Multiple Choice Questions
1. Emilio buys pizza for $10 and soda for $2. He has income of $100. His budget constraint will experience a parallel outward shift if which of the following events occur?
a. The price of pizza falls to $5, the price of soda falls to $1, and his income falls to $50.
b. The price of pizza rises to $20, the price of soda rises to $4, and his income remains the same.
c. The price of pizza falls to $8, the price of soda falls to $1, and his income rises to $120.
d. The price of pizza rises to $20, the price of soda rises to $4, and his income rises to $400.
2. At any point on an indifference curve, the slope of the curve measures the consumer's
a. Income.
b. Willingness to trade one good for the other.
c. Perception of the two goods as substitutes or complements.
d. Elasticity of demand.
3. Matthew and Susan are both optimizing consumers in the markets for shirts and hats, where they pay $100 for a shirt and $50 for hat. Matthew buys 4 shirts and 16 hats, while Susan buys 6 shirts and 12 hats. From this information, we can infer that Matthew's marginal rate of substitution is _____ hats per shirt, while Susan's is _____.
a. 2, 1
b. 2, 2
c. 4, 1
d. 4, 2
4. Charlie buys only milk and cereal. Milk is a normal good, while cereal is an inferior good. When the price of milk rises, Charlie buys
a. Less of both goods.
b. More milk and less cereal.
c. Less milk and more cereal.
d. Less milk, but the impact on cereal is ambiguous.
5. If the price of pasta increases and a consumer buys more pasta, we can infer that a. pasta is a normal good, and the income effect is greater than the substitution effect.
b. Pasta is a normal good, and the substitution effect is greater than the income effect.
c. Pasta is an inferior good, and the income effect is greater than the substitution effect.
d. Pasta is an inferior good, and the substitution effect is greater than the income effect.
6. The labor-supply curve slopes upward if
a. Leisure is a normal good.
b. Consumption is a normal good.
c. The income effect on leisure is greater than the substitution effect.
d. The substitution effect on leisure is greater than the income effect.