3. Assume income is distributed more equally in Country A than in Country B. In that case we would expect the Lorenz curve for Country A to be (. . . )

(a) on the 45-degree line.

(b) closer to the 45-degree line than Country B's Lorenz curve.

(c) farther from the 45-degree line than Country B's Lorenz curve.

(d) nearly flat along the horizontal axis.

(e) None of the above.

4. According to research from Michael Norton and Dan Ariely, most Americans think that wealth is distributed (. . . )

(a) more equally than it is actually distributed.

(b) less equally than it is actually distributed..

(c) more equally than it should be distributed.

(d) less equally than it should be distributed.

(e) Both a and d.

5. Which one of the following statements about the Gini coefficient is false?

(a) It ranges from zero to one.

(b) The closer the Gini coefficient to zero, the lower the level of in-equality.

(c) The closer the Gini coefficient to one, the greater the level of inequality.

(d) A Gini coefficient of 0.5 means that the bottom 50% of the population earn 25% of total income.

(e) A Gini coefficient equal to one depicts the case of absolute in-equality

6. Consumer sovereignty means that (. . . )

(a) consumers have perfect information about alternatives.

(b) consumers' needs and wants determine the shape of all economic activities.

(c) consumers are significantly influenced by their reference groups.

(d) consumers' purchasing decisions are a trial-and-error process.

(e) consumers are motivated to maximize their utility.

7. How will an increase in the price of one item change a consumer's budget line?

(a) The budget line will rotate toward the origin.

(b) The budget line will rotate away from the origin.

(c) The budget line will shift outward.

(d) The budget line will shift inward.

(e) The budget line will not change.

8. How will an increase in a consumer's income change her budget line?

(a) The budget line will rotate toward the origin.

(b) The budget line will rotate away from the origin.

(c) The budget line will shift outward.

(d) The budget line will shift inward.

(e) The budget line will not change.

9. Which one of the following statements is false?

(a) A budget line informs us which combination of goods a consumer will purchase.

(b) If a consumer's income stays constant, a change in one price will change her budget line.

(c) Real income indicates the purchasing power of a consumer's income.

(d) Consuming below a budget line will leave some income unspent.

(e) The position of a budget line depends on a consumer's income and prices.

10. Diminishing marginal utility means that (. . . )

(a) the more money a consumer spends, the less is available to purchase other goods.

(b) money should be transferred from wealthy people to poor people.

(c) utility cannot be compared across different people.

(d) additional units of consumption produce less additional utility

than previous units.

(e) utility always increases through additional consumption