PAGE 1
MULTIPLE CHOICE
1. The slope of the budget line is determined by
a. the marginal rate of substitution.
b. the level of income.
c. the consumer's preferences for the goods.
d. relative prices.
2. An increase in real income always
a. makes the budget line flatter.
b. makes the budget line steeper.
c. shifts the budget line leftward.
d. shifts the budget line rightward.
Table 8.1
Money Price of Price of
Region income pizza a hamburger
컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴�
A $100 $20 $2
B $50 $10 $5
C $25 $5 $4
3. Refer to Table 8.1. In terms of units of pizza, real income is
a. lower in region A than in regions B and C.
b. lower in region B than in regions A and C.
c. lower in region C than in regions A and B.
d. equal in all three regions.
4. Refer to Table 8.1. In terms of units of hamburgers, real income is
a. lower in region A than in regions B and C.
b. lower in region B than in regions A and C.
c. lower in region C than in regions A and B.
d. equal in all three regions.
5. Refer to Table 8.1. Which region has the lowest relative price of hamburgers?
a. Region A.
b. Region B.
c. Region C.
d. All three regions have equal hamburger prices.
6. Sharmila has a budget line for CDs and books. CDs are on the vertical axis and books on the horizontal. Her budget line becomes steeper as
a. the price of a CD falls.
b. the price of a CD rises.
c. her income falls.
d. her income rises.
PAGE 2
7. Refer to Fig. 8.2. Which budget line results in the most real income in terms of carrots?
a. AD.
b. BD.
c. CD.
d. Real income is equal for all three budget lines.
8. In Fig. 8.2, suppose the original budget line is BD. Carrot and compact disc prices rise 5 percent and money income remains unchanged. The budget line will
a. move to AD.
b. move to CD.
c. make a parallel leftward shift.
d. make a parallel rightward shift.
9. If all prices rise by 5 percent and money income remains constant, the new budget line will have
a. a steeper slope.
b. a flatter slope.
c. a positive slope.
d. the same slope.
10. If all prices fall by 5 percent and money income remains constant, the new budget line will have
a. a positive slope.
b. the same slope.
c. a steeper slope.
d. a flatter slope.
PAGE 3
11. With good Y on the vertical axis and good X on the horizontal axis, which of following statements is FALSE?
a. If the indifference curve is steep, the marginal rate of substitution is high.
b. A low marginal rate of substitution implies a relatively flat indifference curve.
c. A relatively flat indifference curve implies that a consumer must receive a large amount of good X to compensate for a small decrease in good Y.
d. A high rate of marginal substitution implies that a consumer must receive a large amount of good X to compensate for a small decrease in good Y.
12. Left shoes and right shoes are perfect complements. An indifference curve for left and right shoes is a line with
a. constant slope.
b. a 30-degree angle.
c. a 45-degree angle.
d. a 90-degree angle.
13. A constant marginal rate of substitution between two goods implies that they are
a. perfect complements.
b. perfect substitutes.
c. independent goods.
d. unattainable.
14. If the price of an inferior good rises, the income effect on purchases is
a. negative.
b. zero.
c. positive.
d. equal to the price effect.
15. A budget line is drawn on a diagram with bus tokens on the horizontal axis and gasoline on the vertical axis. Bus tokens are an inferior good, and gasoline is a normal good. As income rises, the budget line
a. becomes flatter.
b. becomes steeper.
c. makes a parallel leftward shift.
d. makes a parallel rightward shift.
16. Consider the budget line labeled RT in Fig. 8.5. What would cause the budget line to shift to RS?
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 fall in the price of good Y.
17. A change in the rate of interest has
a. a substitution effect and an income effect.
b. a substitution effect but no income effect.
c. an income effect but no substitution effect.
d. neither an income nor a substitution effect.
PAGE 4
18. An indifference diagram has good X measured on the horizontal axis and good Y on the vertical axis. As a consumer moves up an indifference curve, thus increasing consumption of good Y,
a. more of X must be given up for each additional unit of Y.
b. a constant amount of X must be given up for each additional unit of Y.
c. less of X must be given up for each additional unit of Y.
d. the relative price of X decreases.