Question 1

Suppose a consumer has $$24 to spend on two goods: Vodka (6 $$per bottle) and Beer ($3 per bottle). What is the maximum quantity of Vodka the consumer can buy if they spend all their income on Vodka?

Accepted Answer

$$\frac{24}{6} = 4$$

Question 2

If a consumer’s income increases, what happens to their budget constraint?

Accepted Answer

The budget constraint shifts outward

Question 3

A decrease in the price of Beer (holding income and the price of Vodka constant) will:

Accepted Answer

Increase the maximum quantity of Beer that can be purchased

Question 4

Which of the following consumption bundles is affordable for Amazing Andy, who has $$1,200 to spend on card tricks (50 $$each) and wand tricks ($300 each)?

Accepted Answer

10 card tricks and 2 wand tricks

Question 5

A consumption bundle inside the budget line:

Accepted Answer

Is affordable but has some unspent income

Question 6

If the marginal rate of substitution (MRS) is 3 at a point on an indifference curve, the consumer would:

Accepted Answer

Give up 3 units of the y-axis good for 1 unit of the x-axis good

Question 7

Which of the following is NOT a property of indifference curves?

Accepted Answer

Indifference curves can cross

Question 8

At the consumer’s optimum consumption bundle, which condition must be satisfied?

Accepted Answer

The marginal utility per dollar spent is equal for both goods

Question 9

If the price of a good rises from $$8 to 12 $$and the quantity demanded falls from 110 to 90 units, what is the price elasticity of demand using the midpoint method?

Accepted Answer

$$2$$

Question 10

Suppose the price elasticity of demand for cigarettes is $$0.4. If $$the government wants to reduce smoking by $$20\%$$, by how much should it increase the price?

Accepted Answer

$$1.20$$

Question 11

If the cross-price elasticity of demand between two goods is negative, the goods are:

Accepted Answer

Complements

Question 12

Johnny Clutch gets a raise from $$900 to 1$$,100 per week and decreases his ramen noodle purchases from 7 to 1 carton per week. For Johnny, ramen noodles are:

Accepted Answer

Inferior goods

Question 13

A twelve percent increase in consumer income causes the quantity of orange juice demanded to increase from 24,000 to 26,000. What is the income elasticity of demand for orange juice?

Accepted Answer

$$0.33$$

Question 14

Which of the following best describes consumer surplus?

Accepted Answer

The difference between willingness to pay and the price actually paid

Question 15

If the price of widgets decreases from $$44 to 36 $$and quantity demanded increases from 200,000 to 280,000, what is the price elasticity of demand using the midpoint method?

Accepted Answer

$$1.5$$

Question 16

If the cross-price elasticity of demand between apples and oranges is positive, what does this imply?

Accepted Answer

Apples and oranges are substitutes

Question 17

Which formula correctly expresses the price elasticity of demand using the midpoint method?

Accepted Answer

$$\frac{\frac{Q_2$ - Q_1$}{(Q_2$ + Q_1$)/2}}{\frac{P_2$ - P_1$}{(P_2$ + P_1$)/2}}$$

Question 18

If a good has an income elasticity of demand greater than 1, it is considered:

Accepted Answer

A luxury good

Question 19

Which of the following statements about indifference curves is correct?

Accepted Answer

Indifference curves show all combinations of goods that result in the same level of utility

Question 20

If the marginal utility per dollar spent on movies is 8 and on popcorn is 7, what should the consumer do to maximize total utility?

Accepted Answer

Buy more movies and less popcorn

Microeconomics Study Guide: Consumers and Incentives

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