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105. Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect
causes
a.
the consumer to feel richer, so the consumer buys more granola bars.
b.
the consumer to feel richer, so the consumer buys fewer granola bars.
c.
granola bars to be relatively more expensive, so the consumer buys more granola bars.
d.
granola bars to be relatively less expensive, so the consumer buys fewer granola bars.
106. Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good
and textbooks are a normal good, then the income effect associated with an increase in the price of a textbook will result
in
a.
a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
b.
a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles.
c.
an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles.
d.
an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
107. Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good
and textbooks are a normal good, then the income effect associated with a decrease in the price of a textbook will result in
a.
a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
b.
a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles.
c.
an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles.
d.
an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
108. Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good
and textbooks are a normal good, then the substitution effect associated with a decrease in the price of a textbook, by
itself, will result in
a.
a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
b.
a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles.
c.
an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles.
d.
an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
109. Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good
and textbooks are a normal good, then the substitution effect associated with a decrease in the price of Ramen noodles, by
itself, will result in
a.
a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
b.
a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles.
c.
an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles.
d.
an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
110. The income effect of a price change is depicted by
a.
a parallel shift of the budget constraint at the old set of prices.
b.
a parallel shift of the budget constraint at the new set of prices.
c.
a movement along the budget constraint holding the level of satisfaction constant.
d.
not observable and is therefore neither a shift nor a change in the slope of the budget constraint.
111. Dave consumes two normal goods, X and Y, and is currently at an optimum. If the price of good X falls, we can
predict with certainty that
a.
Dave will consume more of both goods because his real income has risen.
b.
the substitution effect will be positive for good X and negative for good Y.
c.
Dave may consume more or less of good X, but he will consume less of good Y.
d.
the substitution effect will offset the income effect for good X.
112. A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by
itself, suggests that the consumer will consume
a.
more popcorn and more Pepsi.
b.
less popcorn and less Pepsi.
c.
more popcorn and less Pepsi.
d.
less popcorn and more Pepsi.
113. Consider a consumer who purchases two goods, X and Y. If the price of good Y falls, then the substitution effect by
itself will
a.
cause the consumer to buy more of good Y and less of good X.
b.
cause the consumer to buy more of good X and less of good Y.
c.
not affect the amount of goods X and Y that the consumer buys.
d.
result in an upward-sloping demand for good Y if the substitution effect is positive.
114. Pepsi and pizza are normal goods. When the price of pizza falls, the substitution effect by itself will cause a
a.
shift to a lower indifference curve so that the consumer buys less Pepsi.
b.
shift to a higher indifference curve so that the consumer buys more Pepsi.
c.
movement along the indifference curve so that the consumer buys more Pepsi.
d.
movement along the indifference curve so that the consumer buys less Pepsi.
115. Cashews and asparagus are normal goods. When the price of asparagus falls, the substitution effect by itself causes
a.
the consumer to feel richer, so the consumer buys more cashews.
b.
the consumer to feel richer, so the consumer buys less cashews.
c.
cashews to be relatively more expensive, so the consumer buys less cashews.
d.
cashews to be relatively less expensive, so the consumer buys more cashews.
116. Pepsi and pizza are normal goods. When the price of pizza rises, the substitution effect causes Pepsi to be relatively
a.
more expensive, so the consumer buys more Pepsi.
b.
more expensive, so the consumer buys less Pepsi.
c.
less expensive, so the consumer buys more Pepsi.
d.
less expensive, so the consumer buys less Pepsi.
117. Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal
rate of substitution?
a.
the budget effect
b.
the preference effect
c.
the substitution effect
d.
the income effect
118. The substitution effect of a price change is depicted by a
a.
movement along the budget constraint holding satisfaction constant.
b.
shift in the budget constraint at the old prices.
c.
movement along the consumer’s new indifference curve at the new prices.
d.
movement along the original indifference curve to the point where the marginal rate of substitution equals the
price ratio for the new set of prices.
119. Which of the following descriptions best depicts the substitution effect?
a.
the change in consumption resulting from a change in the consumer's income, holding the prices of the goods
constant
b.
the change in consumption resulting from a change in the consumer's income, holding the consumer's level of
satisfaction constant
c.
the change in consumption resulting from a change in the price of one good, holding the consumer's level of
satisfaction constant
d.
the change in consumption resulting from a change in the price of one good, allowing the consumer's level of
satisfaction to change
120. Suppose that for Emily, DVDs and trips to the movie theater are perfect substitutes. Currently, Emily is spending all
of her income on trips to the movie theater. If the price of DVDs doubles, the substitution effect will
a.
be two times the income effect.
b.
be half the income effect.
c.
be zero.
d.
always increase the number of trips to the movie theater Emily makes.
