Question 1

-In the figure above, Sam originally selects his consumption bundle at point A with 3 pounds of olives and 4 pounds of pickles a year. Then the price of pickles rises and the price of olives falls so that his budget line rotates but it still goes through point A. Sam's consumption of pickles
A) definitely will rise.
B) definitely will fall.
C) definitely will stay the same.
D) could rise, fall, or stay the same.

Accepted Answer

The answer of 
-In the figure above, Sam originally selects...

Question 2

-In the figure above, the marginal rate of substitution (MRS) at point A is
A) greater than the MRS at any other point on the indifference curve.
B) equals the MRS at all other points on the indifference curve.
C) less than the MRS at any other point on the indifference curve.
D) equal to the slope of the budget line.

Accepted Answer

The answer of 
-In the figure above, the marginal rate...

Question 3

Beta Alpha Psi is an accounting student professional organization with chapters on 279 campuses nationwide. Suppose each meeting the local chapter has $30 to spend on pizza and soda. If pizza costs $8 and the chapter buys 3, how much money can be spent on soda?
A) $6
B) $30
C) $24
D) $3

Accepted Answer

The chapter spends $24 on 3 pizzas ($8 each), leaving $6 for soda.

Question 4

When the price of a normal good rises, the income effect results in ________ in the quantity demanded and the substitution effect results in ________ in the quantity demanded.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease

Accepted Answer

When the price of a normal good rises, the income effect results in a decrease in the quantity demanded since the purchasing power of the consumer's income has decreased. The substitution effect results in a decrease in the quantity demanded since consumers will substitute the now more expensive good for a cheaper alternative. Thus, both effects lead to a decrease in the quantity demanded, resulting in choice D.

Question 5

Janelle spends all of her income on songs from iTunes ($1 each) and applications ($5 each) for her iTouch. If she makes her best affordable choice, she purchases 20 songs and 4 applications, what is her income?
A) $40
B) $20
C) $30
D) $25

Accepted Answer

Janelle buys 20 songs at $1 each and 4 applications at $5 each. The total cost is (20 * $1) + (4 * $5) = $20 + $20 = $40, which is her income.

Question 6

A consumer is in equilibrium when the consumption point is on
A) the budget line.
B) an indifference curve.
C) the highest indifference curve that just touches the budget line.
D) none of the above.

Accepted Answer

The consumer is in equilibrium when the consumption point is on the highest indifference curve that just touches the budget line. This is because at this point, the consumer is maximizing their utility (i.e. satisfaction) given their budget constraint. Any other point on a higher indifference curve would mean the consumer is not spending their money efficiently, while any point on a lower indifference curve would mean the consumer is not maximizing their utility.

Question 7

Some parents struggling with back-to-school buys. "A couple of years ago, I was able to buy everything practically new," said Charles Lane-Bey, a U.S. Postal Service worker who's struggling to make ends meet. Suppose Charles has $10 to spend on back-to-school clothing for his son, and pants cost 50 cents and shirts cost $1. Which of the following combinations of pants and shirts is affordable?
A) 10 pants and 6 shirts
B) 7 pants and 7 shirts
C) 3 pants and 8 shirts
D) 6 pants and 2 shirts

Accepted Answer

Charles can afford 6 pants (6 x $0.50 = $3) and 2 shirts (2 x $1 = $2), totaling $5, which is within his $10 budget.

Question 8

-The figure illustrates Elijah's preferences. He is currently at point A. The price of pizza decreases. The move from point A to point ________ is the substitution effect and the move from point ________ to point ________ is the income effect.
A) B; B; C
B) E; E; C
C) D; D; B
D) C; C; B

Accepted Answer

The answer of 
-The figure illustrates Elijah's preferences. He is...

Question 9

-In the figure above, at point A the consumer is willing to give up ________ pounds of pickles to get one additional pound of olives.
A) 8
B) 6
C) 1 1/3
D) 2

Accepted Answer

The consumer's willingness to trade pickles for olives is determined by the slope of the indifference curve at point A. The slope indicates the marginal rate of substitution, which is 1 1/3 pounds of pickles for one additional pound of olives.

