University of Lethbridge – Department of Economics

ECON 1010 – Introduction to Microeconomics

Instructor: Michael G. Lanyi
Fall 2013

Chapters 8 & 9
Answer Sheet

1) _____ 11) ______ 21) ______ 31) ______ 41) ______ 51) _____ 61) _____ 71) _____
2) _____ 12) ______ 22) ______ 32) ______ 42) ______ 52) _____ 62) _____ 72) _____
3) _____ 13) ______ 23) ______ 33) ______ 43) ______ 53) _____ 63) _____ 73) _____
4) _____ 14) ______ 24) ______ 34) ______ 44) ______ 54) _____ 64) _____ 74) _____
5) _____ 15) ______ 25) ______ 35) ______ 45) ______ 55) _____ 65) _____ 75) _____
6) _____ 16) ______ 26) ______ 36) ______ 46) ______ 56) _____ 66) _____ 76) _____
7) _____ 17) ______ 27) ______ 37) ______ 47) ______ 57) _____ 67) _____ 77) _____
8) _____ 18) ______ 28) ______ 38) ______ 48) ______ 58) _____ 68) _____ 78) _____
9) _____ 19) ______ 29) ______ 39) ______ 49) ______ 59) _____ 69) _____ 79) _____
10) _____ 20) ______ 30) ______ 40) ______ 50) ______ 60) _____ 70) _____ 80) _____
ECON 1010 Introduction to Microeconomics Michael G. Lanyi

1) Utility is
A) the value of a good.
B) the additional satisfaction received from consuming another unit of a good.
C) the benefit or satisfaction from consuming goods and services.
D) the practical usefulness of a good.
E) equal to the price of a good.

2) What is marginal utility?

A) The change in total utility divided by the price of a good.
B) The maximum amount of satisfaction from consuming a good.
C) The total satisfaction received from consuming as much of the good that is available for consumption.
D) The additional satisfaction received from consuming one more unit of a good.
E) The change in the price of a good divided by the change in total utility.

3) Marginal utility equals

A) total utility divided by price.
B) total utility divided by the total number of units consumed.
C) the slope of the total utility curve.
D) the inverse of total utility.
E) the area below the demand curve but above market price.

4) The first can of Coke gives 15 units of utility to Witney, while the second can of Coke increases her total utility to 23.
What is the marginal utility of the second can of Coke?
A) 24 units
B) 8 units
C) 38 units
D) 11.5 units
E) 7.5 units

5) The Table gives total utilities for Jim and Sally. Which one of the following statements is true?
A) Jim has increasing marginal utility.
B) For Sally, the marginal utility of the third unit consumed is 6.
C) If Jim consumes 2 units, his total utility is 34 units.
D) Jim and Sally receive the same marginal utility from the third unit consumed.
E) If Sally consumes 2 units, her total utility is 10 units.

6) Total utility equals

A) the sum of the marginal utilities of each unit consumed.
B) the area below the demand curve but above the market price.
C) the slope of the marginal utility curve.
D) the marginal utility of the last unit divided by price.
E) the marginal utility of the last unit consumed multiplied by the total number of units consumed.

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

7) The first can of Sprite Jack drinks give him 22 units of utility and the second can gives him an additional 12 units of
utility. How much units of utility do the two cans of Sprite give Jack?
A) 17
B) 46
C) 34
D) 2
E) 36

Bags of Marginal Bottles of Marginal

Popcorn Utility Pop Utility
0 0 0 0
1 120 1 120
2 100 2 70
3 80 3 60
4 70 4 40

8) Refer to the Table. What is the total utility if 3 bags of popcorn and 2 bottles of pop are consumed?
A) 150
B) 310
C) 490
D) 660
E) 100.

9) When total utility is increasing, marginal utility

A) is negative.
B) must be between zero and one.
C) is either increasing or decreasing.
D) is either positive or negative.
E) is also increasing.

