Introduction
1) Which of the following correctly describes incentives?
A) Incentives refer to the maximum price that a buyer is willing to pay for a good.
B) Incentives are rewards or penalties that motivate people to behave in a particular way.
C) Incentives are prices that are fixed by the government and not by market forces.
D) Incentives refer to the minimum price at which a seller is willing to sell a product.
2) Which of the following statements is true of incentives?
A) Incentives can be financial or moral, but not coercive.
B) Incentives can be financial or coercive, but not moral.
C) Incentives are designed to change behavior.
D) Incentives are always in the form of rewards.
5.1 The Buyer’s Problem
1) Which of the following is NOT a direct determining factor of a consumer’s purchase decisions?
A) Consumer’s tastes and preferences
B) Market price of the finished goods
C) Cost of factor inputs
D) Consumer’s income
A) wealth she has acquired over time.
B) prices of the goods she buys.
C) amount of money she can spend on various goods and services.
D) difference between the consumer’s income and expenditure.
3) Which of the following statements is true?
A) Consumers’ tastes and preferences do not change over time.
B) Tastes and preferences of a consumer determine the satisfaction she receives from consumption.
C) Tastes and preferences of a consumer are not revealed through her buying decisions and consumption patterns.
D) Tastes and preferences of a consumer do not play an important role in arriving at a buying decision.
4) Suppose the prices of a pair of jeans, a shirt, and a tie are $30, $20, and $10 respectively. Which of the following statements is true in this context?
A) The opportunity cost of buying a pair of jeans is 2 ties.
B) The opportunity cost of buying a tie is 3 pairs of jeans.
C) The opportunity cost of buying a tie is 2 shirts.
D) The opportunity cost of buying a shirt is 2 ties.
5) Which of the following statements is true?
A) A price-maker is a buyer who can purchase any amount of a good he wants, at a fixed price, if he has the money to pay for it.
B) All buyers in a perfectly competitive market are price-makers.
C) The relative prices of goods do not affect a consumer’s buying decision.
D) A consumer in a perfectly competitive market buys only a tiny fraction of the total amount produced.
6) In a perfectly competitive market, all consumers:
A) are price-takers.
B) are price-makers.
C) have exactly the same demand schedules.
D) have exactly the same tastes and preferences.
7) A buyer is said to be a price-taker if she:
A) can bargain over the prices of the goods she consumes.
B) can purchase any amount of a good at a fixed price provided he has the money to pay for it.
C) always pays less than the market determined price for the goods she is consuming.
D) ignores the prices of related goods and consider only the price of the goods she is purchasing.
8) The set of all possible bundles of goods and services that can be purchased with a consumer’s income is referred to as the:
A) demand set.
B) supply set.
C) budget set.
D) universal set.
9) If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely.
A) indifference curve
B) budget constraint
C) demand schedule
D) demand function
10) Assume that a consumer can spend $20 on two goods–pens and pencils. If the price of one pen is $5 and the price of one pencil is $2, which of the following combinations of the two goods represents a point on the consumers budget constraint?
A) 3 pens and 2 pencils
B) 1 pen and 10 pencils
C) 2 pens and 5 pencils
D) 2 pens and 3 pencils
11) Assume that a combination of 10 bottles of wine and 2 liters of milk lies on a consumer’s budget constraint. If the price of one bottle of wine is $10, and one liter of milk is $1, what is the consumer’s income?
A) $100
B) $20
C) $120
D) $102
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