Question 1

Suppose a consumer consumes two goods,X and Y.The slope of the budget constraint equals the

Accepted Answer

A)   marginal rate of substitution.
B)   rate at which the consumer will give up X to gain Y while maintaining the same level of utility.
C)   relative price of the two goods.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 2

Karen,Tara,and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days.Ice cream costs $5 per gallon,and paperback novels cost $8 each.Karen has a budget of $80,Tara has a budget of $60,and Chelsea has a budget of $40 to spend on ice cream and paperback novels.Who can afford to purchase 5 gallons of ice cream and 8 paperback novels?

Accepted Answer

A)   Karen,Tara,and Chelsea
B)   Karen only
C)   Tara and Chelsea but not Karen
D)   none of the womenE) B) and C)
F) All of the above

Question 3

Figure 21-15 
-Refer to Figure 21-15.The price of X is $5,the price of Y is $20,and the consumer's income is $40.Which point represents the consumer's optimal choice?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) A) and B)
F) A) and C)

Question 4

The following diagram shows a budget constraint for a particular consumer.  If the price of X is $5,what is the consumer's income?

Accepted Answer

A)   $10
B)   $30
C)   $150
D)   $300E) All of the above
F) A) and C)

Question 5

Higher education is a normal good.If its price falls,

Accepted Answer

A)   the quantity demanded of higher education will fall.
B)   the substitution and income effects work in opposite directions.
C)   the income effect is positive.
D)   higher education will be a Giffen good.E) None of the above
F) A) and B)

Question 6

The marginal rate of substitution

Accepted Answer

A)   varies along an indifference curve if the curve is bowed inward.
B)   is constant along an indifference curve if the curve is a straight line.
C)   is greater when a consumer has more of two goods rather than less of two goods.
D)   Both a and b are correct.E) None of the above
F) B) and C)

Question 7

Utility measures the

Accepted Answer

A)   income a consumer receives from consuming a bundle of goods.
B)   satisfaction a consumer receives from consuming a bundle of goods.
C)   satisfaction a consumer places on her budget constraint.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 8

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50,then

Accepted Answer

A)   this is the last candy bar John will purchase since the marginal utility is less than the price.
B)   the opportunity cost of the candy bar is less than $1.50.
C)   if John purchases and consumes the candy bar his total satisfaction will go down because the marginal utility is less than the price.
D)   there is not enough information to determine if John will or will not purchase the candy bar.E) A) and D)
F) None of the above

Question 9

When indifference curves are bowed in toward the origin,

Accepted Answer

A)   consumers are more inclined to trade away goods they have in abundance.
B)   an increase in income will shift the indifference curve away from the origin.
C)   a decrease in income will shift the indifference curve toward the origin.
D)   Both b and c are correct.E) All of the above
F) B) and D)

Question 10

Traci consumes two goods,lemonade and pretzels.Lemonade costs $2 per glass,and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 4.Pretzels cost $3 per bag.The relationship between the marginal utility Traci gets from eating a bag of pretzels and the number of bags she eats per month is as follows:  If Traci is maximizing her utility,how many bags of potato chips does she buy each month?

Accepted Answer

A)   3
B)   4
C)   5
D)   6E) None of the above
F) A) and B)

Question 11

In order to represent a consumer's choices on a graph,we draw her budget constraint as well as her __________ curves.

Accepted Answer

The answer of In order to represent a consumer's choices...

Question 12

Monica consumes two goods,iced tea and spaghetti.The price of iced tea is $2 per bottle.Her income is $500 per month.She spends all her income each month.She purchases 50 bottles of iced tea and 100 servings of spaghetti.What is the price of a serving of spaghetti?

