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Chapter 21
The Theory of
Consumer Choice
Test A
1.
2.
The theory of
consumer choice examines
a.
The determination of output in
competitive markets.
b.
The
determination of prices in competitive markets.
c.
The tradeoffs inherent in
decisions made by consumers.
d.
How consumers select inputs into
manufacturing production processes.
A
budget constraint
a.
shows
the consumption bundles that a consumer can
afford.
b.
reflects the
desire by consumers to increase their income.
c.
represents the bundles of
consumption that make a consumer equally happy.
d.
shows the prices that a
consumer chooses to pay for products he consumes.
3.
a.
b.
c.
d.
Which of the points on the graph shown
reflects the choice of a consumer that chooses not
to spend
her entire income?
Point A
Point B
Point D
Point E
Copyright ? Harcourt, Inc.
231
232
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Chapter 21/The Theory of
Consumer Choice
4.
Which of the graphs shown reflects a
decrease in the price of good X only?
a.
panel A
b.
panel B
c.
panel
C
d.
panel D
5.
Which of the graphs shown
reflects an increase in income?
a.
panel A
b.
panel B
c.
panel C
d.
panel D
ANSWER: d.
panel D
TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1
GRAPH FORMAT: M QUESTION INSTRUCTION: 3
RANDOM: N
Copyright ?
Harcourt, Inc.
Chapter
21/The Theory of Consumer Choice
?
233
6.
The slope of the budget constraint is
determined by the
a.
level of income of the consumer.
b.
relative
price of commodities represented on the axes.
c.
preferences
of a consumer.
d.
endowment of productive resources.
ANSWER: b.
relative price of
commodities represented on the axes.
TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1
RANDOM: Y
7.
Consumer
preferences are typically represented by
a.
cost curves.
b.
supply
curves.
c.
indifference curves.
d.
budget constraints.
ANSWER: c.
indifference
curves.
TYPE: M KEY1: D SECTION: 2
OBJECTIVE: 1 RANDOM: Y
8.
Based on the figure shown
which of the following statements is correct?
a.
Point A is
valued the same as point C.
b.
Point B is valued the
same as point E.
c.
The bundles along indifference curve
I
1
are preferred to those
along indifference curve I
2
.
d.
The bundle
associated with point D contains more
Ho-
Ho’s than that associate
d
with point C.
ANSWER: a.
Point A is valued the same as point C.
TYPE: M KEY1: G SECTION: 2 OBJECTIVE: 1
GRAPH FORMAT: M QUESTION INSTRUCTION: 5
RANDOM: N
Copyright ?
Harcourt, Inc.
234
?
Chapter 21/The Theory of
Consumer Choice
9.
Based on
the figure shown, which of the following
statements is true for a consumer that moves from
point C to point D?
a.
The consumer is
indifferent between point C and point D.
b.
The consumer
is definitely worse off.
c.
It is difficult to compare the level of
consumer satisfaction between points D and C.
d.
The consumer
is likely to place a higher relative value on
Ho-
Ho’s at point C than at point
D.
ANSWER: b.
The
consumer is definitely worse-off.
TYPE:
M KEY1: G SECTION: 2 OBJECTIVE: 2 GRAPH FORMAT: M
QUESTION INSTRUCTION: 6
RANDOM: N
10.
The slope of an
indifference curve is
a.
constant.
b.
positive, since indifference curves
slope upward.
c.
equal to the marginal rate of
substitution.
d.
the same as the slope of the budget
constraint at every point.
ANSWER: c.
equal to the marginal rate of
substitution.
TYPE: M KEY1: D SECTION:
2 OBJECTIVE: 2 RANDOM: Y
11.
The amount of a good an individual has
a.
is only
affected by prices.
b.
is only affected by income.
c.
will not affect the
marginal rate of substitution.
d.
affects the rate at which
she is willing to trade.
ANSWER: d.
affects the rate at which she is
willing to trade.
