Question 1

A consumer spends all of her income on goods x and y. At her optimum,

Accepted Answer

A)   her valuation of the two goods exceeds the market's valuation of the two goods.
B)   her marginal rate of substitution between good x and good y exceeds the ratio of the price of good x to the price of good y.
C)   the slope of her budget constraint is equal to the slope of the highest indifference curve that she can reach while remaining within her budget.
D)   her expenditure on good x is equal to her expenditure on good y.E) C) and D)
F) B) and C)

Question 2

Figure 21-29
The figure below illustrates the preferences of a representative consumer, Nathaniel. 
-Refer to Figure 21-29. A change in Nathaniel's optimum from point A to point B results from

Accepted Answer

A)   a change in Nathaniel's preferences.
B)   an increase in the income Nathaniel receives when he is young.
C)   an increase in the interest rate.
D)   a decrease in the interest rate.E) A) and D)
F) A) and C)

Question 3

A consumer consumes two normal goods, coffee and chocolate. The price of coffee rises. The income effect, by itself, suggests that the consumer will consume

Accepted Answer

A)   more coffee and more chocolate.
B)   less coffee and less chocolate.
C)   more coffee and less chocolate.
D)   less coffee and more chocolate.E) A) and B)
F) A) and C)

Question 4

When a consumer experiences a price decrease for an inferior good, if the income effect is

Accepted Answer

A)   less than the substitution effect, the demand curve will be downward sloping.
B)   greater than the substitution effect, the demand curve will be upward sloping.
C)   less than the substitution effect, the demand curve will be upward sloping.
D)   both a)  and b)  are correct.E) All of the above
F) C) and D)

Question 5

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin. 
-Refer to Figure 21-31. If point B is Kevin's optimum, then at that optimum, what is his opportunity cost of a sweater in terms of shirts?

Accepted Answer

Kevin's opportunity ...

Question 6

Figure 21-24
The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. 
-Refer to Figure 21-24. About what percentage of his income is Steve spending on apples when he is at his optimum?

Accepted Answer

A)   33.3 percent
B)   38.2 percent
C)   44.4 percent
D)   56.7 percentE) C) and D)
F) All of the above

Question 7

Figure 21-23 
-Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The income effect can be illustrated as the movement from

Accepted Answer

A)   D to E.
B)   D to C.
C)   C to E.
D)   E to D.E) A) and B)
F) C) and D)

Question 8

Figure 21-8 
-Refer to Figure 21-8. You have $600 to spend on good X and good Y. If good X costs $100 and good Y costs $100, your budget constraint is

Accepted Answer

A)   AB.
B)   BC.
C)   CD.
D)   DE.E) None of the above
F) A) and B)

Question 9

When the price of a normal good decreases,

Accepted Answer

A)   both the income and substitution effects encourage the consumer to purchase more of the good.
B)   both the income and substitution effects encourage the consumer to purchase less of the good.
C)   the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good.
D)   the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages the consumer to purchase more of the good.E) C) and D)
F) B) and D)

Question 10

Given a consumer's indifference map, the demand curve for a good can

Accepted Answer

A)   be derived by moving a consumer's budget constraint as her income falls.
B)   be derived by moving a consumer's budget constraint as her income rises.
C)   be derived by moving a consumer's budget constraint as the market price of one good changes.
D)   not be derived from consumer theory.E) None of the above
F) All of the above

Question 11

Figure 21-2
The downward­sloping line on the figure represents a consumer's budget constraint. 
-Refer to Figure 21-2. If the consumer's income is $100, then what is the price of an apple?

Accepted Answer

A)   $0.50
B)   $0.75
C)   $1.00
D)   $1.25E) B) and C)
F) B) and D)

Question 12

Calvin is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires. When the substitution effect dominates the income effect, an increase in the interest rate on savings will cause him to

Accepted Answer

A)   increase his savings rate.
B)   decrease his savings rate.
C)   continue saving at the same rate.
D)   Any of the above are possible.E) B) and C)
F) A) and B)

Question 13

Scenario 21-4 Frank spends all of his income of $240 per month on shirts and hats. The price of a shirt is $40 and the price of a hat is $30.
-Refer to Scenario 21-4. If Frank buys 3 shirts during a certain month, then how many hats does he buy during that month?

