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| 1 | |
The budget constraint describes: |
| | A) | the limit to the working week |
| | B) | the different bundles that the consumer can afford |
| | C) | the prices faced by the consumer |
| | D) | the consumers income |
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| 2 | |
Points to the right of the budget line _______ and points to the left _______. |
| | A) | Are unaffordable, allow extra spending |
| | B) | Allow extra spending, are unaffordable |
| | C) | Are unaffordable, use up the entire budget |
| | D) | Allow extra spending, use up the entire budget |
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| 3 | |
For a budget line representing 2 goods, the slope depends on the ratio of the prices. |
| | A) | True |
| | B) | False |
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| 4 | |
If the price of films is £12 (on the horizontal axis) and the price of meals is £3 (on the vertical axis), the slope of the budget line for these two goods is: |
| | A) | +4 |
| | B) | –4 |
| | C) | +. 25 |
| | D) | -.25 |
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| 5 | |
If consumption bundle A is preferred to consumption bundle B and B is preferred to C then: |
| | A) | B is preferred to A |
| | B) | C is preferred to B |
| | C) | C is preferred to A |
| | D) | A is preferred to C |
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| 6 | |
The marginal rate of substitution of meals for films is the quantity of films the consumer must sacrifice to increase the quantity of meals by one unit _______ . |
| | A) | while increasing total utility |
| | B) | while reducing total utility |
| | C) | without changing total utility |
| | D) | none of the above |
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| 7 | |
Consumer tastes exhibit a diminishing marginal rate of substitution, to hold utility constant, ___________ quantities of one good must be __________ to obtain successive equal increases in the quantity of the other good. |
| | A) | diminishing, increased |
| | B) | increasing, sacrificed |
| | C) | diminishing, sacrificed |
| | D) | increasing, increased |
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| 8 | |
Indicate which assumption is not required to represent consumer tastes: |
| | A) | consumers prefer more to less. |
| | B) | consumers can rank alternative bundles according to the utility provided. |
| | C) | consumers have tastes satisfying a diminishing marginal rate of substitution. |
| | D) | consumers always buy quality products. |
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| 9 | |
The budget line shows affordable bundles. |
| | A) | True |
| | B) | False |
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| 10 | |
If indifference curves intersect, a consumer will prefer a point as far to the northwest as possible. |
| | A) | True |
| | B) | False |
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| 11 | |
If consumption bundle A is to the northwest of consumption bundle B, A _______ B. |
| | A) | Is preferred to |
| | B) | Is dominated by |
| | C) | is indifferent to |
| | D) | May or may not be preferred to |
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| 12 | |
The quantity of one good that a consumer must sacrifice to increase the consumption of another, without changing total utility is known as ___________. |
| | A) | the opportunity cost |
| | B) | the marginal utility |
| | C) | the marginal rate of substitution |
| | D) | the production possibility frontier |
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| 13 | |
Diminishing marginal rates of substitution suggest that more and more of one good must be sacrificed to get more and more of another. |
| | A) | True |
| | B) | False |
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| 14 | |
When a budget line just touches an indifference curve the consumer _______ and ________. |
| | A) | has money left over, is on the highest possible indifference curve |
| | B) | has exhausted her budget, is not on the highest possible indifference curve |
| | C) | has insufficient funds, is on the highest possible indifference curve |
| | D) | has exhausted her budget, is on the highest possible indifference curve |
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| 15 | |
Along each indifference curve, utility is _______. |
| | A) | increasing |
| | B) | decreasing |
| | C) | constant |
| | D) | bliss |
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| 16 | |
An increase in income will cause a consumer’s budget line to __________. |
| | A) | shift outwards parallel to the original budget line |
| | B) | shift inwards parallel to the original budget line |
| | C) | shift inwards parallel to the original budget line
remain unchanged |
| | D) | rotate |
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| 17 | |
A budget line will rotate when |
| | A) | income changes |
| | B) | relative prices change |
| | C) | tastes change |
| | D) | the marginal rate of substitution changes |
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| 18 | |
Any price change can be decomposed into an income effect and a complementary effect. |
| | A) | True |
| | B) | False |
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| 19 | |
A price increase will have a ________ income effect and a ________ substitution effect. |
| | A) | negative, positive |
| | B) | negative, negative |
| | C) | positive, positive |
| | D) | positive, negative |
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| 20 | |
The income effect of a price increase of a normal good is to __________ of that good and the substitution effect is to _______ of that good. |
| | A) | increase quantity demanded, reduce quantity demanded |
| | B) | increase quantity demanded, increase quantity demanded |
| | C) | reduce quantity demanded, reduce quantity demanded |
| | D) | reduce quantity demanded, increase quantity demanded |
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