Question 1

The substitution effect reflects how a consumer will react to a different
A)marginal rate of substitution.
B)market rate of substitution.
C)level of real income.
D)level of nominal income.

Accepted Answer

The answer of The substitution effect reflects how a consumer...

Question 2

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day.What is the minimum the worker can earn in a day?
A)$50.
B)$100.
C)$192.
D)$200.

Accepted Answer

The minimum the worker can earn in a day is the fixed payment of $100, as this amount does not depend on the number of hours worked.

Question 3

If a firm offers to pay a worker $10 for each hour of leisure the worker gives up then the opportunities confronting the worker will be given by the
A)convex curve from the origin.
B)concave curve from the origin.
C)straight line with a negative slope.
D)straight line with a positive slope.

Accepted Answer

The offer to pay a worker $10 for each hour of leisure given up creates a constant trade-off between leisure and income, represented by a straight line with a negative slope. This is because for each hour of leisure sacrificed, the worker earns an additional $10, implying a constant rate of substitution.

Question 4

Running a supermarket involves
A)a lower level of risk than running a gourmet shop.
B)a higher level of risk than running a gourmet shop.
C)the same level of risk as running a gourmet shop.
D)all of the statements associated with this question are correct.

Accepted Answer

Running a supermarket involves a lower level of risk than running a gourmet shop because supermarkets operate on a larger scale and offer a wider variety of products, attracting a larger customer base, and ultimately resulting in more stable revenue. On the other hand, gourmet shops typically specialize in a niche market with higher-end products, resulting in a smaller customer base and more volatile revenue.

Question 5

Mitchell's money income is $150, the price of X is $2, and the price of Y is $2.Given these prices and income, Mitchell buys 50 units of X and 25 units of Y.Call this combination of X and Y bundle J.At bundle J Mitchell's MRS is 2.Given these prices and income, what is Mitchell's equilibrium consumption of X?
A)X < 50.
B)X = 50.
C)X > 50.
D)none of the statements associated with this question are correct.

Accepted Answer

The answer of Mitchell's money income is $150, the price...

Question 6

Managers can get workers to work longer hours
A)by increasing wages on all hours worked.
B)by lowering wages on all hours worked.
C)with higher overtime pay in excess of regular hourly pay.
D)with lower overtime pay in excess of regular hourly pay.

Accepted Answer

Offering higher overtime pay in excess of regular hourly pay provides an incentive for workers to work longer hours while also compensating them fairly for the additional time worked. Lowering wages or offering lower overtime pay could have the opposite effect, discouraging workers from working longer hours and potentially leading to decreased productivity and morale. Increasing wages on all hours worked would not necessarily incentivize workers to work longer hours as they would still be receiving the same pay rate.

Question 7

A firm manager with vertical indifference curves (output on the horizontal axis, profit on the vertical axis) views
A)only profits to be "goods."
B)only output to be "goods."
C)both profits and outputs to be "goods."
D)none of the statements associated with this question are correct.

Accepted Answer

The answer of A firm manager with vertical indifference curves...

Question 8

Most workers view leisure and income as
A)goods.
B)bads.
C)goods and bads, respectively.
D)bads and goods, respectively.

Accepted Answer

Most workers view leisure and income as goods because they are both seen as desirable or valuable assets. Leisure allows individuals to pursue activities that they enjoy outside of work, while income provides the financial means to support those activities as well as basic necessities.

Question 9

The revenues earned by the firm from the consumer may be maximized under
A)the regular price offer.
B)the buy one get one free offer.
C)50% discount offer.
D)40% discount offer.

Accepted Answer

The "buy one get one free" offer can maximize revenues by encouraging consumers to purchase more units than they might under a regular price or discount offer, effectively doubling the quantity sold while maintaining the price for the first unit.

Question 10

If you include in your offerings some inferior goods, the demand for these products will increase
A)during bad economic times.
B)during economic booms.
C)when incomes are high.
D)all of the statements associated with this question are correct.

Accepted Answer

During bad economic times, people may not be able to afford higher quality goods and may turn to purchasing inferior goods as a more affordable option. This can result in an increase in demand for these products.

Question 11

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day.What is the market rate of substitution between leisure and income?
A)$5.
B)$8.
C)$10.
D)none of the statements associated with this question are correct.

Accepted Answer

The market rate of substitution between leisure and income is the wage rate, which is $8 per hour in this case.

Question 12

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day.What is the equation for the worker's opportunity set? (E is total earnings and L is leisure)
A)E = 100 - 8L.
B)E = 192 - 8L.
C)E = 292 - 8L.
D)none of the statements associated with this question are correct.

Accepted Answer

The worker's total earnings (E) consist of a fixed payment of $100 per day plus $8 for each hour worked. If L is leisure, then the hours worked are (24 - L). Therefore, E = 100 + 8(24 - L) = 292 - 8L.

Question 13

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day.What are the maximum total earnings the worker can earn in a day?
A)$492.
B)$392.
C)$192.
D)$292.