Question 10

-In the figure above, Sam originally selects his consumption bundle at point A with 3 pounds of olives and 4 pounds of pickles a year. Then the price of pickles rises and the price of olives falls so that his budget line rotates but it still goes through point A. At point A, the slope of the indifference curve I₁ ________ the slope of the new budget line. A) is steeper than B) is flatter than C) has the same slope as D) could be steeper than, flatter than, or have the same slope as

Accepted Answer

The answer of 
-In the figure above, Sam originally selects...

Question 11

Ramen noodles were hotter than ever in 2010. Considered a bargain meal for cash-starved college students... in 2010, 4 billion individual packets were devoured in the United States, a 4 percent increase over 2006. If once college students graduated, they stopped eating ramen, would ramen be considered a normal or inferior good?
A) inferior because students only eat ramen when income is low
B) normal because students only eat ramen when income is low
C) inferior because students only eat ramen when income is high
D) normal because students only eat ramen when income is high

Accepted Answer

Ramen noodles are considered an inferior good because their consumption decreases as income increases. College students typically consume ramen noodles because they are a cheap meal option when their income is low, but if they were to start earning more money after graduation, they would likely opt for higher-priced meal options.

Question 12

When oranges increase in price, the income effect
A) decreases the consumption of oranges only if oranges are a normal good.
B) decreases the consumption of oranges only if oranges are an inferior good.
C) always increases the consumption of oranges.
D) always decreases the consumption of oranges.

Accepted Answer

The income effect is the change in consumption due to a change in purchasing power caused by a change in price. When oranges become more expensive, consumers' purchasing power decreases, and they may choose to consume less of oranges in favor of other goods. However, this effect depends on whether oranges are a normal or inferior good. If oranges are a normal good, then the income effect will decrease the consumption of oranges as their price increases. If oranges are an inferior good, then the income effect will increase the consumption of oranges as their price increases.

Question 13

Some parents struggling with back-to-school buys. "A couple of years ago, I was able to buy everything practically new," said Charles Lane-Bey, a U.S. Postal Service worker who's struggling to make ends meet. Suppose Charles has $10 to spend on back-to-school clothing for his son, and pants cost 50 cents and shirts cost $1. What is the slope of Charles's budget line if it is drawn with pants on the x-axis?
A) 2
B) -2
C) -1/2
D) 1/2

Accepted Answer

The answer of Some parents struggling with back-to-school buys. "A...

Question 14

Ramen noodles were hotter than ever in 2010. Considered a bargain meal for cash-starved college students... In 2010, 4 billion individual packets were devoured in the United States, a 4 percent increase over 2006. Once students leave college for that first well-paying job, however, they stop eating Ramen. If the price of ramen falls, and income remains the same, describe the substitution and income effects that occur.
A) Both the substitution and income effects would be positive.
B) The substitution effect would be negative and the income effect would be positive.
C) Both the substitution and income effects would be negative.
D) The substitution effect would be positive and the income effect would be negative.

Accepted Answer

The substitution effect would be positive because as the price of ramen noodles falls, consumers are likely to switch from other more expensive goods to ramen noodles. However, the income effect would be negative because as the price of ramen noodles falls, consumers may perceive it as an inferior good and may reduce consumption of it as their income increases.

Question 15

Some parents struggling with back-to-school buys. "A couple of years ago, I was able to buy everything practically new," said Charles Lane-Bey, a U.S. Postal Service worker who's struggling to make ends meet. Suppose Charles has $10 to spend on back-to-school clothing for his son, and pants cost 50 cents and the price of shirts has decreased from $1 to 50 cents. What is the effect of the fall in price of shirts on Charles's real income in terms of pants?
A) It increases from 10 to 20.
B) It decreases from 10 to 5.
C) It does not change.
D) It increases from 20 to 40.

Accepted Answer

The fall in price of shirts from $1 to 50 cents means that Charles can now buy 2 shirts for the price of one pants. Therefore, his real income in terms of pants remains the same, as he can still buy the same number of shirts and pants with his $10.

Question 16

Janelle spends all of her $40 income on songs from iTunes ($1 each) and applications ($4 each) for her iTouch. What is her budget equation?
A) $1 × Qsong - $5 × Qapp = Y
B) Qsong = 10 - 4 × Qapp
C) $40 + $1 × Qsong = $4 × Qapp
D) Qapp = 10 - 1/4 × Qsong

Accepted Answer

Janelle's budget equation is based on spending all $40 on songs and applications. Each song costs $1 and each application costs $4. Therefore, the equation is $1 × Qsong + $4 × Qapp = $40. Solving for Qapp gives Qapp = 10 - 1/4 × Qsong.

