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What does the marginal rate of substitution measure?


A) It measures the rate at which a consumer must give up one good to purchase another good.
B) It measures the rate at which a consumer will substitute one good for another when the price of one good changes.
C) It measures the change in utility from consuming one additional unit of a good.
D) It measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant.

E) None of the above
F) C) and D)

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The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

A) True
B) False

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Table 6-2 Table 6-2 Table 6-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods. -Refer to Table 6-2.Suppose Keira's income increases from $18 to $23 but prices have not changed.What is her utility maximising bundle now? A) 6 cups of soup and 5 sandwiches B) 4 cups of soup and 5 sandwiches C) 5 cups of soup and 4 sandwiches D) 5 cups of soup and 5 sandwiches Table 6-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods. -Refer to Table 6-2.Suppose Keira's income increases from $18 to $23 but prices have not changed.What is her utility maximising bundle now?


A) 6 cups of soup and 5 sandwiches
B) 4 cups of soup and 5 sandwiches
C) 5 cups of soup and 4 sandwiches
D) 5 cups of soup and 5 sandwiches

E) A) and B)
F) A) and C)

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Table 6-2 Table 6-2 Table 6-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods. -Refer to Table 6-2.Holding prices constant,when Keira's income changed from $18 to $23,her utility maximising bundle changed.Based on your answers to her optimal choices at the two income levels,what type of goods are soup and sandwiches? A) Soup is an inferior good and sandwiches are a normal good. B) Soup is a normal good and sandwiches are an inferior good. C) Both soup and sandwiches are normal goods. D) Both soup and sandwiches are inferior goods. Table 6-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods. -Refer to Table 6-2.Holding prices constant,when Keira's income changed from $18 to $23,her utility maximising bundle changed.Based on your answers to her optimal choices at the two income levels,what type of goods are soup and sandwiches?


A) Soup is an inferior good and sandwiches are a normal good.
B) Soup is a normal good and sandwiches are an inferior good.
C) Both soup and sandwiches are normal goods.
D) Both soup and sandwiches are inferior goods.

E) C) and D)
F) All of the above

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What must be true in terms of the income effect,the substitution effect,and the type of good for the good's demand curve to be upward sloping?

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The income effect would have t...

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What is an indifference curve?


A) It is a curve that shows the total utility and the marginal utility derived from consuming a bundle of goods.
B) It is a curve that shows the combinations of consumption bundles that give the consumer the same utility.
C) It is a curve that shows a consumer's preference for various consumption bundles.
D) It is a curve that shows the trade-off a consumer faces among different combinations of consumption bundles.

E) A) and B)
F) B) and D)

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We can derive the market demand curve for gold earrings


A) only if the tastes of all gold earring consumers are similar.
B) by adding horizontally the individual demand curves of each gold earring consumer.
C) by adding vertically the quantity demanded of each gold earring consumed at each price.
D) by adding the prices each gold earring consumer is willing to pay for each quantity.

E) B) and C)
F) All of the above

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What is the endowment effect?


A) the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increase efficiency
B) the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services
C) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it.
D) the tendency of firms to use celebrities endowed with good looks to promote their products

E) None of the above
F) B) and D)

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The substitution effect of an increase in the price of peaches is


A) the change in the quantity demanded that results from a change in the price of peaches making peaches more expensive relative to other goods,holding constant the effect of the price change on consumer purchasing power.
B) the change in the demand for nectarines (a substitute good) that results when peaches become more expensive relative to nectarines,holding constant the effect of the price change on consumer purchasing power.
C) the change in the quantity demanded of peaches that results from the effect of the change in the price of peaches on the consumer's purchasing power.
D) the change in the demand for peaches that results when the price of peaches increases.

E) B) and C)
F) A) and B)

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If the price of lattes,a normal good that you enjoy,falls,


A) the income and substitution effects offset each other,but the price effect leads you to buy more lattes.
B) both the income and substitution effects lead you to buy more lattes.
C) the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption,resulting in more lattes purchased.
D) the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption,resulting in more lattes purchased.

