Test bank for principles of economics 2nd by mankiw chapter 21a

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 Chapter 21/The Theory of Consumer Choice ❖ 231  Chapter 21 The Theory of Consumer Choice Test A The theory of consumer choice examines a The determination of output in competitive markets b The determination of prices in competitive markets c The tradeoffs inherent in decisions made by consumers d How consumers select inputs into manufacturing production processes A budget constraint a shows the consumption bundles that a consumer can afford b reflects the desire by consumers to increase their income c represents the bundles of consumption that make a consumer equally happy d shows the prices that a consumer chooses to pay for products he consumes Which of the points on the graph shown reflects the choice of a consumer that chooses not to spend her entire income? Point A Point B Point D Point E a b c d Copyright © Harcourt, Inc 232 ❖ Chapter 21/The Theory of Consumer Choice Which of the graphs shown reflects a decrease in the price of good X only? a panel A b panel B c panel C d panel D Which of the graphs shown reflects an increase in income? a panel A b panel B c panel C d panel D ANSWER: d panel D TYPE: M KEY1: G SECTION: OBJECTIVE: GRAPH FORMAT: M QUESTION INSTRUCTION: RANDOM: N Copyright © Harcourt, Inc  Chapter 21/The Theory of Consumer Choice ❖ 233  The slope of the budget constraint is determined by the a level of income of the consumer b relative price of commodities represented on the axes c preferences of a consumer d endowment of productive resources ANSWER: b relative price of commodities represented on the axes TYPE: M KEY1: D SECTION: OBJECTIVE: RANDOM: Y Consumer preferences are typically represented by a cost curves b supply curves c indifference curves d budget constraints ANSWER: c indifference curves TYPE: M KEY1: D SECTION: OBJECTIVE: RANDOM: Y Based on the figure shown which of the following statements is correct? a Point A is valued the same as point C b Point B is valued the same as point E c The bundles along indifference curve I1 are preferred to those along indifference curve I d The bundle associated with point D contains more Ho-Ho’s than that associated with point C ANSWER: a Point A is valued the same as point C TYPE: M KEY1: G SECTION: OBJECTIVE: GRAPH FORMAT: M QUESTION INSTRUCTION: RANDOM: N Copyright © Harcourt, Inc 234 ❖ Chapter 21/The Theory of Consumer Choice Based on the figure shown, which of the following statements is true for a consumer that moves from point C to point D? a The consumer is indifferent between point C and point D b The consumer is definitely worse off c It is difficult to compare the level of consumer satisfaction between points D and C d The consumer is likely to place a higher relative value on Ho-Ho’s at point C than at point D ANSWER: b The consumer is definitely worse-off TYPE: M KEY1: G SECTION: OBJECTIVE: GRAPH FORMAT: M QUESTION INSTRUCTION: RANDOM: N 10 The slope of an indifference curve is a constant b positive, since indifference curves slope upward c equal to the marginal rate of substitution d the same as the slope of the budget constraint at every point ANSWER: c equal to the marginal rate of substitution TYPE: M KEY1: D SECTION: OBJECTIVE: RANDOM: Y 11 The amount of a good an individual has a is only affected by prices b is only affected by income c will not affect the marginal rate of substitution d affects the rate at which she is willing to trade ANSWER: d affects the rate at which she is willing to trade TYPE: M KEY1: C SECTION: OBJECTIVE: RANDOM: Y 12 13 14 As long as a consumer is on the same indifference curve a she is unable to decide which bundle of goods to choose b she is indifferent among the points on that indifference curve c her preferences will not affect the marginal rate of substitution d she is indifferent to all points which lie on any other indifference curves ANSWER: b she is indifferent among the points on that indifference curve TYPE: M KEY1: D SECTION: OBJECTIVE: RANDOM: Y When indifference curves are bowed inward toward the origin, a it is unlikely that consumers will be willing to engage in trade b people can only increase satisfaction by consuming more of all commodities c people are less inclined to trade away goods that