10) The fact that your fourth slice of pizza does not generate as much satisfaction as your third slice is an example of
A) consumer surplus.
B) diminishing total utility.
C) diminishing marginal utility.
D) the paradox of value.
E) the law of demand.

11) Refer to the Table. The value of A is

A) 30.
B) 47.
C) 42.
D) 18.
E) 0.

12) Which one of the following is not an assumption of marginal utility theory?
A) People derive utility from their consumption.
B) More consumption yields more total utility.
C) Utility can be measured.
D) Marginal utility diminishes with more consumption.
E) Consumers maximize total utility.

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

13) An indifference curve is

A) the boundary between what can be produced and what cannot be produced.
B) the boundary between what a consumer can afford and what he cannot afford.
C) a line that shows combinations of goods among which a consumer is indifferent.
D) the boundary between normal goods and inferior goods.
E) a line with a positive slope.

14) A preference map is

A) a series of points that represent levels of equal satisfaction.
B) a series of demand curves.
C) a series of supply curves.
D) a map that shows contour lines.
E) a series of indifference curves.

15) Which of the following results in a rightward shift of your indifference curves for gasoline and movie rentals?
A) an increase in the price of a litre of gasoline with no change in the price of a movie rental
B) an increase in the price of a movie rental with no change in the price of a litre of gasoline
C) an increase in income if gasoline and movie rentals are normal goods
D) a decrease in the price of a litre of gasoline or a decrease in the price of a movie rental
E) none of the above

16) The Figure shows three indifference curves for Brenda. Which one of the following is not true?
A) Brenda would be equally happy consuming at either point B or point C.
B) Brenda prefers consuming at point B to consuming at point A.
C) Brenda prefers consuming at point D to consuming at either point B or point C.
D) The marginal rate of substitution is higher at point C than at point B.
E) Brenda prefers consuming at point D to consuming at point A.

17) The marginal rate of substitution

A) is the amount of good Y substituted for good X as a consumer moves along his budget line.
B) is the rate at which a person gives up the good measured on the y-axis to get an additional unit of the good measured on
the x-axis while remaining on the same indifference curve.
C) increases as a consumer consumes more of the good measured on the x-axis.
D) is greater than the magnitude of the slope of the budget line.
E) is equal to the slope of the budget line.

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

18) The magnitude of the slope of an indifference curve is

A) the marginal rate of substitution.
B) the marginal rate of transformation.
C) the marginal propensity to consume.
D) the marginal propensity to substitute.
E) the relative price of good Y.

19) Rashid buys only books and albums. The figure above shows his preferences. When Rashid chooses the consumption
point of 3 books and 2 albums, his marginal rate of substitution is ________.
A) 1 book per album
B) zero
C) 3/2 books per album
D) 2/3 books per album
E) 0.5 books per album

20) Rashid buys only books and albums. The figure above shows his preferences. Rashid's indifference curves ________
display diminishing marginal rate of substitution because ________.
A) do; Rashid is indifferent between consuming 6 albums and 2 books and consuming 2 albums and 3 books
B) do not; the magnitude of the slope of both indifference curves decreases as Rashid consumes more albums and fewer
books
C) do not; Rashid is indifferent between consuming 6 albums and 2 books and consuming 2 albums and 3 books
D) do; the magnitude of the slope of both indifference curves decreases as Rashid consumes more albums and fewer books
E) do; the price of an album decreases as Rashid increases the quantity he buys

21) The budget line

A) shows the limits to a household's consumption choices.
B) shows the households total utility.
C) is downward sloping because it illustrates decreasing marginal utility.
D) shows how a household’s consumption choices change as income changes.
E) Both A and D are correct.

22) Sam buys gasoline and coffee each week. To draw his budget line for gasoline and coffee, Sam needs to know
A) if his income is expected to rise in the future.
B) if the price of gasoline is expected to rise in the future.
C) if the price of coffee is expected to fall in the future.
D) the goods that he considers to be substitutes for gasoline and for coffee.
E) how much income he has to spend and the prices of one litre of gasoline and one cup of coffee.

