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The marginal rate of substitution is


A) the slope of a budget constraint.
B) always constant.
C) the slope of an indifference curve.
D) the point at which the budget constraint and the indifference curve are tangent.

E) A) and B)
F) A) and C)

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

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Because the budget constraint is tangent...

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Which of the following examples would illustrate a backward-sloping labor supply-curve?


A) An increase in a person's wages results in the person working fewer hours per week.
B) A decrease in a person's wages results in the person working more hours per week.
C) An increase in a person's wages results in the person working more hours per week.
D) Both a and b are correct.

E) All of the above
F) A) and B)

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Suppose a consumer spends her income on two goods: music CDs and DVDs. The price of a CD is $8, and the price of a DVD is $20. If we graph the budget constraint by measuring the quantity of CDs purchased on the vertical axis and the quantity of DVDs on the horizontal axis, what is the slope of the budget constraint?


A) -5.0
B) -2.5
C) -0.4
D) The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods.

E) A) and B)
F) B) and D)

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The slope of the budget constraint is all of the following except


A) the relative price of two goods.
B) the rate at which a consumer can afford to trade one good for another.
C) the marginal rate of substitution.
D) constant.

E) B) and C)
F) A) and C)

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The indifference curves for left gloves and right gloves are straight lines.

A) True
B) False

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Is it possible for a normal good to be a Giffen good? Briefly explain.

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No, only i...

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The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer. The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer. What is the marginal rate of substitution between points A and B? A) 1/2 B) 4/3 C) 2 D) 3 What is the marginal rate of substitution between points A and B?


A) 1/2
B) 4/3
C) 2
D) 3

E) B) and D)
F) A) and C)

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Figure 21-11 Figure 21-11 -Refer to Figure 21-11. As the consumer moves from point A to B to C to D, the consumer's total utility A) remains constant. B) increases. C) decreases. D) first increases, then decreases. -Refer to Figure 21-11. As the consumer moves from point A to B to C to D, the consumer's total utility


A) remains constant.
B) increases.
C) decreases.
D) first increases, then decreases.

E) All of the above
F) None of the above

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Consider the indifference curve map and budget constraint for two goods, X and Y. Suppose the good on the horizontal axis, X, is normal. When the price of X increases, the substitution effect


A) and income effect both cause an increase in the consumption of X.
B) causes a decrease in the consumption of X, and the income effect causes an increase in the consumption of X. However, the substitution effect is greater than the income effect.
C) causes an increase in the consumption of X, and the income effect causes a decrease in the consumption of X. However, the substitution effect is greater than the income effect.
D) and income effect both cause a decrease in the consumption of X.

E) A) and B)
F) A) and C)

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Figure 21-8 Figure 21-8 -Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is A) AB. B) BC. C) CD. D) DE. -Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is


A) AB.
B) BC.
C) CD.
D) DE.

E) A) and B)
F) B) and D)

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Figure 21-14 Figure 21-14 -Refer to Figure 21-14. Which of the following statements is correct? A) The indifference curves represented in graph a are perfect substitutes. B) The indifference curves represented in graph b are perfect complements. C) The indifference curves represented in graph c are neither perfect substitutes not perfect complements. D) All of the above are correct. Figure 21-14 -Refer to Figure 21-14. Which of the following statements is correct? A) The indifference curves represented in graph a are perfect substitutes. B) The indifference curves represented in graph b are perfect complements. C) The indifference curves represented in graph c are neither perfect substitutes not perfect complements. D) All of the above are correct. Figure 21-14 -Refer to Figure 21-14. Which of the following statements is correct? A) The indifference curves represented in graph a are perfect substitutes. B) The indifference curves represented in graph b are perfect complements. C) The indifference curves represented in graph c are neither perfect substitutes not perfect complements. D) All of the above are correct. -Refer to Figure 21-14. Which of the following statements is correct?


A) The indifference curves represented in graph a are perfect substitutes.
B) The indifference curves represented in graph b are perfect complements.
C) The indifference curves represented in graph c are neither perfect substitutes not perfect complements.
D) All of the above are correct.

E) B) and C)
F) A) and D)

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Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4. Which of the graphs in the figure could reflect an increase in income? A) graph a B) graph b C) graph d D) None of the above is correct. Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4. Which of the graphs in the figure could reflect an increase in income? A) graph a B) graph b C) graph d D) None of the above is correct. Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4. Which of the graphs in the figure could reflect an increase in income? A) graph a B) graph b C) graph d D) None of the above is correct. Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4. Which of the graphs in the figure could reflect an increase in income? A) graph a B) graph b C) graph d D) None of the above is correct. -Refer to Figure 21-4. Which of the graphs in the figure could reflect an increase in income?


A) graph a
B) graph b
C) graph d
D) None of the above is correct.

E) None of the above
F) A) and D)

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Scenario 21-3 Scott knows that he will ultimately face retirement. Assume that Scott will experience two periods in his life, one in which he works and earns income, and one in which he is retired and earns no income. Scott can earn $250,000 during his working period and nothing in his retirement period. He must both save and consume in his work period with an interest rate of 10 percent on savings. -Refer to Scenario 21-3. Assume that Scott decides to consume $100,000 in the work period. How much money will he have available for consumption in his retirement period?


A) $100,000
B) $110,000
C) $150,000
D) $165,000

E) None of the above
F) A) and C)

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Preston goes to the movies every Sunday afternoon. The movie theater offers 4 combinations of popcorn and beverages: the "mini-combo" costs $5 and includes a small popcorn and a small drink, the "medium-combo" costs $7 and includes a medium popcorn and a medium drink, the "value-combo" also costs $7 and includes a small popcorn and a large drink, and the "large-combo" costs $9 and includes a large popcorn and a large drink. Preston always purchases the "value-combo." We can conclude that


A) Preston cannot afford the "large-combo."
B) Preston cannot afford the "medium-combo."
C) Preston prefers a combo with a larger popcorn-to-beverage ratio.
D) Preston prefers a combo with a smaller popcorn-to-beverage ratio.

E) A) and D)
F) A) and B)

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Giffen goods are


A) normal goods for which the income effect dominates the substitution effect.
B) normal goods for which the substitution effect dominates the income effect.
C) inferior goods for which the income effect dominates the substitution effect.
D) inferior goods for which the substitution effect dominates the income effect.

E) A) and B)
F) B) and C)

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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

E) B) and C)
F) None of the above

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Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 8 gallons of ice cream and 5 paperback novels?


A) Karen, Tara, and Chelsea
B) Karen only
C) Tara and Chelsea but not Karen
D) none of the women

E) A) and C)
F) C) and D)

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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. 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. -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) I<sub>1</sub> B) I<sub>2</sub> C) I<sub>3</sub> D) I<sub>4</sub> -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

E) A) and D)
F) None of the above

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Figure 21-14 Figure 21-14 -Refer to Figure 21-14. Which of the graphs illustrates indifference curves for which the marginal rate of substitution is constant? A) graph a B) graph b C) graph c D) All of the above are correct. Figure 21-14 -Refer to Figure 21-14. Which of the graphs illustrates indifference curves for which the marginal rate of substitution is constant? A) graph a B) graph b C) graph c D) All of the above are correct. Figure 21-14 -Refer to Figure 21-14. Which of the graphs illustrates indifference curves for which the marginal rate of substitution is constant? A) graph a B) graph b C) graph c D) All of the above are correct. -Refer to Figure 21-14. Which of the graphs illustrates indifference curves for which the marginal rate of substitution is constant?


A) graph a
B) graph b
C) graph c
D) All of the above are correct.

E) None of the above
F) A) and D)

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