Accepted Answer

Frank buys...

Question 14

When we derive the demand curve for a good, we should remember that the

Accepted Answer

A)   income effect must be greater than the substitution effect.
B)   substitution effect must be greater than the income effect.
C)   substitution effect must be in the same direction as the income effect.
D)   income effect and the substitution effect may work in the same or in opposite directions.E) B) and D)
F) A) and C)

Question 15

When we draw Katie's indifference curves to represent her preferences for books and movies, we find that her indifference curves are upward-sloping. What does this tell us about Katie's preferences?

Accepted Answer

Either Katie dislike...

Question 16

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

Accepted Answer

A) True 
 B)False

Question 17

Figure 21-26 
-Refer to Figure 21-26. Rhonda experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Rhonda,

Accepted Answer

A)   her labor supply curve is backward bending.
B)   her labor supply curve is upward sloping.
C)   leisure is a normal good.
D)   both a and c are correct.E) A) and B)
F) C) and D)

Question 18

If income increases and prices are unchanged, the consumer's budget constraint

Accepted Answer

A)   remains the same.
B)   shifts outward.
C)   shifts inward.
D)   rotates outward along the horizontal axis.E) A) and B)
F) B) and C)

Question 19

Figure 21-25
The figure pertains to a particular consumer. On the axes, X represents the quantity of good X and Y represents the quantity of good Y. 
-Refer to Figure 21-25. Suppose the price of good X is $15, the price of good Y is $10, and the consumer's income is $450. Then the consumer's optimal choice is to buy

Accepted Answer

A)   6 units of good X and 36 units of good Y.
B)   12 units of good X and 27 units of good Y.
C)   20 units of good X and 15 units of good Y.
D)   26 units of good X and 6 units of good Y.E) A) and C)
F) C) and D)

Question 20

Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: 
-Refer to Figure 21-20. Assume that the consumer has an income of $80. If the price of chocolate chips is $4 and the price of marshmallows is $4, the optimizing consumer would choose to purchase

Accepted Answer

A)   9 marshmallows and 6 chocolate chips.
B)   10 marshmallows and 10 chocolate chips.
C)   5 marshmallows and 5 chocolate chips.
D)   3 marshmallows and 9 chocolate chips.E) A) and D)
F) B) and C)

Exam 21: The Theory of Consumer Choice

When we draw Katie's indifference curves to represent her preferences for books and movies, we find that her indifference curves are upward-sloping. What does this tell us about Katie's preferences?

Correct Answer
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Either Katie dislike...
View Answer

When we derive the demand curve for a good, we should remember that the

Correct Answer
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A consumer spends all of her income on goods x and y. At her optimum,

Correct Answer
verified

Figure 21-29 The figure below illustrates the preferences of a representative consumer, Nathaniel. -Refer to Figure 21-29. A change in Nathaniel's optimum from point A to point B results from

Correct Answer
verified

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

Correct Answer
verified

Calvin is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires. When the substitution effect dominates the income effect, an increase in the interest rate on savings will cause him to

Correct Answer
verified

Scenario 21-4 Frank spends all of his income of $240 per month on shirts and hats. The price of a shirt is $40 and the price of a hat is $30. -Refer to Scenario 21-4. If Frank buys 3 shirts during a certain month, then how many hats does he buy during that month?

Correct Answer
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Frank buys...
View Answer

Correct Answer
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Figure 21-23 -Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The income effect can be illustrated as the movement from

Correct Answer
verified

Given a consumer's indifference map, the demand curve for a good can

Correct Answer
verified

When the price of a normal good decreases,

Correct Answer
verified

Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. About what percentage of his income is Steve spending on apples when he is at his optimum?