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

23) Shelly's budget line is shown in the Figure Which point is unaffordable given her income and current prices?
A) A and B
B) B only
C) C only
D) C and D only
E) All points are unattainable.

24) Real income in terms of a good is defined as

A) income divided by the quantity consumed of a good.
B) the income of a producer of that good.
C) the price of one good divided by the price of another good.
D) dollar income.
E) income divided by the price of a good.

25) David has an income of $30 to buy movie tickets and bus tickets. The price of a movie ticket is $6 and the price of a bus
ticket is $2. What is David's real income?
A) $30
B) 5 movie tickets or 15 bus tickets
C) 15 movie tickets or 5 bus tickets
D) $38
E) $32

26) The price of one good divided by the price of another good is
A) an absolute price.
B) a relative price.
C) a marginal price.
D) a demand price.
E) a money price.

27) David has an income of $30 to buy movie tickets and bus tickets. The price of a movie ticket is $6 and the price of a bus
ticket is $2. What is the relative price of a bus ticket in terms of movie tickets?
A) 2 movie tickets
B) 15 movie tickets
C) $3
D) 1/3 movie tickets
E) $6

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

28) Sara's income is $12 a week. The price of popcorn is $3 a bag, and the price of a smoothie is $3. The opportunity cost of
a smoothie is ________.
A) $3
B) 4 bags of popcorn
C) 1.00 smoothie
D) 1.0 bag of popcorn
E) $1

29) The magnitude of the slope of the budget line is the

A) relative price of the good measured on the vertical axis.
B) relative price of the good measured on the horizontal axis.
C) absolute price of the good measured on the horizontal axis.
D) real price of the good measured on the vertical axis.
E) price of the good measured on the vertical axis.

30) Let M = $100, QX = quantity of good X, and QW = quantity of good W, PX = $4 and PW = $5. The budget equation is
A) 100 = 4QX + 5QW.
B) 100 = QX + (4/5)QW.
C) QX = 100 + (4/5)QW.
D) QX = QW + (4/5)M.
E) QW = QX + (4/5)M.

31) Larry consumes only beer (B) and chips (C). The equation of his budget line (with beer measured on the vertical axis) is
A) QB = Y/PB - (PC/PB)QC.
B) QB = Y - (PC/PB)QC.
C) QB = Y/PC - (PB/PC)QC.
D) QB = Y/PB - (PC/PB)QB.
E) QC = Y/PC - (PB/PC)QB.

32) Larry consumes only beer (B) and chips (C). The magnitude of the slope of his budget line (with beer measured on the
vertical axis) is
A) PC/Y.
B) PC × PB.
C) Y/PC.
D) Y/PB.
E) PC/PB.

33) Larry consumes only beer (B) and chips (C). His real income in terms of beer is
A) PC/Y.
B) PC × PB.
C) Y/PC.
D) Y/PB.
E) PC/PB.

34) Larry consumes only beer (B) and chips (C). His real income in terms of chips is
A) PC/Y.
B) PC × PB.
C) Y/PC.
D) Y/PB.
E) PC/PB.

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

35) Larry consumes only beer (B) and chips (C). If beer is measured on the vertical axis, the relative price of chips in terms
of beer is all of the following except
A) PC/PB
B) the magnitude of the slope of the budget line
C) equal to the opportunity cost of 1 bag of chips
D) the real income in terms of beer
E) the inverse of the relative price of beer in terms of chips

36) If income increases, the budget line

A) becomes steeper.
B) becomes flatter.
C) shifts leftward and parallel to the original budget line.
D) shifts rightward and parallel to the original budget line.
E) shifts parallels either leftward or rightward depending on whether the goods measured on the axes are normal or
inferior.

37) If the price of the good measured on the vertical axis increases, the budget line
A) becomes steeper.
B) becomes flatter.
C) shifts leftward and parallel to the original budget line.
D) shifts rightward and parallel to the original budget line.
E) shifts leftward and becomes steeper.

