Chapter 21

The slope of the budget constraint is determined by A. a consumer selecting prices she is willing to pay for a commodity bundle. b. relative market prices. c. a consumer's income. d. the consumer making choices about expenditure.

b. relative market prices.

In the graph above, points Q, U and T represent different bundles of good X and good Y that will a. require the consumer to spend all her budget. b. yield the consumer the same satisfaction. c. cost the same and yield the same benefit to the consumer. d. yield the consume the same Marginal Rate of Substitution (MRS).

b. yield the consumer the same satisfaction.

If Kelly's indifference curves depicting consumption versus leisure lean heavily towards the "leisure" axis, Kelly will have a ___________________________ supply curve.

downward sloping (negatively sloped)

Suppose interest rates rise on retirement funds. Which of the following will be the resulting income effect? a. Some people will save more because every dollar saved will earn them more interest. b. Some people will save more because not saving is now more expensive, as they'd miss earning the higher interest. c. Some people will save less, because their saved funds will grow faster with the higher rates, so they need not save as much to meet their retirement needs. d. Some people will save less, because borrowing has become more expensive.

c. Some people will save less, because their saved funds will grow faster with the higher rates, so they need not save as much to meet their retirement needs.

Indifference curves tend to be curved, rather than straight lines. This reflects a consumer's a. unwillingness to substitute one good for another. b. desire to specialize in the consumption of one good over another. c. greater willingness to give up a good that she has in abundance. d. unwillingness to substitute one good for another.

c. greater willingness to give up a good that she has in abundance.

In the graph above, which of the points represents the consumption bundle that will maximize the consumer's satisfaction (utility), given the available budget a. point Q b. point P. c. point R d. point S

c. point R

Which of the following statements are true for a consumer that moves from point C to point D in the graph above?

a. At point D she values one more unit of X less than she did at point C. b. She remains equally satisfied at point D as she was on point C. c. She is willing to give up 40 units of good Y for 40 more unit of good X.

When the consumer's budget increases, her budget line will shift ___________ the origin, and when the price of good A increases, the budget line will shift ________ the origin _____________ .

away from, towards, but only along the axis of good A

If two bundles of commodities satisfy a consumer equally well, the consumer is said to be a. on her budget constraint. b. in a position of equilibrium. c. optimally satisfied. d. indifferent between the bundles.

d. indifferent between the bundles.

In the graph above, points Q, R, S and T represent different bundles of good X and good Y that will a. yield the consume the same Marginal Rate of Substitution (MRS). b. cost the same and yield the same benefit to the consumer. c. yield the consumer the same satisfaction. d. require the consumer to spend all her budget.

d. require the consumer to spend all her budget.

The rate at which a consumer is willing to exchange one good for another so as to maintain a constant level of satisfaction is called a. the relative price ratio. b. the relative expenditure ratio. c. the value of marginal product. d. the marginal rate of substitution.

d. the marginal rate of substitution.

A budget constraint line represents the different combinations of a. two goods that will yield the consumer the same satisfaction. b. prices the consumer faces when deciding what goods to consume. c. prices that will yield the consumer the same satisfaction. d. two goods the consumer is able to purchase.

d. two goods the consumer is able to purchase.

If the substitution effect is stronger than the income effect, then a decrease in the price of good x will cause the consumer to buy __________ of good x and __________of good y.

More, Less