Question 1

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 $100 and currently optimizes at bundle A. When the price of marshmallows decreases to $5, which bundle will the optimizing consumer choose?

Accepted Answer

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

Question 2

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 $40. 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) B) and C)
F) A) and D)

Question 3

The theory of consumer choice examines how

Accepted Answer

A)  firms make profit-maximizing decisions.
B)  consumers make utility-maximizing decisions.
C)  wages are determined in competitive labor markets.
D)  prices are determined in competitive goods markets.E) All of the above
F) A) and B)

Question 4

Suppose a consumer has an income of $800 per month and that she spends her entire income each month on beer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4. Which of the following combinations of beers and bratwursts represents a point that would lie to the exterior of the consumer's budget constraint?

Accepted Answer

A)  160 beers and 200 bratwursts
B)  40 beers and 50 bratwursts
C)  80 beers and 100 bratwursts
D)  160 beers and 0 bratwurstsE) A) and C)
F) B) and D)

Question 5

The substitution effect of a price change is depicted by a

Accepted Answer

A)  movement along the budget constraint holding satisfaction constant.
B)  shift in the budget constraint at the old prices.
C)  movement along the consumer's new indifference curve at the new prices.
D)  movement along the original indifference curve to the point where the marginal rate of substitution equals the price ratio for the new set of prices.E) A) and B)
F) A) and D)

Question 6

Teresa faces prices of $6.00 for a unit of good X and $1.50 for a unit of good Y. At her optimum, Teresa is willing to give up 1 unit of good X for __________ units of good Y.

Accepted Answer

The answer of Teresa faces prices of $6.00 for a...

Question 7

Both Diana and Sarah like jazz music and music by the Beatles. Diana likes music by the Beatles much better than jazz music, whereas Sarah prefers jazz music to music by the Beatles. If we were to graph an indifference curve with CDs by the Beatles on the horizontal axis and jazz CDs on the vertical axis, then

Accepted Answer

A)  Diana and Sarah would have identical indifference curves.
B)  Diana's indifference curve would be steeper than Sarah's indifference curve.
C)  Sarah's indifference curve would be steeper than Diana's indifference curve.
D)  We do not have enough information to compare their indifference curves.E) B) and C)
F) A) and B)

Question 8

Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. 
-Refer to Figure 21-24. Suppose the price of pears, the price of apples, and Steve's income remain constant, and Steve moves from point B to point C. In doing so, Steve

Accepted Answer

A)  becomes better off.
B)  moves from a point that is not optimal to a point that is optimal.
C)  gives up some apples to get some pears.
D)  All of the above are correct.E) None of the above
F) A) and B)

Question 9

Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. 
-Refer to Figure 21-24. If the price of a pound of pears is $3, then Steve's income is

Accepted Answer

A)  $12.00.
B)  $13.50.
C)  $16.20.
D)  $18.80.E) None of the above
F) A) and B)

Question 10

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 3 paperback novels?

Accepted Answer

A)  Jack only
B)  Diane only
C)  both Jack and Diane
D)  neither Jack nor DianeE) C) and D)
F) All of the above

Question 11

Susie wins $2 million in her state's lottery. If Susie keeps working after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Accepted Answer

A) True 
 B)False

Question 12

​Suppose Raul has budgeted $100 of his monthly income towards two good: t-shirts and jeans. If the price of a pair of jeans is $20 and last month he spent his $100 on a bundle containing 2 pairs of jeans and 12 t-shirts, which of the following is another point on Raul's budget line?

Accepted Answer

A)  ​3 pairs of jeans and 16 t-shirts
B)  ​1 pair of jeans and 15 t-shirts
C)  ​3 pairs of jeans and 6 t-shirts
D)  ​0 pairs of jeans and 20 t-shirtsE) A) and B)
F) A) and C)

Question 13

A Giffen good is a good for which

Accepted Answer

A)  a decrease in the price decreases the quantity demanded.
B)  the substitution effect outweighs the income effect.
C)  an increase in the price decreases the quantity demanded.
D)  Both a)  and b)  are correct.E) B) and D)
F) B) and C)

Question 14

Economic theory predicts that an increase in wages

Accepted Answer

A)  will cause a wage earner to work more.
B)  will cause a wage earner to work less.
C)  will cause a wage earner to be more productive.
D)  might cause a wage earner to work more or work less.E) B) and C)
F) A) and D)

Question 15

In the upward-sloping portion of the individual labor-supply curve, the substitution effect is

Accepted Answer

A)  greater than the income effect.
B)  less than the income effect.
C)  equal to the income effect.
D)  exactly offset by the income effect.E) None of the above
F) A) and B)

Question 16

The substitution effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Accepted Answer

