Econ 101 Ch. 4

What did we assume about household preferences? A) Households prefer more to less. B) Households like money. C) Households dislike taxes. D) Households care about others.

A) Households prefer more to less.

An increase in taxes has the following impact on the budget constraint A) a parallel move down. B) a parallel move up. C) a tilting to the left. D) a tilting to the right.

A) a parallel move down.

A pure positive income shock leads to A) an increase in leisure and consumption. B) an increase in leisure and work. C) an increase in work and consumption. D) an increase in leisure and taxes.

A) an increase in leisure and consumption.

We assume leisure is a normal good. This implies that A) an increase in taxes decreases the demand for leisure. B) households maximize utility. C) preferences over consumption are well defined. D) an increase in the wage increases demand for leisure

A) an increase in taxes decreases the demand for leisure.

We typically assume that A) both consumption and leisure are normal goods. B) consumption is a normal good and leisure is an inferior good. C) consumption is an inferior good and leisure is a normal good. D) both consumption and leisure are inferior goods

A) both consumption and leisure are normal goods.

The marginal rate of substitution A) can be computed by measuring the slope of the indifference curve. B) can be computed by measuring the curvature of the indifference curve. C) cannot be deduced from the properties of the indifference curve. D) can only be computed if we know the prices of all goods

A) can be computed by measuring the slope of the indifference curve.

In a one-period economy A) consumption equals disposable income. B) consumption equals disposable income plus the value of non-market work. C) savings is always positive. D) consumers may increase their consumption by borrowing

A) consumption equals disposable income.

In the (consumption,leisure) space, indifference curves as we have assumed them have the property of presenting the highest levels of satisfaction A) in the north-east corner. B) in the south-east corner. C) in the north-west corner. D) in the south-west corner.

A) in the north-east corner.

When consumption and leisure are both normal goods, after an increase in real dividend income minus taxation, the rational consumer A) increases consumption and increases leisure. B) increases consumption and reduces leisure. C) reduces consumption and increases leisure. D) reduces consumption and reduces leisure.

A) increases consumption and increases leisure.

A consumption bundle A) is a particular combination of consumption and leisure. B) only measures a quantity of goods and services, but not the amount of leisure. C) is a method of bringing home consumption goods. D) measures the quality of a particular good.

A) is a particular combination of consumption and leisure

A consumption bundle A) is a particular combination of consumption and leisure. B) only measures a quantity of goods and services, but not the amount of leisure. C) is a method of bringing home consumption goods. D) measures the quality of a particular good.

A) is a particular combination of consumption and leisure.

A production function describes the A) technological possibilities for converting factor inputs into outputs. B) intellectual possibilities for converting factor inputs into outputs. C) amount of resources available to the representative firm. D) actual process of converting factor inputs into outputs.

A) technological possibilities for converting factor inputs into outputs.

The production function is concave in labor because A) the contribution to production of each additional unit of labor decreases. B) the marginal product of labor is increasing. C) the marginal product of capital is decreasing. D) the labor demand is downward sloping.

A) the contribution to production of each additional unit of labor decreases.

The real wage denotes A) the number of units of consumption goods that can be exchanged for one unit of labor time. B) the number of units of labor time that can be exchanged for one unit of consumption goods. C) the number of units of labor time that can be exchanged for one unit of leisure time. D) the number of units of leisure time that can be exchanged for one unit of labor time.

A) the number of units of consumption goods that can be exchanged for one unit of labor time.

At the optimal consumption bundle, the marginal rate of substitution of leisure for consumption is equal to A) the real wage and the budget line is tangent to an indifference curve. B) minus the real wage and the budget line is tangent to the indifference curve. C) the real wage and the budget line intersects the indifference curve. D) minus the real wage and the budget line intersects the indifference curve

A) the real wage and the budget line is tangent to an indifference curve.

The substitution effect measures A) the responses of quantities to changes in the relative prices of goods. B) the responses of relative prices to changes in the demand for goods. C)how two goods can be used for the same purpose. D) the responses of quantities to changes in the relative qualities of goods.

A) the responses of quantities to changes in the relative prices of goods.

The labor supply is increasing in the wage because A) the substitution effect is larger than the income effect. B) the income effect is larger than the substitution effect. C) the production function is increasing in labor. D) the marginal product of labor is decreasing.

A) the substitution effect is larger than the income effect.

The construct of a representative firm is most helpful in describing the behavior of all of the firms in the economy when A) there are constant returns to scale. B) there are increasing returns to scale. C) there are decreasing returns to scale. D) the marginal product of labor is increasing in the amount of labor input

A) there are constant returns to scale.