Figure 21-23
121. Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer’s income is $160, the
consumer’s optimal choice is D. Then the price of X decreases to $20. The substitution effect can be illustrated as the
movement from
a.
D to E.
b.
D to C.
c.
C to E.
d.
E to D.
122. Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer’s income is $160, the
consumer’s optimal choice is D. Then the price of X decreases to $20. The income effect can be illustrated as the
movement from
a.
D to E.
b.
D to C.
c.
C to E.
d.
E to D.
123. Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer’s income is $160, the
consumer’s optimal choice is D. Then the price of X decreases to $20. The demand curve can be illustrated as the
movement from
a.
D to E.
b.
D to C.
c.
C to E.
d.
E to D.
124. 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
a.
demand curve for milk.
b.
demand curve for sandwiches.
c.
supply curve for milk.
d.
labor-leisure tradeoff.
125. When we derive the demand curve for a good, we should remember that the
a.
income effect must be greater than the substitution effect.
b.
substitution effect must be greater than the income effect.
c.
substitution effect must be in the same direction as the income effect.
d.
income effect and the substitution effect may work in the same or in opposite directions.
126. Given a consumer's indifference map, the demand curve for a good can
a.
be derived by moving a consumer's budget constraint as her income falls.
b.
be derived by moving a consumer's budget constraint as her income rises.
c.
be derived by moving a consumer's budget constraint as the market price of one good changes.
d.
not be derived from consumer theory.
127. An individual's demand curve for a good is derived by varying the
a.
income level and observing the resulting total utility derived from both goods.
b.
price of one good and observing the resulting quantities of the other good.
c.
budget line to the left and calculating the loss in total utility.
d.
price of one good and observing the resulting quantities demanded of that good.
128. Consumer theory provides the foundation for understanding demand curves because
a.
each point on a demand curve represents an optimal choice point.
b.
consumers purchase more inferior goods than normal goods.
c.
increases in income cause the budget constraint to rotate inward along one axis, which changes the consumer’s
purchases.
d.
increases in income cause the budget constraint to rotate outward along one axis, which changes the
consumer’s purchases.
129. You can think of an indifference curve as an
a.
equal-cost curve.
b.
equal-marginal-cost curve.
c.
equal-utility curve.
d.
equal-marginal-utility curve.
130. Frannie spends her income on rice and beans. At her optimum, Frannie’s
a.
utility from consuming rice is equal to her utility from consuming beams.
b.
marginal utility of rice is equal to her marginal utility of beans.
c.
marginal utility per dollar spent on rice equals her marginal utility per dollar spent on beans.
d.
marginal rate of substitution is equal to 1.
Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve.
131. Refer to Figure 21-24. Suppose the price of pears, the price of apples, and Steve’s income remain constant, and
Steve moves from point B to point C. In doing so, Steve
a.
becomes better off.
b.
moves from a point that is not optimal to a point that is optimal.
c.
gives up some apples to get some pears.
d.
All of the above are correct.
132. Refer to Figure 21-24. In moving from point A to point C, Steve gives up
a.
4.9 pounds of apples, gains 2.0 pounds of pears, and becomes worse off.
b.
4.9 pounds of apples, gains 2.0 pounds of pears, and becomes better off.
c.
5.5 pounds of apples, gains 4.1 pounds of pears, and becomes worse off.
d.
5.5 pounds of apples, gains 4.1 pounds of pears, and becomes better off.
133. Refer to Figure 21-24. Steve
a.
gains 1.1 pounds of pears and becomes better off by moving from point A to point B.
b.
gains 1.1 pounds of pears and becomes better off by moving from point A to point C.
c.
gains 1.1 pounds of pears and becomes better off by moving from point B to point C.
d.
gives up 1.1 pounds of pears and becomes better off by moving from point C to point B.
134. Refer to Figure 21-24. Which of the following pairs of prices matches the appearance of the budget constraint?
a.
price of apples = $6/pound; price of pears = $4/pound
b.
price of apples = $4/pound; price of pears = $6/pound
c.
price of apples = $6/pound; price of pears = $5/pound
d.
price of apples = $5/pound; price of pears = $6/pound
135. Refer to Figure 21-24. If the price of a pound of pears is $3, then Steve’s income is
a.
$12.00.
b.
$13.50.
c.
$16.20.
d.
$18.80.
