Business Economic

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  • Topic: Consumer theory, Budget constraint, Inferior good
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  • Published : February 17, 2013
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1. The theory of consumer choice provides the foundation for understanding a. the structure of a firm. b. the profitability of a firm. c. a firm's product demand. d. a firm's product supply. ANS: C PTS: 1 DIF: 1 REF: 21-0 TOP: Consumer choice MSC: Definitional 2. The theory of consumer choice examines a. the determination of output in competitive markets. b. the tradeoffs inherent in decisions made by consumers. c. how consumers select inputs into manufacturing production processes. d. the determination of prices in competitive markets. ANS: B PTS: 1 DIF: 1 REF: 21-0 TOP: Consumer choice MSC: Definitional 3. Consider two goods, books and hamburgers. The slope of the consumer's budget constraint is measured by the a. consumer's income divided by the price of hamburgers. b. relative price of books and hamburgers. c. consumer's marginal rate of substitution. d. number of books purchased divided by the number of hamburgers purchased. ANS: B PTS: 1 DIF: 2 REF: 21-1 TOP: Budget constraint MSC: Interpretive 4. If a consumer's income decreases, the budget constraint for CDs and DVDs will a. shift outward, parallel to the original budget constraint. b. shift inward, parallel to the original budget constraint. c. rotate outward along the CD axis because we can afford more CDs. d. rotate outward along the DVD axis because we can afford more DVDs. ANS: B PTS: 1 DIF: 2 REF: 21-1 TOP: Budget constraint MSC: Analytical 5. If the relative price of a concert ticket is 3 times the price of a meal at a good restaurant, then the opportunity cost of a concert ticket can be measured by the a. slope of the budget constraint. b. slope of an indifference curve. c. marginal rate of substitution. d. income effect. ANS: A PTS: 1 DIF: 2 REF: 21-1 TOP: Budget constraint MSC: Analytical 6. When the price of a shirt falls, the a. quantity of shirts demanded falls. b. quantity of shirts demanded rises. c. quantity of shirts supplied rises. d. demand for shirts falls. ANS: B PTS: 1 DIF: 1 TOP: Demand MSC: Analytical

REF: 21-1

7. A budget constraint a. shows the prices that a consumer chooses to pay for products he consumes. b. shows the purchases made by consumers. c. shows the consumption bundles that a consumer can afford. d. represents the consumption bundles that give a consumer equal satisfaction. ANS: C PTS: 1 DIF: 1 REF: 21-1 TOP: Budget constraint MSC: Definitional

8. Assume that a college student spends her income on books and pizza. The price of a pizza is $8.00, and the price of a book is $15. If she has $100 of income, she could choose to consume a. 8 pizzas and 4 books. b. 4 pizzas and 5 books. c. 9 pizzas and 3 books. d. 4 pizzas and 3 books. ANS: D PTS: 1 DIF: 2 REF: 21-1 TOP: Budget constraint MSC: Applicative 9. Assume that a college student spends her income on mac-n-cheese and CDs. The price of one box of mac-ncheese is $1.00, and the price of one CD is $12.00. If she has $100 of income, she could choose to consume a. 15 boxes of mac-n-cheese and 6 CDs. b. 20 boxes of mac-n-cheese and 7 CDs. c. 10 boxes of mac-n-cheese and 8 CDs. d. 30 boxes of mac-n-cheese and 6 CDs. ANS: A PTS: 1 DIF: 2 REF: 21-1 TOP: Budget constraint MSC: Applicative 10. A consumer that doesn't spend all of her income a. would be at a point outside of her budget constraint. b. would be at a point inside her budget constraint. c. must not be consuming positive quantities of all goods. d. must be consuming at a point where her budget constraint touches one of the axes. ANS: B PTS: 1 DIF: 2 REF: 21-1 TOP: Budget constraint MSC: Interpretive 11. An increase in income will cause a consumer's budget constraint to a. shift outward, parallel to its initial position. b. shift inward, parallel to its initial position. c. pivot around the "Y" axis. d. pivot around the "X" axis. ANS: A PTS: 1 DIF: 2 REF: 21-1 TOP: Budget constraint MSC: Analytical

Figure 21-1

12. Refer to Figure 21-1. Which point in the figure showing a consumer’s budget constraint represents the...
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