Microeconomics 1 Multiple Choice Test
Spring term 2002
Attempt all questions.
(If needed in any question, assume that good 1 is represented on the horizontal axis.)
1.The principle of completeness means
a. the consumer always prefers one good to another
b. the consumer always prefers one good to the other or is indifferent between them
c. the consumer prefers more goods to less
d. the consumer is maximising their utility
e. the consumer cannot make a choice between two goods
2.The principle of transitivity means
a. good A is preferred to good B
b. if good A is preferred to B, and B to C, then A must be preferred to C
c. more of good A is preferred to good B and to good C
d. good A is always preferred to B if B is preferred to C
e. good A provides more utility than B and B more than C
3.Indifference curves can cross
a. if the income effect outweighs the substitution effect
b. if the substitution effect outweighs the income effect
c. for Giffen goods
d. for inferior goods
e. none of the above, they cannot ever cross.
4.Indifference curves slope down because
a. of the principle of non-satiation
b. of the principle of completeness
c. more of a good is demanded as the price falls
d. of the principle of transitivity
e. none of the above
5.The marginal utility of income probably
a. increases as income increases
b. decreases as income increases
c. increases as income increases but at a decreasing rate
d. decreases as prices rise
e. none of the above
6.The effect of a 10% rise in both prices and money income is to
a. shift the budget constraint out by 10%
b. shift the budget constraint inwards by 10%
c. rotate the budget line about a point on the horizontal axis
d. leave the budget constraint unchanged
e. none of these
pensating a consumer for the effect of a price rise
a. eliminates both income and substitution effects
b. eliminates the income effect, leaving the substitution effect
c. eliminates the substitution effect, leaving the income effect
d. eliminates neither income nor substitution effect
e. none of these
8.Which of the following statements about the substitution effect is true ?
a. It can be positive
b. It always exceeds the income effect
c. It operates in the opposite direction from the income effect for an inferior good
d. It operates in the opposite direction from the income effect for a normal good.
e. None of these.
9.For an inferior good
a. a rise in price leads to a reduction in demand
b. a rise in price leads to a rise in demand
c. a fall in price leads to a rise in demand
d. a rise in income leads to a rise in demand
e. a rise in income leads to a fall in demand
10.A budget line equation is given by p1x1+ p2 x2 = M. The intercept of the budget line
on the vertical (x2) axis is
a. M/p1
b. –M/p2
c. p2/p1
d. –p2/p1
e. M/p2
11.Given a demand equation q = 100 – 5p and an average price of 10, the demand
elasticity is
a. –2
b. –5
c. –3/5
d. –1/2
e. –1
12.The demand equations for two consumers are q1 = 60 –p and q2 = 40 – 2p. The
market demand equation is
a. q = 20 –p
b. q = 60/40 – 2p
c. q = 100 – 2p
d. q = 60 – 3p
e. q = 100 – 3p
13.If two goods are complements
a. a rise in the price of good 1 leads to a fall in demand for good 2
b. a rise in income leads to a fall in demand for both goods
c. a fall in the price of good 1 leads to a fall in demand for good 2
d. a rise in the price of good 1 leads to a rise in demand for good 1
e. none of the above