An increase in total factor productivity shifts the production function A) upward and increases the marginal product of labor. B) upward and decreases the marginal product of labor. C) downward and increases the marginal product of labor. D) downward and decreases the marginal product of labor.

A) upward and increases the marginal product of labor.

Constant returns to scale means that, given any constant x > 0 A) xY = zF(xK, xNd). B) xY > zF(xK, xNd). C) xY < zF(xK, xNd). D) xY = ZxF(K, Nd).

A) xY = zF(xK, xNd).

An economy without monetary exchange is called A) a primitive economy. B) a barter economy. C) a socialist economy. D) an autarky economy.

B) a barter economy.

An increase in real dividend income minus taxes represents A) a pure substitution effect. B) a pure income effect. C) a combination of income and substitution effects. D) neither a pure income effect nor a pure substitution effect

B) a pure income effect.

In the United States during the period 1980-2006, there was A) an upward trend in both the real wage and average hours worked. B) an upward trend in real wages, and a downward trend in average hours worked. C) a downward trend in real wages, and an upward trend in average hours worked. D) a downward in both real wages and average hours worked.

B) an upward trend in real wages, and a downward trend in average hours worked.

A lump-sum tax is a tax that A) can be avoided by strategic behavior. B) does not depend on the actions of the economic agent being taxed. C) does not depend on the actions of the government. D) distorts economic decisions.

B) does not depend on the actions of the economic agent being taxed.

In the (consumption,leisure) space, indifference curves as we have assumed them are A) downward sloping and bowed out of the origin. B) downward sloping and bowed towards the origin. C) upward sloping and bowed out of the origin. D) upward sloping and bowed towards the origin

B) downward sloping and bowed towards the origin.

The fact that indifference curves are downward sloping A) is not true. B) follows from the fact that more is preferred to less. C) follows from the property that the consumer likes diversity in his or her consumption bundle. D) follows from the property that consumption and leisure are normal goods.

B) follows from the fact that more is preferred to less

An increase in the real wage A) unambiguously increases consumption and increases labor supply. B) increases consumption and has an ambiguous effect on labor supply. C) has an ambiguous effect on consumption and increases labor supply. D) has an ambiguous effect on both consumption and labor supply.

B) increases consumption and has an ambiguous effect on labor supply.

When consumption and leisure are both normal goods, after an increase in real dividend income minus taxation, the rational consumer A) increases consumption and increases labor supply. B) increases consumption and reduces labor supply. C) reduces consumption and increases labor supply. D) reduces consumption and reduces labor supply

B) increases consumption and reduces labor supply.

As the quantity of capital increases, the marginal product of labor A) is constant. B) increases. C) decreases. D) may either increase or decrease

B) increases.

A static decision is one that A) is made very slowly. B) involves planning over one time period. C) involves planning over exactly two time periods. D) involves planning over more than one time period

B) involves planning over one time period.

A barter economy A) cannot be a market economy. B) is an economy without monetary exchange. C) is an economy with no business firms. D) is not a competitive economy

B) is an economy without monetary exchange.

The principle that consumers and firms optimize A) is not helpful because some economic agents may behave irrationally. B) is helpful because it allows us to analyze how economic agents respond to changes in their environment. C) only applies to perfectly competitive markets. D) is helpful because it determines the available technology

B) is helpful because it allows us to analyze how economic agents respond to changes in their environment.

A good is normal for a consumer if A) it is always consumed in a consistent quantity. B) its consumption rises when income rises. C) its consumption falls when income rises. D) some minimal level of the good must be consumed to assure the consumer's survival.

B) its consumption rises when income rises.

A defense for the assumption that consumers maximize is that A) consumers never make mistakes. B) mistakes by the consumer are not likely to last for a long time. C) it allows for many possible outcomes. D) mistaken consumers may receive counseling from the government.

B) mistakes by the consumer are not likely to last for a long time

We assume that the representative consumer's preferences exhibit the properties that A) they evolve over time and that more is always preferred to less. B) more is preferred to less and that the consumer prefers diversity. C) the consumer likes diversity and that more is sometimes preferred to less. D) more is sometimes preferred to less and that consumption and leisure are both normal goods.

B) more is preferred to less and that the consumer prefers diversity.

A utility function A) needs to measure the absolute level of happiness. B) needs to measure relative amounts of happiness for a single individual. C) helps compare the relative happiness of two separate consumers. D) is most useful if it can be influenced by others

B) needs to measure relative amounts of happiness for a single individual.

In macroeconomic analysis, the representative consumer A) denotes the consumer with the average amount of income. B) plays the role of a stand-in for all consumers in the economy. C) is the consumer who bargains with firms for all workers in the economy. D) is always a misleading fiction.

