Question 1

The consumer's optimal purchase of any two goods is the point where the

Accepted Answer

A)   budget constraint crosses the indifference curve.
B)   two highest indifference curves cross.
C)   consumer reaches the highest indifference curve subject to remaining on the budget constraint.
D)   consumer has reached the highest indifference curve.E) A) and B)
F) C) and D)

Question 2

Suppose that Annette gets an increase in her wage and she decides to work fewer hours. For her, the substitution effect of the wage change is

Accepted Answer

A)   greater than the income effect.
B)   less than the income effect.
C)   exactly offset by the income effect.
D)   zero.E) B) and D)
F) B) and C)

Question 3

Refer to Exhibit 4. Suppose that the consumer must choose between buying socks and belts. Also, suppose that the consumer's income is €100. If the price of a belt is €10 and the price of a pair of socks is €5, the consumer will choose to buy the commodity bundle represented by point? ​  ​

Accepted Answer

A)   Z
B)   X
C)   Y
D)   the optimal point cannot be determined from this graph.E) A) and B)
F) All of the above

Question 4

The limit on the consumption bundles that a consumer can afford is known as

Accepted Answer

A)   an indifference curve.
B)   the budget constraint.
C)   the marginal rate of substitution.
D)   the consumption limit.E) A) and B)
F) B) and C)

Question 5

The slope at any point on an indifference curve is known as the

Accepted Answer

A)   marginal rate of indifference.
B)   marginal rate of trade-off.
C)   trade-off rate.
D)   marginal rate of substitution.E) B) and C)
F) C) and D)

Question 6

What is the budget constraint?

Accepted Answer

The budget constraint refers to the different combinations of goods that a consumer can afford given both the consumer's income and the prices of the goods. The slope of the budget constraint is determined by the relative prices of the goods.

Question 7

Outline the four key properties of indifference curves.

Accepted Answer

1: Higher indifference curves are preferred to lower ones, because consumers usually prefer more of something to less of it. 2: Indifference curves are downward sloping. The slope of an indifference curve reflects the rate at which the consumer is willing to substitute one good for another while holding utility constant. If the quantity of one good is reduced, the quantity of the other good must increase in order for the consumer to be equally happy. 3: Indifference curves do not cross. If indifference curves did cross, the same point could be on two different curves, thus contradicting the assumption that consumers prefer more of both goods to less. 4: Indifference curves are bowed inward. This is because people are more willing to trade away goods that they have in abundance and less willing to trade away goods of which they have less.

Question 8

Indifference curves measure the consumer's willingness to trade one good for another good while maintaining a constant level of satisfaction.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

Because the budget constraint is tangent...

Question 10

A change in the relative prices of which of the following pair of goods would likely cause the smallest substitution effect?

Accepted Answer

A)   right shoes and left shoes
B)   petrol from BP and petrol from Shell
C)   Kit-Kat chocolate snacks and Twix chocolate snacks
D)   Coke and PepsiE) A) and B)
F) B) and C)

Question 11

Using the graph shown, construct a demand curve for M&M's given an income of €10.

Accepted Answer

The answer of Using the graph shown, construct a demand...

Question 12

A family on a trip budgets €800 for restaurant meals and fast food. If the price of a fast food meal for the family is €20, how many such meals can the family buy if they do not eat at restaurants?

Accepted Answer

A)   8
B)   15
C)   20
D)   40E) A) and B)
F) A) and C)

Question 13

If a consumer spent their entire income on crisps and cola, what would happen if the consumer's income were to double and the prices of crisps and cola were also to double?

Accepted Answer

A)   The consumer's budget line would remain unchanged.
B)   The consumer's budget line would shift outward but remain parallel to the original budget line.
C)   The consumer's budget line would shift inward but remain parallel to the original budget line.
D)   The consumer's budget line would shift in an unpredictable way.E) C) and D)
F) A) and D)

Question 14

Budget constraints exist for consumers because

Accepted Answer

A)   their utility from consuming goods eventually reaches a maximum level.
B)   even with unlimited incomes they have to pay for each good they consume.
C)   they have to pay for goods and they have limited incomes.
D)   prices and incomes are inversely related.E) C) and D)
F) None of the above

Question 15

All of the following are characteristics of an indifference map except

Accepted Answer

A)   moving northeast to a new, higher indifference curve will increase utility.
B)   points on the same indifference curve yield equal utility.
C)   the axes represent levels of utility for each of the goods.
D)   indifference curves cannot cross.E) B) and C)
F) None of the above

Question 16

The change in consumption that results when a price change moves the consumer along a given indifference curve is known as the

Accepted Answer

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

Question 17

For dessert, Ingrid has the choice between cheesecake and apple pie. Ingrid would gain marginal utility of 50 from a piece of cheesecake, while the price of cheesecake is €5 per slice., Ingrid would gain marginal utility of 30 from a piece of apple pie, and the price of apple pie is €3 per slice. Given this information, Ingrid should buy

Accepted Answer

A)   the cheesecake.
B)   the apple pie.
C)   two servings of the apple pie and no cheesecake.
D)   either the apple pie or the cheesecake; it makes no difference to Ingrid at this point.E) A) and D)
F) None of the above

Question 18

Which of the following statements is not true with regard to the standard properties of indifference curves?

Accepted Answer

A)   Indifference curves are downward sloping.
B)   Indifference curves are bowed outward.
C)   Indifference curves do not cross each other.
D)   Higher indifference curves are preferred to lower ones.E) A) and C)
F) A) and B) B

Question 19

The more difficult it is to substitute one good for another, the more bowed inward indifference curves become.