Accepted Answer

A)   $10
B)   $5
C)   $4
D)   $2E) A) and B)
F) A) and C)

Question 13

Suppose that Harry likes pears twice as much as apples,meaning that he is always indifferent between consuming one pear or two apples.Harry's indifference curves for pears and apples are

Accepted Answer

A)   right angles.
B)   bowed inward.
C)   bowed outward.
D)   downward-sloping straight lines.E) A) and D)
F) B) and D)

Question 14

Suppose Reta is planning for retirement in a two-period world.In the first period Reta is young and earns $1 million,and in the second period Reta is old and retired and earns nothing.The interest rate is initially 10 percent,but then it falls to 7 percent.After the interest rate falls,the

Accepted Answer

A)   substitution effect will induce Reta to consume more when she is young.
B)   substitution effect will induce Reta to consume less when she is young.
C)   income effect will induce Reta to consume more when she is young.
D)   change in interest rates affects the substitution effect but not the income effect.E) A) and D)
F) None of the above

Question 15

Suppose that Jake likes to consume one glass of milk with every three chocolate chip cookies.For Jake,an additional cookie has no value unless he can consume it with the appropriate proportion of milk.Jake's indifference curves for milk and cookies are

Accepted Answer

A)   right angles.
B)   bowed inward.
C)   bowed outward.
D)   downward-sloping straight lines.E) All of the above
F) A) and B)

Question 16

Figure 21-17 2 if A)  the price of Y decreases. B)  the price of X decreases. C)  income increases. D)  All of the above would be correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-17.It would be possible for the consumer to reach I2 if

Accepted Answer

A)   the price of Y decreases.
B)   the price of X decreases.
C)   income increases.
D)   All of the above would be correct.E) None of the above
F) A) and D)

Question 17

When indifference curves are downward sloping,the marginal rate of substitution is usually constant.

Accepted Answer

A) True 
 B)False

Question 18

Shelley wins $1 million in her state's lottery.If Shelley keeps working after she wins the money,we can infer that the substitution effect must exactly offset the income effect for her.

Accepted Answer

A) True 
 B)False

Question 19

Figure 21-9 
-Refer to Figure 21-9.If the price of good Y is $5,what is the price of good X?

Accepted Answer

A)   $500
B)   $150
C)   $16.67
D)   $1.50E) None of the above
F) All of the above

Question 20

Jack and Diane each buy pizza and paperback novels.Pizza costs $3 per slice,and paperback novels cost $5 each.Jack has a budget of $30,and Diane has a budget of $15 to spend on pizza and paperback novels.Which consumer(s) can afford to purchase 5 slices of pizza and 5 paperback novels?

Accepted Answer

A)   Jack only
B)   Diane only
C)   both Jack and Diane
D)   neither Jack nor DianeE) B) and C)
F) A) and D)

Exam 21: The Theory of Consumer Choice

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50,then

Correct Answer
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Suppose a consumer consumes two goods,X and Y.The slope of the budget constraint equals the

Correct Answer
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Correct Answer
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When indifference curves are bowed in toward the origin,

Correct Answer
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When indifference curves are downward sloping,the marginal rate of substitution is usually constant.

Correct Answer
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In order to represent a consumer's choices on a graph,we draw her budget constraint as well as her __________ curves.

Correct Answer
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Utility measures the

Correct Answer
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Suppose that Harry likes pears twice as much as apples,meaning that he is always indifferent between consuming one pear or two apples.Harry's indifference curves for pears and apples are

Correct Answer
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Jack and Diane each buy pizza and paperback novels.Pizza costs $3 per slice,and paperback novels cost $5 each.Jack has a budget of $30,and Diane has a budget of $15 to spend on pizza and paperback novels.Which consumer(s) can afford to purchase 5 slices of pizza and 5 paperback novels?

Correct Answer
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Figure 21-15 -Refer to Figure 21-15.The price of X is $5,the price of Y is $20,and the consumer's income is $40.Which point represents the consumer's optimal choice?

Correct Answer
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Monica consumes two goods,iced tea and spaghetti.The price of iced tea is $2 per bottle.Her income is $500 per month.She spends all her income each month.She purchases 50 bottles of iced tea and 100 servings of spaghetti.What is the price of a serving of spaghetti?