Accepted Answer

The maximum earnings can be calculated by working for the maximum possible hours in a day, which is 24 hours in this case. 
Wage per hour = $8 
Fixed payment per day = $100 
Maximum hours worked = 24 
Total earnings = (wage per hour * maximum hours worked) + fixed payment 
Total earnings = ($8 * 24) + $100 = $292 
Therefore, the maximum total earnings the worker can earn in a day is $292.

Question 14

Mitchell's money income is $150, the price of X is $2, and the price of Y is $2.Given these prices and income, Mitchell buys 50 units of X and 25 units of Y.Call this combination of X and Y bundle J.At bundle J Mitchell's MRS is 2.At bundle J, if Mitchell increases consumption of Y by 1 unit how many units of X can he give up and still reach the same level of utility?
A)½.
B)1.
C)2.
D)4.

Accepted Answer

The answer of Mitchell's money income is $150, the price...

Question 15

The firm manager with horizontal indifference curves (output on the horizontal axis, profit on the vertical axis) views
A)only profits to be "goods."
B)only output to be "goods."
C)both profits and outputs to be "goods."
D)none of the statements associated with this question are correct.

Accepted Answer

Horizontal indifference curves imply that the manager values only profits as "goods" and is indifferent to changes in output.

Question 16

When the price of a good increases with other things unchanged, the real income of the consumer
A)is unchanged.
B)increases.
C)decreases.
D)none of the statements associated with this question are correct.

Accepted Answer

When the price of a good increases, the consumer's purchasing power decreases, which means that the consumer can buy fewer goods with the same amount of income. Therefore, the real income of the consumer decreases.

Question 17

Mitchell's money income is $150, the price of X is $2, and the price of Y is $2.Given these prices and income, Mitchell buys 50 units of X and 25 units of Y.Call this combination of X and Y bundle J.At bundle J Mitchell's MRS is 2.At bundle J, if Mitchell increases consumption of Y by 1 unit how many units of X must he give up in order to satisfy his budget constraint?
A)½.
B)1.
C)2.
D)4.

Accepted Answer

With an MRS of 2, Mitchell is willing to give up 2 units of X for every additional unit of Y. If he increases consumption of Y by 1 unit, he needs to give up 2 units of X to stay within his budget constraint. This is because his income is $150 and he spends $50 on X (50 units x $2 per unit) and $50 on Y (25 units x $2 per unit). If he wants to increase consumption of Y by 1 unit, he can only spend an additional $2 (1 unit x $2 per unit). Thus, he must reduce spending on X by $2 as well, which means giving up 2 units of X (since the price of X is $2 per unit).

Question 18

If a firm offers to pay a worker $10 for each hour of leisure the worker gives up the $10 implies the
A)marginal rate of substitution between leisure and income.
B)market rate of substitution between leisure and income.
C)market rate of transformation between leisure and income.
D)marginal rate of transformation between leisure and income.

Accepted Answer

The market rate of substitution between leisure and income is determined by how much the worker is willing to give up in leisure time in exchange for a certain level of income. In this case, the firm is offering to pay $10 for each hour of leisure given up, which is an example of the market rate of substitution between leisure and income. The other options are not accurate descriptions of the scenario described.

Question 19

Many gourmet shops go out of business during recessions since they sell almost exclusively
A)inferior goods.
B)normal goods.
C)substitutes.
D)complements.

Accepted Answer

Gourmet food is considered a luxury or normal good, as it is not a necessity for survival. During recessions, people tend to cut back on non-essential spending and prioritize basic needs, which can lead to a decrease in demand for gourmet products. Therefore, gourmet shops often struggle during economic downturns.

Question 20

The firm manager with indifference curves which are convex from the origin (output on the horizontal axis and profit on the vertical axis) views
A)only profits to be "goods."
B)only outputs to be "goods."
C)both profits and outputs to be "goods."
D)none of the statements associated with this question are correct.

Accepted Answer

The convex indifference curves indicate that the firm manager values both output and profit. This means that the manager considers both goods and strives to maximize both simultaneously. Therefore, both profits and outputs are considered "goods" by the firm manager.

Quiz 4: The Theory of Individual Behavior

The substitution effect reflects how a consumer will react to a different

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day.What is the minimum the worker can earn in a day?

If a firm offers to pay a worker $10 for each hour of leisure the worker gives up then the opportunities confronting the worker will be given by the

Running a supermarket involves

Managers can get workers to work longer hours

A firm manager with vertical indifference curves (output on the horizontal axis, profit on the vertical axis) views

Most workers view leisure and income as

The revenues earned by the firm from the consumer may be maximized under

If you include in your offerings some inferior goods, the demand for these products will increase

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day.What is the market rate of substitution between leisure and income?

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day.What is the equation for the worker's opportunity set? (E is total earnings and L is leisure)

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day.What are the maximum total earnings the worker can earn in a day?

The firm manager with horizontal indifference curves (output on the horizontal axis, profit on the vertical axis) views

When the price of a good increases with other things unchanged, the real income of the consumer

If a firm offers to pay a worker $10 for each hour of leisure the worker gives up the $10 implies the

Many gourmet shops go out of business during recessions since they sell almost exclusively

The firm manager with indifference curves which are convex from the origin (output on the horizontal axis and profit on the vertical axis) views