Question 1

When economists describe preferences, they sometimes use the concept of:

Accepted Answer

A)  income
B)  prices
C)  markets
D)  utility

Question 2

A plausible example of a perfect substitute is:

Accepted Answer

A)  left and right shoes
B)  coke and pepsi ccola
C)  cars and bicycles
D)  apples and chicken

Question 3

Graph 22-2 
-Refer to Graph 22-2.Which of the graphs shown reflects an increase in the price of good Y?

Accepted Answer

A)  A
B)  B
C)  C
D)  D

Question 4

The combination of two goods a consumer chooses depends on his:

Accepted Answer

A)  demand and his supply
B)  preferences and his demand
C)  budget constraint and his preferences
D)  budget constraint and his supply

Question 5

With respect to the utility of the consumer, an in-kind transfer can be equivalent to a cash transfer.

Accepted Answer

A) True 
 B)False

Question 6

The goal of a consumer can be to either maximise utility or to end up on the highest possible indifference curve, since these phrases are synonymous.

Accepted Answer

A) True 
 B)False

Question 7

If a consumer wants less of a good when his income rises, it is an inferior good.

Accepted Answer

A) True 
 B)False

Question 8

Amy purchases only coffee and croissants.The substitution effect associated with a decrease in the price of a croissant will result in:

Accepted Answer

A)  a decrease in the consumption of croissants and an increase in the consumption of coffee
B)  an increase in the consumption of croissants and a decrease in the consumption of coffee
C)  only a decrease in the consumption of coffee
D)  only an increase in the consumption of coffee

Question 9

Using indifference curves and budget constraints, graphically illustrate the substitution and income effect that would result from a change in the price of one good.

Accepted Answer

The answer of Using indifference curves and budget constraints, graphically...

Question 10

Graph 22-6 
-Refer to Graph 22-6.If a consumer is at point C and moved to point B they would be:

Accepted Answer

A)  better off because he or she is consuming more Y
B)  better off because he or she is consuming less X
C)  be no better off because they are still on the same budget line
D)  worse off because they are on a lower indifference curve

Question 11

If the budget constraint crosses an indifference curve in two places, both these points will be below the consumer's optimal level of consumption.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements about the budget constraint is true? The slope of the budget constraint is:
(i)  the rate at which a consumer can trade one good for another
(ii)  equal to the slope of the highest indifference curve
(iii)  constant

Accepted Answer

A)  (i)  only
B)  (i)  and (ii) 
C)  (ii)  and (iii) 
D)  (i)  and (iii)

Question 13

The rate at which a consumer is willing to exchange one good for another, and maintain a constant level of satisfaction, is called the:

Accepted Answer

A)  marginal rate of substitution
B)  relative price ratio
C)  relative expenditure ratio
D)  value of marginal product

Question 14

Graph 22-3 
-Refer to Graph 22-3.If the budget constraint is $160 then from the panel (b)  we can determine that the:

Accepted Answer

A)  price of X is $40 and the price of Y is $10
B)  price of Y is $40 and the price of X is $10
C)  price of X is $4 and the price of Y is $16
D)  price of Y is $4 and the price of X is $16

Question 15

Graph 22-4 
-Refer to Graph 22-4.Which of the following statements is true?

Accepted Answer

A)  since point E and point B have basically equal units of coffee and croissants a consumer would be indifferent between these two points
B)  if a consumer moves from point C to point A, her loss of croissants cannot be compensated for by an increase of coffee
C)  point E is preferred to all other points identified in the figure
D)  since more is preferred to less, point C may be preferred to point E in some circumstances

Question 16

Use a graph to demonstrate how an individual labour supply curve is derived.Is it possible to generate a labour supply curve that is downward-sloping for all wage rates? Explain what conditions must be satisfied for this to occur.

Accepted Answer

The answer of Use a graph to demonstrate how an...

Question 17

A budget constraint shows the consumption bundles that the consumer can afford, given his income and the prices of the goods.

Accepted Answer

A) True 
 B)False

Question 18

Graph 22-3 
-Refer to Graph 22-3.Using the figure in panel (b) , what is ratio of the Price of Y to the price of X (i.e.PX/PY) ?

Accepted Answer

A)  4/1
B)  1/1
C)  1/4
D)  1/16

Question 19

At the optimum:

Accepted Answer

A)  the slope of the indifference curve is equal to the slope of the budget constraint
B)  it is still possible for the consumer to increase his consumption of both goods
C)  the indifference curve would intersect the budget constraint at its centre
D)  the budget constraint would have a slope of 1

Question 20

Amy purchases only coffee and croissants.If coffee is an inferior good and croissants are normal goods, the income effect associated with an increase in the price of croissants will result in a(n) :

Accepted Answer

A)  increase in the consumption of croissants and an increase in the consumption of coffee
B)  increase in the consumption of croissants and a decrease in the consumption of coffee
C)  decrease in the consumption of croissants and a decrease in the consumption of coffee
D)  decrease in the consumption of croissants and an increase in the consumption of coffee

Exam 22: The Theory of Consumer Choice

With respect to the utility of the consumer, an in-kind transfer can be equivalent to a cash transfer.

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Amy purchases only coffee and croissants.The substitution effect associated with a decrease in the price of a croissant will result in:

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A plausible example of a perfect substitute is:

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When economists describe preferences, they sometimes use the concept of:

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The combination of two goods a consumer chooses depends on his:

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Graph 22-6 -Refer to Graph 22-6.If a consumer is at point C and moved to point B they would be:

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Graph 22-2 -Refer to Graph 22-2.Which of the graphs shown reflects an increase in the price of good Y?

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Which of the following statements about the budget constraint is true? The slope of the budget constraint is: (i) the rate at which a consumer can trade one good for another (ii) equal to the slope of the highest indifference curve (iii) constant

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A budget constraint shows the consumption bundles that the consumer can afford, given his income and the prices of the goods.

Correct AnswerverifiedShow Answer

If the budget constraint crosses an indifference curve in two places, both these points will be below the consumer's optimal level of consumption.

Correct AnswerverifiedShow Answer

Amy purchases only coffee and croissants.If coffee is an inferior good and croissants are normal goods, the income effect associated with an increase in the price of croissants will result in a(n) :

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At the optimum:

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Graph 22-4 -Refer to Graph 22-4.Which of the following statements is true?

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The rate at which a consumer is willing to exchange one good for another, and maintain a constant level of satisfaction, is called the:

Correct AnswerverifiedShow Answer

Using indifference curves and budget constraints, graphically illustrate the substitution and income effect that would result from a change in the price of one good.

Correct AnswerverifiedShow Answer

Graph 22-3 -Refer to Graph 22-3.Using the figure in panel (b) , what is ratio of the Price of Y to the price of X (i.e.PX/PY) ?

Correct AnswerverifiedShow Answer

If a consumer wants less of a good when his income rises, it is an inferior good.

Correct AnswerverifiedShow Answer

Use a graph to demonstrate how an individual labour supply curve is derived.Is it possible to generate a labour supply curve that is downward-sloping for all wage rates? Explain what conditions must be satisfied for this to occur.

Correct AnswerverifiedShow Answer

Graph 22-3 -Refer to Graph 22-3.If the budget constraint is $160 then from the panel (b) we can determine that the:

Correct AnswerverifiedShow Answer

The goal of a consumer can be to either maximise utility or to end up on the highest possible indifference curve, since these phrases are synonymous.

Correct AnswerverifiedShow Answer

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