38) A change in the price of the good measured on the horizontal axis changes ________ of the budget line.
A) the slope and y-intercept
B) the slope and x-intercept
C) the x- and y-intercepts but not the slope
D) only the slope
E) only the y-intercept

39) Suppose all prices double and income also doubles. Which statement is true?
A) The budget line does not change.
B) The slope of the budget line increases.
C) The slope of the budget line decreases.
D) The budget line shifts rightward.
E) The budget line shifts leftward.

40) Bill consumes apples and bananas. Apples are measured on the vertical axis and bananas are measured on the
horizontal axis. Bill's income doubles, the price of apples doubles, and the price of bananas triples. Bill's budget line
A) remains unchanged.
B) shifts rightward and the slope does not change.
C) shifts rightward and becomes steeper.
D) shifts rightward and becomes flatter.
E) becomes steeper.

41) The initial budget equation for pop (p) and movies (m) is Qp = 20 - 4Qm, and the price of a pop is $5. If the price of a pop
falls to $4, what is the new budget equation?
A) Qp = 25 - 2Qm
B) Qp = 25 - 4Qm
C) Qp = 25 - 5Qm
D) Qp = 20 - 5Qm
E) none of the above

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

42) Consider an initial budget line labelled RS in the above Figure. The budget line becomes RT with
A) a rise in the price of good X.
B) a fall in the price of good X.
C) a rise in the price of good Y.
D) a decrease in the preference for good X.
E) an increase in real income.

43) To determine consumer equilibrium we need to know only

A) prices and income.
B) total utility and income.
C) marginal utility and income.
D) prices, income, and marginal utility.
E) prices and marginal utility.

44) A consumer's best affordable point occurs

A) inside the budget line.
B) outside the budget line.
C) on the budget line.
D) at a point that cannot be determined.
E) at a corner on the budget line, with only one good consumed.

45) When Jim is at his best affordable point, the budget line
A) is steeper than the highest attainable indifference curve.
B) is flatter than the highest attainable indifference curve.
C) does not touch the highest attainable indifference curve.
D) is tangent to the highest attainable indifference curve.
E) intersects the highest attainable indifference curve.

46) At the best affordable point, what is the relationship between the indifference curve and the budget line?
A) The budget line and the indifference curve are identical.
B) The slope of the indifference curve exceeds the slope of the budget line.
C) The slope of the budget line exceeds the slope of the indifference curve.
D) The slope of the indifference curve equals the slope of the budget line.
E) None of the above.

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

47) Karen consumes chocolate and candles. When Karen is at her best affordable point, she is ________.
A) on or inside her budget line, on her highest attainable indifference curve, and has a marginal rate of substitution
between chocolate and candles that is equal to the relative price of chocolate and candles
B) on the indifference curve that is closest to the origin and minimizing the marginal rate of substitution
C) on the indifference curve that is farthest from the origin and maximizing the marginal rate of substitution
D) on her budget line, on her highest attainable indifference curve, and has a marginal rate of substitution between
chocolate and candles that is equal to the relative price of chocolate and candles
E) on her budget line, on her highest attainable indifference curve, and maximizing the marginal rate of substitution

48) When Kathryn is at her consumer equilibrium, she is

A) consuming the combination of goods that is at the midpoint of her budget line.
B) consuming a combination of goods that is located inside her budget line.
C) consuming a combination of goods that is located outside her budget line.
D) consuming a combination such that the marginal utility from good X divided by the marginal utility from good Y
equals the price of good X divided by the price of good Y.
E) on the midpoint of her demand curve.

49) Let MUA and MUB stand for the marginal utility of goods A and B, respectively. Let PA and PB stand for the price of
goods A and B, respectively. Which statement must hold for consumer equilibrium?
A) MUA = MUB
B) MUA = MUB and PA = PB
C) MUA/MUB = PB/PA
D) MUA/MUB = PA/PB
E) MUAPA = MUBPB

50) Consider the budget line and indifference curve in the Figure. At the best affordable point, the marginal rate of
substitution is
A) 1/2.
B) 2.
C) 4/3.
D) 3/4.
E) 4.

