Eco 312 Quiz One

Front 1

1) The assumption of transitive preferences implies that indifference curves must:

A) not cross one another.
B) have a positive slope.
C) be L-shaped.
D) be convex to the origin.
E) all of the above

Back 1

A) not cross one another.

Front 2

2) Suppose that a market basket of two goods is changed by adding more of one of the goods and
subtracting one unit of the other. The consumer will:

A) rank the market basket more highly after the change.
B) rank the market basket more highly before the change.
C) rank the market basket just as desirable as before.
D) any one of the above statements may be true.

Back 2

D) any one of the above statements may be true.

Front 3

3) Based on Figure 3.1, it can be inferred that:

A) Alvin does not consider good X as ʺgood.ʺ
B) Alvin will never purchase any of good Y.
C) Alvin regards good X and good Y as perfect substitutes.
D) Alvin regards good X and good Y as perfect complements.
E) none of the above

Back 3

C) Alvin regards good X and good Y as perfect substitutes.

Front 4

4) A consumer has $100 per day to spend on product A, which has a unit price of $7, and product
B, which has a unit price of $15. What is the slope of the budget line if good A is on the
horizontal axis and good B is on the vertical axis?

A) -7/15
B) -7/100
C) -15/7
D) 7/15

Back 4

A) -7/15

Front 5

5) Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the
price of food falls relative to that of clothing, the budget line will:

A) become flatter.
B) become steeper.
C) shift outward.
D) become steeper or flatter depending on the relationship between prices and income.

Back 5

A) become flatter.

Front 6

6) Suppose a consumer only purchases food and clothing, and food is plotted along the
horizontal axis of the consumer's indifference map. If the price of food and clothing increase
and income does not change, then the budget line changes by rotating:

A) counter-clockwise about the fixed vertical axis intercept.
B) clockwise about the fixed vertical axis intercept.
C) counter-clockwise about the fixed horizontal axis intercept.
D) clockwise about the fixed horizontal axis intercept.
E) none of the above

Back 6

E) none of the above

Front 7

7) A consumer maximizes satisfaction at the point where his valuation of good X, measured as
the amount of good Y he would willingly give up to obtain an additional unit of X, equals:

A) the magnitude of the slope of the indifference curve through that point.
B) one over the magnitude of the slope of the indifference curve through that point.
C) Px/Py
D) Py/Px

Back 7

C) Px/Py

Front 8

8) The price of lemonade is $0.50; the price of popcorn is $1.00. If Fred has maximized his utility
by purchasing lemonade and popcorn, his marginal rate of substitution will be:

A) 2 lemonades for each popcorn.
B) 1 lemonades for each popcorn.
C) 1/2 lemonade for each popcorn.
D) indeterminate unless more information on Fredʹs marginal utilities is provided.

Back 8

A) 2 lemonades for each popcorn.

Front 9

9) The curve in the diagram below is called: (squiggly line)

A) the price-consumption curve.
B) the demand curve.
C) the income-consumption curve.
D) the Engel curve.
E) none of the above

Back 9

D) the Engel curve.

Front 10

Consider Figure 1 above, showing Tom’s utility maximizing choices as the price of wine changes. From this information we can say that Tom’s demand for:

A) Wine is downward-sloping.
B) Wine is relatively elastic.
C) Bread is elastic
D) Bread is upward-sloping.
E) Wine is upward-sloping

Back 10

A) Wine is downward-sloping.

Front 11

3 Variables that consumptions is determined by:

Back 11

1. Income
2. Prices
3. Tastes

Front 12

Preferences are: (5 things)

Back 12

1. Complete
2. Consistent
3. Convex
4. Fixed
5. More is better

Front 13

Collection of “baskets” of goods that the individual values equally.

Back 13

Indifference Curves

Front 14

4 Characteristics of Indifference Curves:

Back 14

1. Cannot cross
2. Convex to origin
3. Downward-sloping
4. "Higher" represents higher utility

Front 15

Slope of the indifference curve

Back 15

Marginal Rate of Substitution

Front 16

rate at which the person is willing to trade “y” for “x”

Back 16

Marginal Rate of Substitution

Front 17

value of good “x” (in terms of y)

Back 17

Marginal Rate of Substitution

Front 18

means the MRS is falling as you move down along an indifference curve

Back 18

convexity

Front 19

Value of a good _____ as you have ____ of it

Back 19

falls; more

Front 20

Indifference Curves show an individual’s _____________.

Back 20

preferences

Front 21

A person’s choice (demand) is determined by preferences and _______ (prices and income).

Back 21

ability

Front 22

Affordable choices are shown by the person’s ______________.

Back 22

budget constraint

Front 23

Expenditures less than or equal to Income

Back 23

budget constraint

Front 24

Individual maximizes utility by choosing a combination of goods so that s/he is on the highest feasible indifference curve.

This occurs at a point of _______ between the budget constraint and an indifference curve.

Back 24

tangency

Front 25

Change in income

Back 25

Engel Curves

Front 26

Change in price

Back 26

Demand Curves

Front 27

Change in income causes ________ shifts in budget constraint.

Back 27

parallel

Front 28

Income and Demand are directly related (upward-sloping Engel Curve)

Back 28

normal good

Front 29

Income and Demand are inversely related (downward-sloping Engel Curve)

Back 29

inferior good

Front 30

Changes in Price cause the budget constraint to ______.

Back 30

rotate

Front 31

Price of X falls

Budget Constraint rotates ___ (becomes flatter)

Back 31

out

Front 32

An increase in the price of good X will cause the budget constraint to become _______.

Back 32

steeper

Front 33

Price of X falls

Causing quantity demanded of X to ________ (in this case)

Back 33

increase

Front 34

When the price of a good changes the budget constraint rotates. This causes two different incentive effects on choice:

Back 34

1. Relative price changes (slope changes)
2. Purchasing power changes (real income)

Front 35

The response to relative price changes we call the ___________________ of the price change.

Back 35

substitution effect

Front 36

The response to purchasing power changes we call the ______________ of the price change.

Back 36

income effect

Front 37

Response to change in relative prices, holding real income constant.

Back 37

substitution effect

Front 38

Putting this altogether for a price decrease:

Normal Good

Substitution Effect: Cheaper: _________

Income Effect: “Richer”: _____________

Back 38

Buy more; buy more

Front 39

Putting this altogether for a price decrease:

Inferior Good

Substitution Effect: Cheaper:

Income Effect: “Richer”:

Back 39

Buy more; Buy less

Front 40

response to price change, holding utility constant

Back 40

substitution effect

Front 41

Response to change in purchasing power holding price constant

Back 41

income effect