B) plays the role of a stand-in for all consumers in the economy.

Of the following, which is the least likely example of an increase in total factor productivity? A) the introduction of the assembly line B) the invention of the personal computer C) good weather D) a reduction in the relative price of energy

B) the invention of the personal computer

We use indifference curves because A) households on average do not care. B) they help represent preferences. C) households sometimes make mistakes. D) they formalize the production process.

B) they help represent preferences

The preferences of the representative consumer over consumption and leisure are represented by use of a A) production function. B) utility function. C) benefit function. D) preference function.

B) utility function.

A consumer's real disposable income equals A) wage income plus consumption expenditures. B) wage income plus profit income minus taxes. C) total income minus profit income minus taxes. D) total income minus wage income minus taxes

B) wage income plus profit income minus taxes.

The vertical intercept of the consumer's budget line is equal to A) h + (pi-T)/w B) wh + π - T. C) c + w(l - h). D) π - T.

B) wh + π - T.

The representative consumer acts competitively A) when he or she can haggle for a lower price. B) when he or she is a price-taker. C) when he or she is a price-maker. D) if the consumer is large relative to the size of the market

B) when he or she is a price-taker.

A consumer is said to be indifferent between two consumption bundles A) when the consumer doesn't care about his or her consumption bundle. B) when the two bundles provide equal amounts of utility. C) when the consumer chooses the bundles equally often. D) when the consumer is indecisive

B) when the two bundles provide equal amounts of utility.

With consumption on the vertical axis and leisure on the horizontal axis, the slope of the budget line is equal to A) w. B) -w. C) π. D) -π.

B)-w

When consumers act as price-takers, we say that they behave A) cooperatively. B) competitively. C) monopsonistically. D) irrationally.

B)competitively

When the wage increases, the substitution effect in the household's choices leads to A) a decrease in consumption and leisure. B) a decrease in consumption and an increase in leisure. C) an increase in consumption and a decrease in leisure. D) an increase in consumption and leisure

C) an increase in consumption and a decrease in leisure.

The property of diminishing marginal rate of substitution follows from the property that the indifference curve is A) downward sloping. B) upward sloping. C) bowed in toward the origin. D) bowed out from the origin

C) bowed in toward the origin.

A utility function A) is a stand-in for a more complicated function. B) is useful only in microeconomics, not macroeconomics. C) captures the preferences of the representative household over consumption and leisure. D) captures the representative firm's ability to produce goods and services.

C) captures the preferences of the representative household over consumption and leisure.

As the quantity of capital increases, the marginal product of capital A) is constant. B) increases. C) decreases. D) may either increase or decrease

C) decreases.

As the quantity of labor increases, the marginal product of labor A) is constant. B) increases. C) decreases. D) may either increase or decrease

C) decreases.

We use the concept of a representative agent because A) we live in a democracy. B) there is no taxation without representation. C) distribution does not matter for our purposes. D) there is not that much variation across agents anyway

C) distribution does not matter for our purposes

The fact that indifference curves are bowed in toward the origin A) is not true. B) follows from the fact that more is preferred to less. C) follows from the property that the consumer likes diversity in his or her consumption bundle. D) follows from the property that consumption and leisure are normal goods.

C) follows from the property that the consumer likes diversity in his or her consumption bundle.

The marginal product of a factor of production A) is equal to the ratio of the amount of that factor of production to the amount of output produced. B) is equal to the amount of additional output that can be produced with one additional unit of each factor input. C) is equal to the amount of additional output that can be produced with one additional unit of that factor input, holding constant the quantities of the other factor inputs. D) always exceeds the average product of that factor input, holding constant the quantities of the other factor inputs.

C) is equal to the amount of additional output that can be produced with one additional unit of that factor input, holding constant the quantities of the other factor inputs.

In a one-period economy, real consumption A) is always less than disposable income. B) is typically greater than disposable income. C) is exactly equal to disposable income. D) can be greater than, less than, or equal to disposable income

C) is exactly equal to disposable income.

Suppose the representative firm suddenly has less capital at its disposal. What happens to labor demand? A)It increases. B) It stays the same. C)It decreases. D) We cannot tell.

C) it decreases

A good is inferior for a consumer if A) it is never included in his or her consumption bundle. B) its consumption rises when income rises. C) its consumption falls when income rises. D) some minimal level of the good must be consumed to assure the consumer's survival

C) its consumption falls when income rises.

Leisure includes all of the following except A) sleep. B) home yardwork. C) market work. D) recreational activities.

C) market work.