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

51) Sarah can consume either pizzas or hamburgers. The price of a hamburger is $1 and the price of a pizza is $5. Let MUh
be the marginal utility of hamburgers and MUp be the marginal utility of pizzas. In consumer equilibrium, what must the
ratio MUh/MUp equal?
A) 1/5
B) 5/1
C) 1/1
D) 1/6
E) 4

52) A consumer maximizes his utility by purchasing 2 units of good X at $5 per unit and 3 units of good Y at $7 per unit.
What is the ratio of the marginal utility from X to the marginal utility from Y?
A) 5/7
B) 7/5
C) 2/3
D) 3/2
E) 10/21

Bags of Marginal Bottles of Marginal

Popcorn Utility Pop Utility
0 0 0 0
1 120 1 120
2 100 2 70
3 80 3 60
4 70 4 40

53) Refer to the Table. Henry is maximizing his utility by consuming 3 bags of popcorn and 3 bottles of pop. What is the
ratio of the price of popcorn to the price of pop?
A) 1/2
B) 1
C) 3/4
D) 4/3
E) 6/5

54) Which one of the following is not true in consumer equilibrium?

A) The consumer is maximizing utility, given her income and the prices of goods and services.
B) Given prices and her income, the consumer finds that any other choice of goods to consume would lower her utility.
C) The marginal utility per dollar is equal for all goods.
D) The consumer will not change her choices unless prices or income change.
E) The total utilities of all goods are equal.

55) If a consumer spends all his income and his marginal utility per dollar is equal for all goods, then
A) marginal utility is maximized.
B) total utility is maximized.
C) he cannot be better off even with more income.
D) the proportion of income spent on each good must be equal.
E) the number of units bought of each good must be equal.

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

56) If Katie purchases two slices of pizza and six breadsticks to maximize her total utility, then
A) a slice of pizza costs three times as much as a breadstick.
B) her marginal utility from the second slice of pizza divided by the price of a slice of pizza is equal to her marginal utility
from the sixth breadstick divided by the price of a breadstick.
C) a breadstick costs three times as much as a slice of pizza.
D) she spends more on pizza than she spends on breadsticks.
E) B and D are both correct.

Bags of Marginal Bottles of Marginal

Popcorn Utility Pop Utility
0 0 0 0
1 120 1 120
2 100 2 70
3 80 3 60
4 70 4 40

57) Refer to the Table. Henry is maximizing his utility by consuming popcorn and pop. The price of popcorn is $10 and the
price of pop is $5; Henry's income to spend on these goods is $25. In consumer equilibrium, Henry will consume:
A) 1/2 bag of popcorn and 4 bottles of pop
B) 2 bags of popcorn and 1 bottle of pop
C) 3 bags of popcorn and 4 bottles of pop
D) 1 bag of popcorn and 3 bottles of pop
E) 1 bag of popcorn and 1 bottle of pop

Units Total Units Total

of X Utility (X) of Y Utility (Y)
0 0 0 0
1 9 1 49
2 17 2 90
3 24 3 110
4 30 4 118
5 35 5 124
6 39 6 129
7 42 7 132
8 44 8 133

58) Suppose the price of X is $1 and the price of Y is $1. How much of each should you purchase to maximize utility from a
total expenditure of $11?
A) 3 units of X and 8 units of Y
B) 4 units of X and 7 units of Y
C) 5 units of X and 6 units of Y
D) 6 units of X and 5 units of Y
E) 7 units of X and 4 units of Y

59) Samir consumes apples and bananas and is in consumer equilibrium. The marginal utility from his last apple is 10 and
the marginal utility from his last banana is 5. If the price of an apple is $0.50, then what is the price of a banana?
A) $0.05
B) $0.10
C) $0.25
D) $0.50
E) $1.00
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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

60) If Soula is maximizing her utility, and two goods have the same marginal utility, she
A) buys only one.
B) buys equal quantities of both.
C) is paying the same price for each good.
D) receives the same total utility from each good.
E) none of the above.