they have an abundance of d the marginal rate of substitution decreases as a consumer moves down an indifference curve ANSWER: d the marginal rate of substitution decreases as a consumer moves down an indifference curve TYPE: M KEY1: D SECTION: OBJECTIVE: RANDOM: Y The highest indifference curve that a consumer can reach is the one a farthest from the origin b that intersects the budget constraint in at least two places c that is tangent to the budget constraint d all of the above ANSWER: c that is tangent to the budget constraint TYPE: M KEY1: D SECTION: OBJECTIVE: RANDOM: Y Copyright © Harcourt, Inc  Chapter 21/The Theory of Consumer Choice ❖ 235  15 16 17 18 19 20 Which of the following is NOT a property of indifference curves? a Lower indifference curves are preferable to higher indifference curves b Indifference curves are bowed inward toward the origin c Indifference curves not cross d Indifference curves are downward sloping ANSWER: a Lower indifference curves are preferable to higher indifference curves TYPE: M KEY1: C SECTION: OBJECTIVE: RANDOM: Y When two goods are perfect substitutes they will have a linear indifference curves b indifference curves that cross c indifference curves that are right angles d indifference curves with a positive slope ANSWER: a linear indifference curves TYPE: M KEY1: C SECTION: OBJECTIVE: RANDOM: Y When economists describe preferences, they sometimes use the concept of a income b utility c prices d markets ANSWER: b utility TYPE: M KEY1: D SECTION: OBJECTIVE: RANDOM: Y An optimizing consumer will select a consumption bundle in which the a utility exceeds price b marginal rate of substitution is equal to income c ratio of expenditure shares equals the marginal rate of substitution d marginal rate of substitution is equal to the relative price ANSWER: d marginal rate of substitution is equal to the relative price TYPE: M KEY1: C SECTION: OBJECTIVE: RANDOM: Y At the optimum a the budget constraint would have a slope of b it is still possible for the consumer to increase his consumption of both goods c the slope of the indifference curve is equal to the slope of the budget constraint d the indifference curve would intersect the budget constraint at its center ANSWER: c the slope of the indifference curve is equal to the slope of the budget constraint TYPE: M KEY1: C SECTION: OBJECTIVE: RANDOM: Y When a budget constraint shifts out a the consumer is worse off b the consumer can now reach a higher indifference curve c it could only have been caused by an increase in income d it could only have been caused by an increase in the price of one of the goods ANSWER: b the consumer can now reach a higher indifference curve TYPE: M KEY1: C SECTION: OBJECTIVE: RANDOM: Y Copyright © Harcourt, Inc 236 ❖ Chapter 21/The Theory of Consumer Choice 21 Assume that the consumer depicted in the graph has an income of $10 The price of Skittles is $1 and the price of M&M’s is $2 This consumer will choose to optimize by consuming a bundle A b bundle B c bundle C d bundle D ANSWER: a bundle A TYPE: M KEY1: G SECTION: OBJECTIVE: GRAPH FORMAT: M QUESTION INSTRUCTION: RANDOM: N Copyright © Harcourt, Inc  Chapter 21/The Theory of Consumer Choice ❖ 237  22 23 24 If the consumer is currently at point B on the graph shown, a change to point C as a result of a decrease in the price of potato chips would show the a price effect b budget effect c income effect d substitution effect ANSWER: c income effect TYPE: M KEY1: D SECTION: OBJECTIVE: RANDOM: Y Assume that a college student purchases Diet Coke and Snickers The substitution effect associated with a decrease in the price of a Snickers will result in a only a decrease in the consumption of Diet Coke b only an increase in the consumption of Snickers c a decrease in the consumption of Snickers and an increase in the consumption of Diet Coke d an increase in the consumption of Snickers and a decrease in the consumption of Diet Coke ANSWER: d an increase in the consumption of Snickers and a decrease in the consumption of Diet Coke TYPE: M KEY1: C SECTION: OBJECTIVE: RANDOM: Y Violations to the law of demand are assumed to occur a only when goods are Giffen goods b commonly c only when the substitution effect dominates the income effect d All of the above are possible answers ANSWER: a only