136. Refer to Figure 21-24. If Steve’s income is $12.60, then the price of a pound of apples is
a.
$4.50.
b.
$3.85.
c.
$3.00.
d.
$2.80.
137. Refer to Figure 21-24. At his optimum, Steve is willing to give up about
a.
0.75 pounds of pears for 1 pound of apples.
b.
0.75 pounds of apples for 1 pound of pears.
c.
1.20 pounds of pears for 1 pound of apples.
d.
1.20 pounds of apples for 1 pound of pears.
138. Refer to Figure 21-24. At his optimum, Steve is buying
a.
0.6 pounds of apples.
b.
2.0 pounds of apples.
c.
4.5 pounds of apples.
d.
5.5 pounds of apples.
139. Refer to Figure 21-24. About what percentage of his income is Steve spending on apples when he is at his
optimum?
a.
33.3 percent
b.
38.2 percent
c.
44.4 percent
d.
56.7 percent
Figure 21-25 The figure pertains to a particular consumer. On the axes, X represents the quantity of good X and Y
represents the quantity of good Y.
140. Refer to Figure 21-25. The four curves that are drawn on the figure are
a.
indifference curves.
b.
budget constraints.
c.
demand curves.
d.
income curves.
141. Refer to Figure 21-25. Suppose the price of good X is $8, the price of good Y is $10, and the consumer’s income is
$360. Then the consumer’s optimal choice is represented by a point on which curve?
a.
I1
b.
I2
c.
I3
d.
I4
142. Refer to Figure 21-25. Suppose the price of good X is $8, the price of good Y is $10, and the consumer’s income is
$360. Then the consumer’s optimal choice is to buy
a.
15 units of good X and 24 units of good Y.
b.
20 units of good X and 20 units of good Y.
c.
30 units of good X and 12 units of good Y.
d.
40 units of good X and 4 units of good Y.
143. Refer to Figure 21-25. Suppose the price of good X is $15, the price of good Y is $10, and the consumer’s income is
$450. Then the consumer’s optimal choice is represented by a point on which curve?
a.
I1
b.
I2
c.
I3
d.
I4
144. Refer to Figure 21-25. Suppose the price of good X is $15, the price of good Y is $10, and the consumer’s income is
$450. Then the consumer’s optimal choice is to buy
a.
6 units of good X and 36 units of good Y.
b.
12 units of good X and 27 units of good Y.
c.
20 units of good X and 15 units of good Y.
d.
26 units of good X and 6 units of good Y.
145. Refer to Figure 21-25. Suppose the price of good X is $10, the price of good Y is $5, and the consumer’s income is
$210. Then the consumer’s optimal choice is represented by a point on which curve?
a.
I1
b.
I2
c.
I3
d.
I4
146. Refer to Figure 21-25. Suppose the price of good X is $10, the price of good Y is $5, and the consumer’s income is
$210. Then the consumer’s optimal choice is to buy
a.
8 units of good X and 26 units of good Y.
b.
11 units of good X and 20 units of good Y.
c.
14 units of good X and 14 units of good Y.
d.
18 units of good X and 6 units of good Y.
147. Suppose a consumer knows that at her current bundle, MUx/Px > MUy/Py. Is this individual choosing a bundle
that maximizes utility?
a.
Yes, because this individual values good X more than good Y.
b.
Yes, because this individual values good Y more than good X.
c.
No. This individual should shift consumption from good X to good Y.
d.
No. This individual should shift consumption from good Y to good X.
148. Suppose an individual knows that the marginal utility he receives from the next apple is 5 and that the price of an
apple is $2. He also knows that the marginal utility he receives from the next orange is 3 and the price of an orange is $1.
If the individual is choosing optimally, the next good he will buy is
a.
an orange because the marginal utility per dollar spent on an orange is greater.
b.
an orange because the marginal utility of the orange is greater.
c.
an apple because the marginal utility per dollar spent on an apple is greater.
d.
an apple because the marginal utility of the apple is greater.
149. Assume that goods X and Y are not Giffen goods. If the price of good X falls, a consumer will definitely
a.
consume more of good X because her budget constraint has rotated outward.
b.
consume more of good X because her budget constraint has shifted outward.
c.
consume more of good Y because her budget constraint has rotated outward.
d.
consume more of good Y because her budget constraint has shifted outward.
150. A consumer maximizes utility when she consumes at a point where
a.
the marginal utility of each good is the same.
b.
the marginal utility per dollar spent on each good is the same.
c.
the price of each good is the same.
d.
All of the above statements are true.