61) Suppose you are consuming hot dogs and Cokes and believe you are receiving maximum total utility from the meal for
your entire budget of $12. The price of a hot dog is $2 and the price of a Coke is $2. Which one of the following can you
conclude?
A) The total utility from hot dogs is maximized.
B) The marginal utilities from hot dogs and Cokes divided by the quantity of each good must be equal.
C) The total utilities from hot dogs and Cokes must be equal.
D) You are purchasing three hot dogs and three Cokes.
E) The marginal utilities from hot dogs and Cokes must be equal.

62) Albert is consuming at a point where his budget line is not as steep as indifference curve. To reach consumer
equilibrium, Albert
A) consumes less of the good that is measured on the horizontal axis.
B) consumes none of the good that is measured on the horizontal axis.
C) must increase his income.
D) must shop at stores that have lower prices.
E) consumes more of the good that is measured on the horizontal axis.

63) Suppose a consumer spends all his income. His marginal utility per dollar on X is 4 and marginal utility per dollar on Y
is 2. We know that
A) utility can be increased by increasing the consumption of X and decreasing the consumption of Y.
B) utility can be increased by decreasing the consumption of X and increasing the consumption of Y.
C) the price of Y must be eight times the price of X.
D) utility is maximized.
E) the price of Y must be one-third the price of X.

64) Advise Sarah how to maximize her utility if MUA = 8, MUB = 20, PA = 4 and PB = 5.
A) Consume equal amounts of both goods.
B) Consume more of good A and less of good B.
C) Consume more of good B and less of good A.
D) Lower the price of good B.
E) Raise the price of good A.

65) Let MUA and MUB stand for the marginal utility of goods A and B, respectively. Let PA and PB stand for the price of
goods A and B, respectively. Assume that for a given consumer MUA and MUB are equal to each other, and PA is greater
than PB. In this case, the consumer is better off if he consumes
A) more of good A and less of good B.
B) less of good A and more of good B.
C) equal amount of goods A and B.
D) good B only.
E) neither good A nor good B.

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

66) If the marginal utilities from two goods are not equal, then the consumer
A) cannot be in equilibrium.
B) should increase consumption of the good with the lower marginal utility.
C) should decrease consumption of the good with the lower marginal utility.
D) may possibly be in equilibrium.
E) will definitely be in equilibrium.

67) Ron starts out in consumer equilibrium, consuming two goods, X and Y. The price of X rises. Immediately after the rise
in price
A) MUX/PX > MUY/PY, and then Ron increases his consumption of X.
B) MUX/PX > MUY/PY, and then Ron decreases his consumption of X.
C) MUX/PX < MUY/PY, and then Ron increases his consumption of X.
D) MUX/PX < MUY/PY, and then Ron decreases his consumption of X.
E) none of the above.

68) Ron starts out in consumer equilibrium, consuming two goods, X and Y. Ron's income rises. At this point, we can
definitely conclude that
A) MUX/PX > MUY/PY, and then Ron increases his consumption of X.
B) MUX/PX > MUY/PY, and then Ron decreases his consumption of X.
C) MUX/PX < MUY/PY, and then Ron increases his consumption of X.
D) MUX/PX < MUY/PY, and then Ron decreases his consumption of X.
E) none of the above.

69) If a consumer's income increases and if all goods are normal goods,
A) the quantity bought of each good decreases.
B) the quantity bought of some normal goods increases and of other normal goods decreases, but we can't make an
accurate prediction.
C) some goods become inferior because it isn't possible to buy all goods.
D) the quantity bought of each good increases.
E) the supply of all goods increases and the marginal utility from all goods decreases.