TYPE: M KEY1: C
SECTION: 2 OBJECTIVE: 2 RANDOM: Y
12.
As long as a consumer is on the same
indifference curve
a.
she is unable to decide which bundle of
goods to choose.
b.
she is indifferent among the points on
that indifference curve.
c.
her preferences will not affect the
marginal rate of substitution.
d.
she is indifferent to all
points which lie on any other indifference curves.
ANSWER: b.
she is
indifferent among the points on that indifference
curve.
TYPE: M KEY1: D SECTION: 2
OBJECTIVE: 2 RANDOM: Y
13.
When indifference curves are bowed
inward toward the origin,
a.
it is unlikely that
consumers will be willing to engage in trade.
b.
people can
only increase satisfaction by consuming more of
all commodities.
c.
people are less inclined to trade away
goods that they have an abundance of.
d.
the marginal rate of
substitution decreases as a consumer moves down an
indifference curve.
ANSWER: d.
the marginal rate of substitution
decreases as a consumer moves down an indifference
curve.
TYPE: M KEY1: D
SECTION: 2 OBJECTIVE: 2 RANDOM: Y
14.
The highest indifference curve that a
consumer can reach is the one
a.
farthest from the origin.
b.
that
intersects the budget constraint in at least two
places.
c.
that
is tangent to the budget constraint.
d.
all of the above.
ANSWER: c.
that is tangent
to the budget constraint.
TYPE: M KEY1:
D SECTION: 2 OBJECTIVE: 2 RANDOM: Y
Copyright ? Harcourt, Inc.
Chapter 21/The Theory of Consumer
Choice
?
235
15.
Which of the following is NOT a
property of indifference curves?
a.
Lower indifference curves
are preferable to higher indifference curves.
b.
Indifference
curves are bowed inward toward the origin.
c.
Indifference
curves do not cross.
d.
Indifference curves are downward
sloping.
ANSWER: a.
Lower
indifference curves are preferable to higher
indifference curves.
TYPE: M KEY1: C
SECTION: 2 OBJECTIVE: 2 RANDOM: Y
16.
When two goods are perfect substitutes
they will have
a.
linear indifference curves.
b.
indifference curves that
cross.
c.
indifference curves that are right
angles.
d.
indifference curves with a positive
slope.
ANSWER: a.
linear
indifference curves.
TYPE: M KEY1: C
SECTION: 2 OBJECTIVE: 2 RANDOM: Y
17.
When economists describe preferences,
they sometimes use the concept of
a.
income.
b.
utility.
c.
prices.
d.
markets.
ANSWER: b.
utility.
TYPE: M KEY1: D SECTION: 2 OBJECTIVE: 2
RANDOM: Y
18.
An optimizing
consumer will select a consumption bundle in which
the
a.
utility
exceeds price.
b.
marginal rate of substitution is equal
to income.
c.
ratio of expenditure shares equals the
marginal rate of substitution.
d.
marginal rate of
substitution is equal to the relative price.
ANSWER: d.
marginal rate of
substitution is equal to the relative price.
TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 3
RANDOM: Y
19.
At the
optimum
a.
the
budget constraint would have a slope of 1.
b.
it is still
possible for the consumer to increase his
consumption of both goods.
c.
the slope of the
indifference curve is equal to the slope of the
budget constraint.
d.
the indifference curve would intersect
the budget constraint at its center.
ANSWER: c.
the slope of the
indifference curve is equal to the slope of the
budget constraint.
TYPE: M KEY1: C
SECTION: 3 OBJECTIVE: 3 RANDOM: Y
20.
When a budget constraint shifts out
a.
the consumer
is worse off.
b.
the consumer can now reach a higher
indifference curve.
c.
it could only have been caused by an
increase in income.
d.
it could only have been caused by an
increase in the price of one of the goods.
ANSWER: b.
the consumer can
now reach a higher indifference curve.
TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 3
RANDOM: Y
Copyright ? Harcourt,
Inc.
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