Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
41 Cards in this Set
- Front
- Back
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 |
A) not cross one another.
|
|
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. |
D) any one of the above statements may be true.
|
|
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 |
C) Alvin regards good X and good Y as perfect substitutes.
|
|
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 |
A) -7/15
|
|
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. |
A) become flatter.
|
|
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 |
E) none of the above
|
|
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 |
C) Px/Py
|
|
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. |
A) 2 lemonades for each popcorn.
|
|
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 |
D) the Engel curve.
|
|
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 |
A) Wine is downward-sloping.
|
|
3 Variables that consumptions is determined by:
|
1. Income
2. Prices 3. Tastes |
|
Preferences are: (5 things)
|
1. Complete
2. Consistent 3. Convex 4. Fixed 5. More is better |
|
Collection of “baskets” of goods that the individual values equally.
|
Indifference Curves
|
|
4 Characteristics of Indifference Curves:
|
1. Cannot cross
2. Convex to origin 3. Downward-sloping 4. "Higher" represents higher utility |
|
Slope of the indifference curve
|
Marginal Rate of Substitution
|
|
rate at which the person is willing to trade “y” for “x”
|
Marginal Rate of Substitution
|
|
value of good “x” (in terms of y)
|
Marginal Rate of Substitution
|
|
means the MRS is falling as you move down along an indifference curve
|
convexity
|
|
Value of a good _____ as you have ____ of it
|
falls; more
|
|
Indifference Curves show an individual’s _____________.
|
preferences
|
|
A person’s choice (demand) is determined by preferences and _______ (prices and income).
|
ability
|
|
Affordable choices are shown by the person’s ______________.
|
budget constraint
|
|
Expenditures less than or equal to Income
|
budget constraint
|
|
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. |
tangency
|
|
Change in income
|
Engel Curves
|
|
Change in price
|
Demand Curves
|
|
Change in income causes ________ shifts in budget constraint.
|
parallel
|
|
Income and Demand are directly related (upward-sloping Engel Curve)
|
normal good
|
|
Income and Demand are inversely related (downward-sloping Engel Curve)
|
inferior good
|
|
Changes in Price cause the budget constraint to ______.
|
rotate
|
|
Price of X falls
Budget Constraint rotates ___ (becomes flatter) |
out
|
|
An increase in the price of good X will cause the budget constraint to become _______.
|
steeper
|
|
Price of X falls
Causing quantity demanded of X to ________ (in this case) |
increase
|
|
When the price of a good changes the budget constraint rotates. This causes two different incentive effects on choice:
|
1. Relative price changes (slope changes)
2. Purchasing power changes (real income) |
|
The response to relative price changes we call the ___________________ of the price change.
|
substitution effect
|
|
The response to purchasing power changes we call the ______________ of the price change.
|
income effect
|
|
Response to change in relative prices, holding real income constant.
|
substitution effect
|
|
Putting this altogether for a price decrease:
Normal Good Substitution Effect: Cheaper: _________ Income Effect: “Richer”: _____________ |
Buy more; buy more
|
|
Putting this altogether for a price decrease:
Inferior Good Substitution Effect: Cheaper: Income Effect: “Richer”: |
Buy more; Buy less
|
|
response to price change, holding utility constant
|
substitution effect
|
|
Response to change in purchasing power holding price constant
|
income effect
|