income effect

Correct Answer
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Figure 21-6 -Refer to Figure 21-6. Suppose the price of popcorn is $2, the price of Mt. Dew is $4, the value of A is 30, and the value of B is 15. How much income does the consumer have?

Correct Answer
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Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , what is the price of good Y relative to the price of good X (i.e., P_y/P_x) ?

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

Correct Answer
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Correct Answer
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The slope of an indifference curve is

Correct Answer
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Laura consumes only beer and chips. Her indifference curves are all bowed inward. Consider the bundles (2,6) , (4,4) , and (6,2) . If Laura is indifferent between (2,6) and (6,2) , then Laura must

Correct Answer
verified

A Giffen good is a good for which an increase in the price

Correct Answer
verified

Correct Answer
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The theory of consumer choice

Correct Answer
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The indifference curves for left shoes and right shoes are right angles.

Correct Answer
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For Brent, the income effect of a wage increase is stronger than the substitution effect. In response to a wage increase, will Brent work more hours or will he work fewer hours?

Correct Answer
verified
In response to a wag...
View Answer

Suppose Reta is planning for retirement in a two-period world. In the first period Reta is young and earns $1 million, and in the second period Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

Correct Answer
verified

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50, then

Correct Answer
verified

The income 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 backward.

Correct Answer
verified

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 Answer
verified

The following diagram shows a budget constraint for a particular consumer. If the price of X is $5, what is the consumer's income?

Correct Answer
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What are the two effects of a change in a price that a consumer experiences?

Correct Answer
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Exam 21: The Theory of Consumer Choice

Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4. Which of the graphs in the figure could reflect a simultaneous increase in the price of good X and decrease in the price of good Y?

Correct AnswerverifiedShow Answer

Figure 21-26 -Refer to Figure 21-26. Rhonda experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Rhonda,

Correct AnswerverifiedShow Answer

A Giffen good is one for which the quantity demanded rises as the price rises because the income effect

Correct AnswerverifiedShow Answer

Figure 21-6 -Refer to Figure 21-6. Suppose the price of popcorn is $2, the price of Mt. Dew is $4, the value of A is 30, and the value of B is 15. How much income does the consumer have?

Correct AnswerverifiedShow Answer

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , what is the price of good Y relative to the price of good X (i.e., Py/Px) ?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The slope of an indifference curve is

Correct AnswerverifiedShow Answer

Laura consumes only beer and chips. Her indifference curves are all bowed inward. Consider the bundles (2,6) , (4,4) , and (6,2) . If Laura is indifferent between (2,6) and (6,2) , then Laura must

Correct AnswerverifiedShow Answer

A Giffen good is a good for which an increase in the price

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The theory of consumer choice

Correct AnswerverifiedShow Answer

The indifference curves for left shoes and right shoes are right angles.

Correct AnswerverifiedShow Answer

For Brent, the income effect of a wage increase is stronger than the substitution effect. In response to a wage increase, will Brent work more hours or will he work fewer hours?

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

Suppose Reta is planning for retirement in a two-period world. In the first period Reta is young and earns $1 million, and in the second period Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

Correct AnswerverifiedShow Answer

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50, then

Correct AnswerverifiedShow Answer

The income 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 backward.

Correct AnswerverifiedShow Answer

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 following diagram shows a budget constraint for a particular consumer. If the price of X is $5, what is the consumer's income?

Correct AnswerverifiedShow Answer

What are the two effects of a change in a price that a consumer experiences?

Correct AnswerverifiedShow Answer

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Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , what is the price of good Y relative to the price of good X (i.e., P_y/P_x) ?

Correct Answer
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In response to a wag...
View Answer

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