The profit-maximizing quantity of labor equates the marginal product of labor with A) total factor productivity. B) the marginal product of capital. C) the real wage. D) the average product of labor

C) real wage

An increase in the real wage A) represents a pure substitution effect. B) represents a pure income effect. C) represents a combination of income and substitution effects. D) causes a parallel shift in the consumer's budget line

C) represents a combination of income and substitution effects

Capital, K, encompasses A) money. B) machinery. C) residential housing. D) know-how.

C) residential housing.

The assumption that labor has a decreasing marginal return to production means that as labor increases A) output increases. B) the wage increases. C) the production function is concave. D)the production function shifts upward.

C) the production function is concave.

The Solow residual is a measure of A) average labor productivity. B) average capital productivity. C) total factor productivity. D) the rate of growth of real GDP.

C) total factor productivity.

We assume that the representative consumer's preferences exhibit the properties that A) they are convex and that more is always preferred to less. B) more is always preferred to less and that each consumer has one strictly favorite good. C) each consumer has one strictly preferred good and that consumption and leisure are both normal goods. D) consumption and leisure are both normal goods and that the consumer likes diversity in his or her consumption bundle.

D) consumption and leisure are both normal goods and that the consumer likes diversity in his or her consumption bundle.

The time constraint for the consumer is A) the amount of time for decision making. B) expressed as leisure time - time spent working = total time available. C) expressed as leisure time - sleep time = time spent working. D) expressed as leisure time + time spent working = total time available.

D) expressed as leisure time + time spent working = total time available.

The optimal consumption bundle is the point representing a consumption-leisure pair that is on the A) lowest possible indifference curve and is on or outside the consumer's budget constraint. B) lowest possible indifference curve and is on or inside the consumer's budget constraint. C) highest possible indifference curve and is on or outside the consumer's budget constraint. D) highest possible indifference curve and is on or inside the consumer's budget constraint.

D) highest possible indifference curve and is on or inside the consumer's budget constraint.

A dynamic decision is one that A) is made very quickly. B) involves only the present. C) involves only the future. D) involves planning over more than one time period

D) involves planning over more than one time period

Total factor productivity encompasses A) labor. B) capital. C) output. D) know-how.

D) know-how

The household budget constraint may have a kink because A) there is uncertainty. B) households prefer diversity. C) households may substitute consumption for leisure, or the reverse. D) leisure is limited by the number of available hours.

D) leisure is limited by the number of available hours.

The consumer's work-leisure choice problem focuses on how a consumer's work-leisure decision is affected by the consumer's A) preferences and productivity. B) productivity and psychology. C) psychology and preferences. D) preferences and constraints.

D) preferences and constraints.

When the representative firm maximizes profits A) production is at its maximum. B) the slope of the production function is at its flattest. C) labor costs are minimized. D) the marginal product of labor equals the wage

D) the marginal product of labor equals the wage

In the production function, Y = zF(K, Nd), total factor productivity is A) Y/K. B) Y/ Nd. C) F/Y. D) z.

D)z

xzcv

...

zxcv

...

An indifference curve A) connects a set of consumption bundles among which the consumer is indifferent. B) is only useful in analyzing apathetic consumers. C) connects a set of consumers who each have the same preferences. D) is only useful in microeconomics

A) connects a set of consumption bundles among which the consumer is

In a one-period economy, all of the following are equivalent expressions of the budget constraint except A) C = w(NS + l) + π - T. B) C = wNS + π - T. C) C = w(h - l) + π - T. D) C = wl = wh + π - T.

A) C = w(NS + l) + π - T.

Which is a good example of an increase in total factor productivity? A) a tax cut B)good weather C) a company reducing its workforce D) better credit conditions

B) Good weather

When the representative firm maximizes profits, A) it sells as much as possible. B) the wage equals average labor productivity. C) the wage equals marginal labor productivity. D) business taxes must be zero.

C) the wage equals marginal labor productivity.

When the wage increases, the income effect on the household's choices leads to A) a decrease in consumption and leisure. B) a decrease in consumption and an increase in leisure. C) an increase in consumption and a decrease in leisure. D) an increase in consumption and leisure.

D) an increase in consumption and leisure.

An increase in total factor productivity A) changes neither the slope nor the position of the production function. B) changes the slope but not the position of the production function. C) changes the position but not the slope of the production function. D) changes both the slope and the position of the production function

D) changes both the slope and the position of the production function

Two key properties of indifference curves are that an indifference curve slopes A) upward and is bowed out from the origin. B) downward and is bowed out from the origin. C) upward and is bowed in toward the origin. D) downward and is bowed in toward the origin

D) downward and is bowed in toward the origin