Correct Answer
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Figure 21-17 -Refer to Figure 21-17.It would be possible for the consumer to reach I₂ if

Correct Answer
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Shelley wins $1 million in her state's lottery.If Shelley keeps working after she wins the money,we can infer that the substitution effect must exactly offset the income effect for her.

Correct Answer
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Suppose Reta is planning for retirement in a two-period world.In the first period Reta is young and earns $1 million,and in the second period Reta is old and retired and earns nothing.The interest rate is initially 10 percent,but then it falls to 7 percent.After the interest rate falls,the

Correct Answer
verified

Correct Answer
verified

Suppose that Jake likes to consume one glass of milk with every three chocolate chip cookies.For Jake,an additional cookie has no value unless he can consume it with the appropriate proportion of milk.Jake's indifference curves for milk and cookies are

Correct Answer
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The marginal rate of substitution

Correct Answer
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The following diagram shows a budget constraint for a particular consumer. If the price of X is $5,what is the consumer's income?

Correct Answer
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Figure 21-9 -Refer to Figure 21-9.If the price of good Y is $5,what is the price of good X?

Correct Answer
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Higher education is a normal good.If its price falls,

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50,then

Correct AnswerverifiedShow Answer

Suppose a consumer consumes two goods,X and Y.The slope of the budget constraint equals the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When indifference curves are bowed in toward the origin,

Correct AnswerverifiedShow Answer

When indifference curves are downward sloping,the marginal rate of substitution is usually constant.

Correct AnswerverifiedShow Answer

In order to represent a consumer's choices on a graph,we draw her budget constraint as well as her __________ curves.

Correct AnswerverifiedShow Answer

Utility measures the

Correct AnswerverifiedShow Answer

Suppose that Harry likes pears twice as much as apples,meaning that he is always indifferent between consuming one pear or two apples.Harry's indifference curves for pears and apples are

Correct AnswerverifiedShow Answer

Jack and Diane each buy pizza and paperback novels.Pizza costs $3 per slice,and paperback novels cost $5 each.Jack has a budget of $30,and Diane has a budget of $15 to spend on pizza and paperback novels.Which consumer(s) can afford to purchase 5 slices of pizza and 5 paperback novels?

Correct AnswerverifiedShow Answer

Figure 21-15 -Refer to Figure 21-15.The price of X is $5,the price of Y is $20,and the consumer's income is $40.Which point represents the consumer's optimal choice?

Correct AnswerverifiedShow Answer

Monica consumes two goods,iced tea and spaghetti.The price of iced tea is $2 per bottle.Her income is $500 per month.She spends all her income each month.She purchases 50 bottles of iced tea and 100 servings of spaghetti.What is the price of a serving of spaghetti?

Correct AnswerverifiedShow Answer

Figure 21-17 -Refer to Figure 21-17.It would be possible for the consumer to reach I2 if

Correct AnswerverifiedShow Answer

Shelley wins $1 million in her state's lottery.If Shelley keeps working after she wins the money,we can infer that the substitution effect must exactly offset the income effect for her.

Correct AnswerverifiedShow Answer

Suppose Reta is planning for retirement in a two-period world.In the first period Reta is young and earns $1 million,and in the second period Reta is old and retired and earns nothing.The interest rate is initially 10 percent,but then it falls to 7 percent.After the interest rate falls,the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that Jake likes to consume one glass of milk with every three chocolate chip cookies.For Jake,an additional cookie has no value unless he can consume it with the appropriate proportion of milk.Jake's indifference curves for milk and cookies are

Correct AnswerverifiedShow Answer

The marginal rate of substitution

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The following diagram shows a budget constraint for a particular consumer. If the price of X is $5,what is the consumer's income?

Correct AnswerverifiedShow Answer

Figure 21-9 -Refer to Figure 21-9.If the price of good Y is $5,what is the price of good X?

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Higher education is a normal good.If its price falls,

Correct AnswerverifiedShow Answer

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Figure 21-17 -Refer to Figure 21-17.It would be possible for the consumer to reach I₂ if

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