Correct Answer
verified

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If point B is Kevin's optimum, then at that optimum, what is his opportunity cost of a sweater in terms of shirts?

Correct Answer
verified
Kevin's opportunity ...
View Answer

A consumer consumes two normal goods, coffee and chocolate. The price of coffee rises. The income effect, by itself, suggests that the consumer will consume

Correct Answer
verified

Figure 21-8 -Refer to Figure 21-8. You have $600 to spend on good X and good Y. If good X costs $100 and good Y costs $100, your budget constraint is

Correct Answer
verified

Figure 21-26 -Refer to Figure 21-26. Rhonda experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Rhonda,

Correct Answer
verified

Figure 21-2 The downwardsloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. If the consumer's income is $100, then what is the price of an apple?

Correct Answer
verified

If income increases and prices are unchanged, the consumer's budget constraint

Correct Answer
verified

Correct Answer
verified

When a consumer experiences a price decrease for an inferior good, if the income effect is

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

When we draw Katie's indifference curves to represent her preferences for books and movies, we find that her indifference curves are upward-sloping. What does this tell us about Katie's preferences?

Correct AnswerverifiedEither Katie dislike...View AnswerShow Answer

When we derive the demand curve for a good, we should remember that the

Correct AnswerverifiedShow Answer

A consumer spends all of her income on goods x and y. At her optimum,

Correct AnswerverifiedShow Answer

Figure 21-29 The figure below illustrates the preferences of a representative consumer, Nathaniel. -Refer to Figure 21-29. A change in Nathaniel's optimum from point A to point B results from

Correct AnswerverifiedShow Answer

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

Correct AnswerverifiedShow Answer

Calvin is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires. When the substitution effect dominates the income effect, an increase in the interest rate on savings will cause him to

Correct AnswerverifiedShow Answer

Scenario 21-4 Frank spends all of his income of $240 per month on shirts and hats. The price of a shirt is $40 and the price of a hat is $30. -Refer to Scenario 21-4. If Frank buys 3 shirts during a certain month, then how many hats does he buy during that month?

Correct AnswerverifiedFrank buys...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Figure 21-23 -Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The income effect can be illustrated as the movement from

Correct AnswerverifiedShow Answer

Given a consumer's indifference map, the demand curve for a good can

Correct AnswerverifiedShow Answer

When the price of a normal good decreases,

Correct AnswerverifiedShow Answer

Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. About what percentage of his income is Steve spending on apples when he is at his optimum?

Correct AnswerverifiedShow Answer

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If point B is Kevin's optimum, then at that optimum, what is his opportunity cost of a sweater in terms of shirts?

Correct AnswerverifiedKevin's opportunity ...View AnswerShow Answer

A consumer consumes two normal goods, coffee and chocolate. The price of coffee rises. The income effect, by itself, suggests that the consumer will consume

Correct AnswerverifiedShow Answer

Figure 21-8 -Refer to Figure 21-8. You have $600 to spend on good X and good Y. If good X costs $100 and good Y costs $100, your budget constraint is

Correct AnswerverifiedShow Answer

Figure 21-26 -Refer to Figure 21-26. Rhonda experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Rhonda,

Correct AnswerverifiedShow Answer

Figure 21-2 The downward­sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. If the consumer's income is $100, then what is the price of an apple?

Correct AnswerverifiedShow Answer

If income increases and prices are unchanged, the consumer's budget constraint

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a consumer experiences a price decrease for an inferior good, if the income effect is

Correct AnswerverifiedShow Answer

Correct Answer
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Either Katie dislike...
View Answer

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Correct Answer
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Correct Answer
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Frank buys...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Kevin's opportunity ...
View Answer

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Correct Answer
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Correct Answer
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Figure 21-2 The downwardsloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. If the consumer's income is $100, then what is the price of an apple?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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