A) True 
 B)False

Question 17

An individual's demand curve for a good is derived by varying the

Accepted Answer

A)  income level and observing the resulting total utility derived from both goods.
B)  price of one good and observing the resulting quantities of the other good.
C)  budget line to the left and calculating the loss in total utility.
D)  price of one good and observing the resulting quantities demanded of that good.E) A) and B)
F) B) and C)

Question 18

If an indifference curve is bowed in toward the origin, the marginal rate of substitution is

Accepted Answer

A)  not likely to reflect the relative value of goods.
B)  likely to be constant for all bundles along the indifference curve.
C)  likely to be identical to the price ratio for each bundle along the indifference curve.
D)  different for each bundle along the indifference curve.E) A) and D)
F) None of the above

Question 19

Figure 21-8 
-Refer to Figure 21-8. If the price of good X is $5, and your budget constraint is DE, what is the price of good Y?

Accepted Answer

A)  $10
B)  $5
C)  $2.50
D)  $1.67E) None of the above
F) C) and D)

Question 20

Suppose that you have $100 today and expect to receive $100 one year from today. Your money market account pays an annual interest rate of 25%, and you may borrow money at that interest rate. Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis. What is the slope of this budget constraint?

Accepted Answer

A)  -0.75
B)  -1.00
C)  -1.25
D)  -2.25E) A) and C)
F) A) and B)

Exam 21: The Theory of Consumer Choice

The theory of consumer choice examines how

Correct Answer
verified

If an indifference curve is bowed in toward the origin, the marginal rate of substitution is

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

In the upward-sloping portion of the individual labor-supply curve, the substitution effect is

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Teresa faces prices of $6.00 for a unit of good X and $1.50 for a unit of good Y. At her optimum, Teresa is willing to give up 1 unit of good X for __________ units of good Y.

Correct Answer
verified

Correct Answer
verified

An individual's demand curve for a good is derived by varying the

Correct Answer
verified

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 3 paperback novels?

Correct Answer
verified

Suppose Raul has budgeted $100 of his monthly income towards two good: t-shirts and jeans. If the price of a pair of jeans is $20 and last month he spent his $100 on a bundle containing 2 pairs of jeans and 12 t-shirts, which of the following is another point on Raul's budget line?

Correct Answer
verified

A Giffen good is a good for which

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. Suppose the price of pears, the price of apples, and Steve's income remain constant, and Steve moves from point B to point C. In doing so, Steve

Correct Answer
verified

Susie wins $2 million in her state's lottery. If Susie keeps working after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

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. If the price of a pound of pears is $3, then Steve's income is

Correct Answer
verified

The substitution effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Correct Answer
verified

The substitution effect of a price change is depicted by a

Correct Answer
verified

Economic theory predicts that an increase in wages

Correct Answer
verified

Figure 21-8 -Refer to Figure 21-8. If the price of good X is $5, and your budget constraint is DE, what is the price of good Y?

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

The theory of consumer choice examines how

Correct AnswerverifiedShow Answer

If an indifference curve is bowed in toward the origin, the marginal rate of substitution is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the upward-sloping portion of the individual labor-supply curve, the substitution effect is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Teresa faces prices of $6.00 for a unit of good X and $1.50 for a unit of good Y. At her optimum, Teresa is willing to give up 1 unit of good X for __________ units of good Y.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An individual's demand curve for a good is derived by varying the

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 3 paperback novels?

Correct AnswerverifiedShow Answer

​Suppose Raul has budgeted $100 of his monthly income towards two good: t-shirts and jeans. If the price of a pair of jeans is $20 and last month he spent his $100 on a bundle containing 2 pairs of jeans and 12 t-shirts, which of the following is another point on Raul's budget line?

Correct AnswerverifiedShow Answer

A Giffen good is a good for which

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. Suppose the price of pears, the price of apples, and Steve's income remain constant, and Steve moves from point B to point C. In doing so, Steve

Correct AnswerverifiedShow Answer

Susie wins $2 million in her state's lottery. If Susie keeps working after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

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. If the price of a pound of pears is $3, then Steve's income is

Correct AnswerverifiedShow Answer

The substitution effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Correct AnswerverifiedShow Answer

The substitution effect of a price change is depicted by a

Correct AnswerverifiedShow Answer

Economic theory predicts that an increase in wages

Correct AnswerverifiedShow Answer

Figure 21-8 -Refer to Figure 21-8. If the price of good X is $5, and your budget constraint is DE, what is the price of good Y?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Suppose Raul has budgeted $100 of his monthly income towards two good: t-shirts and jeans. If the price of a pair of jeans is $20 and last month he spent his $100 on a bundle containing 2 pairs of jeans and 12 t-shirts, which of the following is another point on Raul's budget line?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified