CLEP Microeconomics chapter practice4 questions

14 Income and Substitution Effects

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

The price of movie tickets falls. The substitution effect alone causes a consumer to

A lower ticket price reduces the relative price of movies, so substitution moves consumption toward tickets regardless of whether they are normal or inferior.
Show answer and explanation

E. buy more tickets because they are relatively cheaper

A lower ticket price reduces the relative price of movies, so substitution moves consumption toward tickets regardless of whether they are normal or inferior.

Question 2

Question 2 of 4

A consumer's income rises while prices remain unchanged. Purchases of good X fall. Good X is

An inferior good is purchased less when income rises, holding prices constant.
Show answer and explanation

C. an inferior good

An inferior good is purchased less when income rises, holding prices constant.

Question 3

Question 3 of 4

For a normal good, a price decrease creates

For a normal good, the lower relative price and the increase in real purchasing power both raise consumption.
Show answer and explanation

A. both substitution and income effects that raise consumption

For a normal good, the lower relative price and the increase in real purchasing power both raise consumption.

Question 4

Question 4 of 4

When the wage rises, the substitution effect in labor supply tends to

A higher wage raises the forgone earnings from an hour of leisure, so substitution favors more work and less leisure.
Show answer and explanation

A. increase work as leisure becomes more costly

A higher wage raises the forgone earnings from an hour of leisure, so substitution favors more work and less leisure.

Quiz complete