1. Budget constraints
exist for consumers because
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.
2. 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?
a. 8
b. 15
c. 20
d. 40
3. A family on a trip
budgets $800 for restaurant meals and fast food. If the price of a fast food
meal is $20 and if the family can afford 16 restaurant meals if they don’t buy
any fast food, how many fast food meals would the family gain if they gave up
one restaurant meal?
a. 1
b. .4
c. 2
d. 2.5
4. If the price of
bread is zero, a budget line between bread (on the vertical axis) and cheese
(on the horizontal axis) would
a. be vertical.
b. coincide with the vertical axis.
c. coincide with the horizontal axis.
d. be horizontal.
Suppose the price of
pizza is $8, the price of cola is $2, and the consumer’s income is $16. The
consumer’s budget line measures pizza on the horizontal axis and cola on the
vertical axis.
5. Given the
information above, if the price of cola doubles to $4, then the
a. budget line intersects the vertical axis at 16 colas.
b. slope of the budget line rises to –1/2.
c. budget line intersects the vertical axis at 4 colas.
d. budget line shifts inward in a parallel fashion.
6. Given the
information above, if the consumer’s income rises to $32, then the budget line
for pizza and cola would
a. now intersect the horizontal axis at 4 pizzas and the
vertical axis at 16 colas.
b. not change.
c. now intersect the horizontal axis at 1/4 pizza and the
vertical axis at 1/16 cola.
d. rotate outward with an increased quantity of cola
consumed.
7. If John’s marginal
benefit derived from the consumption of another candy bar is greater than the
price of the candy bar, then
a. John will not purchase any more candy bars.
b. John will increase his total satisfaction by purchasing
the candy bar.
c. the opportunity cost of the candy bar is lower than the
price.
d. John will decrease his total satisfaction if he purchases
the candy bar.
8. Each of the
following are characteristics of an indifference map except
a. moving northeast to a new 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.
9. As more hours of
Internet access are purchased, everything else equal, marginal satisfaction
from consuming additional hours will tend to
a. decrease at the same rate for all consumers.
b. decrease but at different rates for different people.
c. increase at the same rate for all consumers.
d. increase but at a decreasing rate for all consumers.
10. Suppose Rich
always uses two packets of sugar with his coffee. Rich’s indifference curves
for sugar and coffee are
a. bowed inward.
b. bowed outward.
c. straight lines.
d. L shaped.
11. Indifference
curves tend to be bowed inward because of diminishing
a. marginal rates of substitution.
b. demand for the good as prices rise.
c. income.
d. supply of the good being consumed.
12. The marginal rate
of substitution between two goods equals the
a. marginal satisfaction of one divided by the marginal
satisfaction of the other.
b. marginal satisfaction of one times the marginal
satisfaction 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.
13. Jeffrey spends
all of his income on warm-up suits and running shoes, and the price of a
warm-up suit is four times as large as the price of a pair of shoes. Then, in
order to maximize total utility, Jeffrey should
a. buy four times as many warm-up suits as pairs of running
shoes.
b. buy four times as many pairs of running shoes as warm-up
suits.
c. divide his income equally between warm-up suits and
running shoes.
d. buy both items until the marginal satisfaction of a
warm-up suit is four times the marginal satisfaction of a pair of running
shoes.
14. For dessert, Mac
has the choice between cheesecake and apple pie. The cheesecake has a marginal
satisfaction of 50 and a price of $5, and the apple pie has a marginal utility
of 30 and a price of $3. Given this information, Mac should buy
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 Mac at this point.
15. Tsai-Fen is
maximizing total utility while consuming food and clothing. Her marginal
satisfaction from food and clothing are 50 utils and 25 utils, respectively. If
clothing is priced at $10 per unit, the price of food must
a. be rising.
b. be falling.
c. equal $10 as well.
d. equal $20.
16. Higher education
is a normal good. If its price falls
a. the quantity demanded of higher education will fall.
b. the substitution and income effects work in opposite
directions.
c. the income effect is negative.
d. higher education will satisfy the law of demand.
17. If the price of
hamburgers increases, the substitution effect works to
a. decrease the quantity of hamburgers supplied.
b. increase the number of hamburger buns demanded.
c. decrease the quantity of hamburgers demanded.
d. increase the number of hamburger buns supplied.
18. If the
substitution effect of a lowered price is partly or fully offset by the income
effect, we know that the good in question is a(n)
a. complementary good.
b. inferior good.
c. luxury good.
d. normal good.
19. Suppose that for
Edwin, DVDs and trips to the movie theater are perfect substitutes. If the
price of DVDs doubles, the substitution effect will be
a. two times the income effect.
b. half the income effect.
c. zero.
d. dependent upon Edwin’s income.
20. An individual’s
demand curve for a good is derived by
a. varying the income level and observing the resulting
total utility derived from both goods.
b. varying the price of one good and observing the resulting
quantities of the other good.
c. shifting the budget line to the left and calculating the
loss in total utility.
d. varying the price of one good and observing the resulting
quantities demanded of that good.
21. If a good is a Giffen good, then
a. the supply curve slopes down.
b. the demand curve slopes up.
c. the demand curve is horizontal.
d. there is no optimal level of consumption for the
consumer.
22. 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
a. greater than the income effect.
b. less than the income effect.
c. exactly offset by the income effect.
d. zero.
23. In the
upward-sloping portion of the individual labor supply curve, the substitution
effect is __________ the income effect.
a. greater than
b. less than
c. equal to
d. exactly offset by
24. The opportunity
cost of current household consumption is the
a. wage rate.
b. market interest rate.
c. price of the goods consumed.
d. explicit cost of consumption.
25. Last week, the
Federal Reserve took steps to lower the Federal Funds rate by one-half point.
This means that
a. the opportunity cost of current consumption has fallen.
b. the opportunity cost of future consumption has fallen.
c. the cost of borrowing has risen.
d. households will save more money to make up for lost
interest earnings.
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