Question 17

Bananas cost about $1 a pound and ground beef costs about $3 a pound. If Jenna has $18 to spend on groceries and she only buys bananas and beef, which of the following is a possible combination of these goods that could maximize her total utility?
A) 18 lbs of bananas and 6 lbs of beef
B) 10 lbs of bananas and 8 lbs of beef
C) 8 lbs of bananas and 3 lbs of beef
D) 3 lbs of bananas and 5 lbs of beef

Accepted Answer

The answer of Bananas cost about $1 a pound and...

Question 18

Janelle spends all of her income on songs from iTunes ($1 each) and applications ($5 each) for her iTouch. If she makes her best affordable choice, she purchases 20 songs and 4 applications, what is her real income in terms of applications?
A) 40 applications
B) 4 applications
C) 10 applications
D) 20 songs

Accepted Answer

Janelle spends $20 on songs (20 songs x $1/song = $20) and $20 on applications (4 applications x $5/application = $20). Therefore, her total income spent on applications is $20. Since each application costs $5, her real income in terms of applications is $20/$5 = 4 applications. Therefore, the best choice is to purchase the 4 applications.

Question 19

-In the figure above, Sam originally selects his consumption bundle at point A with 3 pounds of olives and 4 pounds of pickles a year. Then the price of pickles rises and the price of olives falls so that his budget line rotates but it still goes through point A. Sam's consumption of olives
A) definitely will rise.
B) definitely will fall.
C) definitely will stay the same.
D) could rise, fall, or stay the same.

Accepted Answer

The answer of 
-In the figure above, Sam originally selects...

Question 20

-In the figure above, the marginal rate of substitution (MRS) at point A is equal to ________ pounds of pickles per pound of olives.
A) 8
B) 6
C) 1 1/3
D) 2

Accepted Answer

The marginal rate of substitution (MRS) is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility. If the MRS at point A is 1 1/3, it means the consumer is willing to give up 1 1/3 pounds of pickles for each additional pound of olives.

Quiz 9: Possibilities, Preferences, and Choices

-In the figure above, Sam originally selects his consumption bundle at point A with 3 pounds of olives and 4 pounds of pickles a year. Then the price of pickles rises and the price of olives falls so that his budget line rotates but it still goes through point A. Sam's consumption of pickles

-In the figure above, the marginal rate of substitution (MRS) at point A is

Beta Alpha Psi is an accounting student professional organization with chapters on 279 campuses nationwide. Suppose each meeting the local chapter has $30 to spend on pizza and soda. If pizza costs $8 and the chapter buys 3, how much money can be spent on soda?

When the price of a normal good rises, the income effect results in in the quantity demanded and the substitution effect results in in the quantity demanded.

Janelle spends all of her income on songs from iTunes ($1 each) and applications ($5 each) for her iTouch. If she makes her best affordable choice, she purchases 20 songs and 4 applications, what is her income?

A consumer is in equilibrium when the consumption point is on

-The figure illustrates Elijah's preferences. He is currently at point A. The price of pizza decreases. The move from point A to point is the substitution effect and the move from point to point is the income effect.

-In the figure above, at point A the consumer is willing to give up ________ pounds of pickles to get one additional pound of olives.

When oranges increase in price, the income effect

Janelle spends all of her $40 income on songs from iTunes ($1 each) and applications ($4 each) for her iTouch. What is her budget equation?

Bananas cost about $1 a pound and ground beef costs about $3 a pound. If Jenna has $18 to spend on groceries and she only buys bananas and beef, which of the following is a possible combination of these goods that could maximize her total utility?

Janelle spends all of her income on songs from iTunes ($1 each) and applications ($5 each) for her iTouch. If she makes her best affordable choice, she purchases 20 songs and 4 applications, what is her real income in terms of applications?

-In the figure above, Sam originally selects his consumption bundle at point A with 3 pounds of olives and 4 pounds of pickles a year. Then the price of pickles rises and the price of olives falls so that his budget line rotates but it still goes through point A. Sam's consumption of olives

-In the figure above, the marginal rate of substitution (MRS) at point A is equal to ________ pounds of pickles per pound of olives.