E) B) and D)
F) All of the above

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Economists have used the ultimatum game and the dictator game in experiments designed to determine


A) whether consumers care about fairness when they make decisions.
B) whether consumers believe it is fair for producers to raise the price of a product for which there is excess demand.
C) whether consumers understand the difference between implicit costs and explicit costs.
D) whether consumers understand the rule of equal marginal utility per dollar spent.

E) All of the above
F) B) and D)

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The order of the letters along the rows of computer keyboards could be changed to allow users to type faster,but this would inconvenience the vast majority of people who learned to type with the current keyboard layout.The costs of switching to a new layout make this change unlikely.This is an example of


A) path dependency.
B) how social influences overwhelm the substitution effect of a price change.
C) how the elasticity of demand for typewriters has been affected by externalities.
D) how consumers sometimes do not behave rationally.

E) C) and D)
F) B) and C)

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The demand curve for canned peas is downward sloping.If the price of canned peas,an inferior good,rises,


A) the income effect which causes you to reduce your canned peas purchases is smaller than the substitution effect which causes you to increase your purchases,resulting in a net increase in quantity demanded.
B) the income effect which causes you to increase your canned peas purchases is smaller than the substitution effect which causes you to reduce your purchases,resulting in a net decrease in quantity demanded.
C) both the income and substitution effects reinforce each other to decrease the quantity demanded.
D) the income and substitution effects offset each other,but the price effect of an inferior good leads you to buy more canned peas.

E) B) and C)
F) A) and D)

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There are two conditions necessary for a consumer to maximise her utility.One is that the marginal utilities per dollar spent on each good and service consumed are equal.What is the other condition?


A) Total spending on all goods and services must equal the amount available to be spent.
B) The consumer must be satisfied with the choices she makes.
C) The total spent on each good and service is the same.
D) The prices of each good and service consumed must not be too high.

E) None of the above
F) A) and B)

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A network externality occurs when


A) there is production cost savings from being networked with suppliers.
B) there is production cost savings from being networked with buyers.
C) the usefulness of a good is affected by how many others use the good.
D) the usefulness of a good is affected by celebrities who use the good.

E) C) and D)
F) A) and C)

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Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good,with an income effect larger than its substitution effect,a good must be ________ and make up a ________ portion of a consumer's budget.


A) a normal good;very small
B) an inferior good;very small
C) a normal good;very large
D) an inferior good;very large

E) All of the above
F) A) and C)

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Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping.A logical reason for this is that the decline in fuel prices ________ the supply of airline tickets while at the same time the demand for airline tickets ________,so airline ticket prices still increased.


A) decreased;increased
B) decreased;decreased
C) increased;increased
D) increased;decreased

E) None of the above
F) B) and C)

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Behavioural economics refers to the study of situations


A) where consumers and firms appear to make choices that are appropriate to reach their goals.
B) where consumers and firms appear to value fairness when they make choices.
C) where consumers and firms disobey the laws of demand and supply.
D) where consumers and firms do not appear to be making choices that are economically rational.

E) B) and D)
F) A) and B)

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Figure 6-3 Figure 6-3 -Refer to Figure 6-3.The Bobsey twins,Laurel and Hardy,both enjoy watching romantic comedies and science fiction movies.Based on the diagrams above,what can you conclude about their movie preferences? A) They have identical movie preferences. B) Laurel enjoys romantic comedies more than Hardy. C) Laurel enjoys science fiction movies more than Hardy. D) The diagrams do not provide any information about relative preferences. -Refer to Figure 6-3.The Bobsey twins,Laurel and Hardy,both enjoy watching romantic comedies and science fiction movies.Based on the diagrams above,what can you conclude about their movie preferences?


A) They have identical movie preferences.
B) Laurel enjoys romantic comedies more than Hardy.
C) Laurel enjoys science fiction movies more than Hardy.
D) The diagrams do not provide any information about relative preferences.

E) All of the above
F) A) and B)

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Figure 6-7 Figure 6-7 -Refer to Figure 6-7.If the consumer has $240 to spend on DVDs and CDs,what is the price of a CD if the budget constraint is BC<sub>2</sub>? A) $8 B) $10 C) $20 D) $40 -Refer to Figure 6-7.If the consumer has $240 to spend on DVDs and CDs,what is the price of a CD if the budget constraint is BC2?


A) $8
B) $10
C) $20
D) $40

E) B) and D)
F) All of the above

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