Accepted Answer

A) True 
 B)False

Question 20

The marginal rate of substitution between two goods 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)   marginal cost of one times the marginal cost of the other.
D)   price of one good divided by the price of the other.E) C) and D)
F) None of the above

Exam 5: Background to Demand: Consumer Choices

The consumer's optimal purchase of any two goods is the point where the

Correct Answer
verified

Suppose that Annette gets an increase in her wage and she decides to work fewer hours. For her, the substitution effect of the wage change is

Correct Answer
verified

Refer to Exhibit 4. Suppose that the consumer must choose between buying socks and belts. Also, suppose that the consumer's income is €100. If the price of a belt is €10 and the price of a pair of socks is €5, the consumer will choose to buy the commodity bundle represented by point?

Correct Answer
verified

The limit on the consumption bundles that a consumer can afford is known as

Correct Answer
verified

The slope at any point on an indifference curve is known as the

Correct Answer
verified

What is the budget constraint?

Correct Answer
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The budget constraint refers to the different combinations of goods that a consumer can afford given both the consumer's income and the prices of the goods. The slope of the budget constraint is determined by the relative prices of the goods.

Outline the four key properties of indifference curves.

Indifference curves measure the consumer's willingness to trade one good for another good while maintaining a constant level of satisfaction.

Correct Answer
verified

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

Correct Answer
verified
Because the budget constraint is tangent...
View Answer

A change in the relative prices of which of the following pair of goods would likely cause the smallest substitution effect?

Correct Answer
verified

Using the graph shown, construct a demand curve for M&M's given an income of €10.

Correct Answer
verified

A family on a trip budgets €800 for restaurant meals and fast food. If the price of a fast food meal for the family is €20, how many such meals can the family buy if they do not eat at restaurants?

Correct Answer
verified

If a consumer spent their entire income on crisps and cola, what would happen if the consumer's income were to double and the prices of crisps and cola were also to double?

Correct Answer
verified

Budget constraints exist for consumers because

Correct Answer
verified

All of the following are characteristics of an indifference map except

Correct Answer
verified

The change in consumption that results when a price change moves the consumer along a given indifference curve is known as the

Correct Answer
verified

Correct Answer
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Which of the following statements is not true with regard to the standard properties of indifference curves?

Correct Answer
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B

The more difficult it is to substitute one good for another, the more bowed inward indifference curves become.

Correct Answer
verified

The marginal rate of substitution between two goods equals the

Correct Answer
verified

Exam 5: Background to Demand: Consumer Choices

The consumer's optimal purchase of any two goods is the point where the

Correct AnswerverifiedShow Answer

Suppose that Annette gets an increase in her wage and she decides to work fewer hours. For her, the substitution effect of the wage change is

Correct AnswerverifiedShow Answer

Refer to Exhibit 4. Suppose that the consumer must choose between buying socks and belts. Also, suppose that the consumer's income is €100. If the price of a belt is €10 and the price of a pair of socks is €5, the consumer will choose to buy the commodity bundle represented by point? ​ ​

Correct AnswerverifiedShow Answer

The limit on the consumption bundles that a consumer can afford is known as

Correct AnswerverifiedShow Answer

The slope at any point on an indifference curve is known as the

Correct AnswerverifiedShow Answer

What is the budget constraint?

Correct AnswerverifiedThe budget constraint refers to the different combinations of goods that a consumer can afford given both the consumer's income and the prices of the goods. The slope of the budget constraint is determined by the relative prices of the goods.

Outline the four key properties of indifference curves.

Indifference curves measure the consumer's willingness to trade one good for another good while maintaining a constant level of satisfaction.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedBecause the budget constraint is tangent...View AnswerShow Answer

A change in the relative prices of which of the following pair of goods would likely cause the smallest substitution effect?

Correct AnswerverifiedShow Answer

Using the graph shown, construct a demand curve for M&M's given an income of €10.

Correct AnswerverifiedShow Answer

A family on a trip budgets €800 for restaurant meals and fast food. If the price of a fast food meal for the family is €20, how many such meals can the family buy if they do not eat at restaurants?

Correct AnswerverifiedShow Answer

If a consumer spent their entire income on crisps and cola, what would happen if the consumer's income were to double and the prices of crisps and cola were also to double?

Correct AnswerverifiedShow Answer

Budget constraints exist for consumers because

Correct AnswerverifiedShow Answer

All of the following are characteristics of an indifference map except

Correct AnswerverifiedShow Answer

The change in consumption that results when a price change moves the consumer along a given indifference curve is known as the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is not true with regard to the standard properties of indifference curves?

Correct AnswerverifiedB

The more difficult it is to substitute one good for another, the more bowed inward indifference curves become.

Correct AnswerverifiedShow Answer

The marginal rate of substitution between two goods equals the

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Refer to Exhibit 4. Suppose that the consumer must choose between buying socks and belts. Also, suppose that the consumer's income is €100. If the price of a belt is €10 and the price of a pair of socks is €5, the consumer will choose to buy the commodity bundle represented by point?

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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The budget constraint refers to the different combinations of goods that a consumer can afford given both the consumer's income and the prices of the goods. The slope of the budget constraint is determined by the relative prices of the goods.

Correct Answer
verified

Correct Answer
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Because the budget constraint is tangent...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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B

Correct Answer
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Correct Answer
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