70) Harold can consume apples and oranges. He likes them equally well and currently is in consumer equilibrium. Then
the price of oranges rises, while his income remains the same. What will happen to his consumption?
A) consumption of oranges increases; consumption of apples decreases
B) consumption of oranges increases; consumption of apples increases
C) consumption of oranges decreases; consumption of apples decreases
D) consumption of oranges decreases; consumption of apples increases
E) consumption of oranges decreases; consumption of apples could either increase or decrease

71) If the price of a good rises, then in the new consumer equilibrium all of the following are true except
A) the marginal utility from consuming the good will be higher than before the price rise.
B) the quantity of the good consumed decreases.
C) the quantity of substitutes consumed increases.
D) the marginal utility from substitutes will be lower than before the price rise.
E) the marginal utility from the good equals its new higher price.

72) Which of the following is not a prediction of marginal utility theory?

A) Other things remaining the same, the higher the price of a good, the smaller the quantity demanded.
B) Other things remaining the same, the lower the price of a good, the greater the quantity demanded.
C) Other things remaining the same, the lower the price of a good, the smaller is the consumption of substitutes for that
good.
D) The law of demand.
E) Diminishing marginal utility.

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

73) A change in the price of a good has

A) an income effect only.
B) a substitution effect only.
C) a substitution effect and an income effect.
D) an income effect that exceeds the substitution effect.
E) a substitution effect that exceeds the income effect.

74) The substitution effect is the effect of

A) a change in income on the quantity bought.
B) a change in price on the quantity bought when the consumer moves to a higher indifference curve.
C) a change in income on the quantity bought when the consumer moves to a higher indifference curve.
D) a change in the best affordable point.
E) a change in price on the quantity bought when the consumer hypothetically remains on the same indifference curve.

75) If the price of a normal good rises, the income effect

A) will increase consumption of the good and the substitution effect will decrease consumption.
B) will decrease consumption of the good and the substitution effect will increase consumption.
C) and the substitution effect will both increase consumption of the good.
D) and the substitution effect will both decrease consumption of the good.
E) is always larger than the substitution effect.

76) Consider an initial budget line labelled RS. If the budget line becomes RT, the substitution effect is illustrated by the
move from point
A) A to B.
B) A to C.
C) A to D.
D) B to D.
E) D to C.

77) Consider an initial budget line labelled RS. If the budget line becomes RT, the income effect is illustrated by the move
from point
A) A to B.
B) A to C.
C) A to D.
D) B to C.
E) B to D.

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ECON 1010 Introduction to Microeconomics Michael G. Lanyi

78) Which of the graphs in the above Figure shows perfect substitutes?
A) (a)
B) (b)
C) (c)
D) (d)
E) (c) and (d)

79) Which of the graphs in the above Figure shows perfect complements?
A) (a)
B) (b)
C) (c)
D) (d)
E) (c) and (d)

80) Which one of the following statements is false?

A) Indifference curves are negatively sloped.
B) A preference map consists of a series of indifference curves.
C) Indifference curves are bowed out from the origin.
D) The marginal rate of substitution is the magnitude of the slope of an indifference curve.
E) The marginal rate of substitution increases as a consumer moves up along an indifference curve for ordinary goods.

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 Chapters 8 & 9 – Answer Key
1) C 11) C 21) A 31) A 41) C 51) A 61) E 71) E
2) D 12) C 22) E 32) E 42) A 52) A 62) E 72) E
3) C 13) C 23) B 33) D 43) D 53) D 63) A 73) C
4) B 14) E 24) E 34) C 44) C 54) E 64) C 74) E
5) D 15) E 25) B 35) D 45) D 55) B 65) B 75) D
6) A 16) D 26) B 36) D 46) D 56) B 66) D 76) A
7) C 17) B 27) D 37) B 47) D 57) D 67) D 77) D
8) C 18) A 28) D 38) B 48) D 58) C 68) E 78) B
9) C 19) A 29) B 39) A 49) D 59) C 69) D 79) C
10) C 20) D 30) A 40) E 50) C 60) C 70) E 80) C

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