when goods are Giffen goods TYPE: M KEY1: D SECTION: OBJECTIVE: RANDOM: Y Copyright © Harcourt, Inc 238 ❖ Chapter 21/The Theory of Consumer Choice 25 If an in-kind transfer forces the recipient to consume more of the good than he would choose with a cash transfer of equal value, then the recipient a would prefer the in-kind transfer over a cash transfer of equal dollar value b would prefer a cash transfer of equal dollar value c is indifferent between a cash transfer and an in-kind transfer d Not enough information about the consumer is given to answer this question ANSWER: b would prefer a cash transfer of equal dollar value TYPE: M KEY1: C SECTION: OBJECTIVE: RANDOM: Y Copyright © Harcourt, Inc 1 ANSWER: c the trade­offs inherent in decisions made by consumers TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y  ANSWER: a.shows the consumption bundles that a consumer can afford TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y  ANSWER: c Point D TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M QUESTION  INSTRUCTION: 2  RANDOM: N  ANSWER: b.panel B TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M QUESTION  INSTRUCTION: 3  RANDOM: N  ANSWER: d panel D TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M QUESTION INSTRUCTION: 3  RANDOM: N  ANSWER: b.relative price of commodities represented on the axes TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y  ANSWER: c indifference curves TYPE: M KEY1: D SECTION: 2 OBJECTIVE: 1 RANDOM: Y  ANSWER: a.Point A is valued the same as point C TYPE: M KEY1: G SECTION: 2 OBJECTIVE: 1 GRAPH FORMAT: M QUESTION INSTRUCTION: 5  RANDOM: N  ANSWER: b.The consumer is definitely worse­off TYPE: M KEY1: G SECTION: 2 OBJECTIVE: 2 GRAPH FORMAT: M QUESTION INSTRUCTION: 6  RANDOM: N  10 ANSWER: c equal to the marginal rate of substitution TYPE: M KEY1: D SECTION: 2 OBJECTIVE: 2 RANDOM: Y  11 ANSWER: d affects the rate at which she is willing to trade TYPE: M KEY1: C SECTION: 2 OBJECTIVE: 2 RANDOM: Y  12 ANSWER: b.she is indifferent among the points on that indifference curve TYPE: M KEY1: D SECTION: 2 OBJECTIVE: 2 RANDOM: Y  13 ANSWER: d the marginal rate of substitution decreases as a consumer moves  down an indifference curve TYPE: M KEY1: D SECTION: 2 OBJECTIVE: 2 RANDOM: Y  14 ANSWER: c that is tangent to the budget constraint TYPE: M KEY1: D SECTION: 2 OBJECTIVE: 2 RANDOM: Y  15 ANSWER: a.Lower indifference curves are preferable to higher indifference curves TYPE: M KEY1: C SECTION: 2 OBJECTIVE: 2 RANDOM: Y  16 ANSWER: a.linear indifference curves TYPE: M KEY1: C SECTION: 2 OBJECTIVE: 2 RANDOM: Y  17 ANSWER: b.utility TYPE: M KEY1: D SECTION: 2 OBJECTIVE: 2 RANDOM: Y  18 ANSWER: d marginal rate of substitution is equal to the relative price TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 3 RANDOM: Y  19 ANSWER: c the slope of the indifference curve is equal to the slope of the budget  constraint TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 3 RANDOM: Y  20 ANSWER: b.the consumer can now reach a higher indifference curve TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 3 RANDOM: Y  21 ANSWER: a.bundle A TYPE: M KEY1: G SECTION: 3 OBJECTIVE: 3 GRAPH FORMAT: M QUESTION INSTRUCTION: 1  RANDOM: N  22 ANSWER: c income effect TYPE: M KEY1: D SECTION: 3 OBJECTIVE: 5 RANDOM: Y  23 ANSWER: d an increase in the consumption of Snickers and a decrease in the  consumption of Diet Coke TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 5 RANDOM: Y  24 ANSWER: a.only when goods are Giffen goods TYPE: M KEY1: D SECTION: 4 OBJECTIVE: 5 RANDOM: Y  25 ANSWER: b.would prefer a cash transfer of equal dollar value TYPE: M KEY1: C SECTION: 4 OBJECTIVE: 6 RANDOM: Y  ... GRAPH FORMAT: M QUESTION INSTRUCTION: RANDOM: N Copyright © Harcourt, Inc Chapter 21/The Theory of Consumer Choice ❖ 233  The slope of the budget constraint is determined by the a level of. ..232 ❖ Chapter 21/The Theory of Consumer Choice Which of the graphs shown reflects a decrease in the price of good X only? a panel A b panel B c panel C d panel D Which of the graphs... level of income of the consumer b relative price of commodities represented on the axes c preferences of a consumer d endowment of productive resources ANSWER: b relative price of commodities
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