Question 1

Assume that a consumer faces the following budget constraints.  
a.Assuming that income is the same on both occasions, describe the difference in relative prices between Panel A and Panel B.
b.If income in Panel B is $126, what is the price of good X?
c.If income in Panel A is $84, what is the price of good Y?
d.Assuming that the price of good X is the same on both occasions, describe the difference in income and price of good Y between Panel A and Panel B.

Accepted Answer

a.The price of good Y is relatively high...

Question 2

A consumer maximizes utility when she consumes at a point where​

Accepted Answer

A)  ​the marginal utility of each good is the same.
B)  ​the marginal utility per dollar spent on each good is the same.
C)  ​the price of each good is the same.
D)  ​All of the above statements are true.E) A) and B)
F) B) and D)

Question 3

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

Accepted Answer

A) True 
 B)False

Question 4

Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes a

Accepted Answer

A)  shift to a lower indifference curve, and the consumer buys fewer granola bars.
B)  shift to a higher indifference curve, and the consumer buys more granola bars.
C)  movement along the indifference curve, and the consumer buys fewer granola bars.
D)  movement along the indifference curve, and the consumer buys more granola bars.E) All of the above
F) A) and B)

Question 5

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) A) and B)
F) All of the above

Question 6

A consumer's indifference curves are straight lines when, for the consumer, the goods in question are __________.

Accepted Answer

The answer of A consumer's indifference curves are straight lines...

Question 7

A decrease in a consumer's income

Accepted Answer

A)  increases the slope of the consumer's budget constraint.
B)  has no effect on the consumer's budget constraint.
C)  decreases the slope of the consumer's budget constraint.
D)  has no effect on the slope of the consumer's budget constraint.E) A) and C)
F) All of the above

Question 8

A consumer maximizes utility at a point where multiple indifference curves intersect the budget line.

Accepted Answer

A) True 
 B)False

Question 9

When indifference curves are bowed in toward the origin,

Accepted Answer

A)  consumers are less inclined to trade away goods they are lacking.
B)  consumers' willingness to trade away goods they have in abundance diminishes.
C)  an increase in income will shift the indifference curve away from the origin.
D)  a decrease in income will shift the indifference curve toward the origin.E) None of the above
F) A) and C)

Question 10

The income 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 11

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 A is Kevin's optimum, then at that optimum, what is his opportunity cost of a shirt in terms of sweaters?

Accepted Answer

Kevin's opportunity ...

Question 12

Katie wins $3 million in her state's lottery. If Katie drastically reduces the number of hours she works 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 13

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) A) and C)
F) A) and D)

Question 14

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.    
-Refer to Figure 21-3. Which of the graphs in the figure could reflect a simultaneous decrease in the price of good X and increase in the price of good Y? (i) 
Graph a
(ii) 
Graph b
(iii) 
Graph c
(iv) 
Graph d

Accepted Answer

A)  (ii)  only
B)  (iii)  only
C)  (ii)  or (iv)  only
D)  None of the above is correct.E) None of the above
F) A) and B)

Question 15

Samantha is maximizing total utility while consuming food and clothing. Her marginal utility from food is 50, and her marginal utility from clothing is 25. If clothing is priced at $10 per unit, the price of food per unit must be

Accepted Answer

A)  $2.
B)  $2.50.
C)  $5.
D)  $20.E) None of the above
F) A) and D)

Question 16

Budget constraints exist for consumers because

Accepted Answer

A)  their utility from consuming goods eventually reaches a maximum level.
B)  even with unlimited incomes they have to pay for each good they consume.
C)  they have to pay for goods, and they have limited incomes.
D)  prices and incomes are inversely related.E) C) and D)
F) B) and D)

Question 17

Figure 21-10 
-Refer to Figure 21-10. Which of the following statements is not true for a consumer who moves from bundle B to bundle C?

Accepted Answer

A)  At bundle C the consumer would be willing to give up a larger amount of cake in exchange for a donut than at bundle B.
B)  The marginal rate of substitution at bundles B and C are the same since the points lie on the same indifference curve.
C)  The consumer is willing to sacrifice donuts to obtain cake.
D)  The consumer receives the same level of satisfaction at bundles B and C.E) A) and B)
F) A) and C)

Question 18

If Suzette responds to an increase in the interest rate by decreasing her saving, then, for Suzette,

Accepted Answer

A)  the increase in the interest rate creates an income effect that is greater than the substitution effect.
B)  the increase in the interest rate creates a substitution effect that is greater than the income effect.
C)  consumption when young and consumption when old are perfect substitutes.
D)  consumption when young and consumption when old are perfect complements.E) A) and B)
F) None of the above

Question 19

Good X is an inferior good but not a Giffen good. When the price of X increases, the consumer will consume

Accepted Answer

A)  more X.
B)  the same amount of X.
C)  less X.
D)  more or less X depending on the size of the income effect relative to the size of the substitution effect.E) All of the above
F) A) and D)

Question 20

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 substitution 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) All of the above
F) C) and D)

Exam 21: The Theory of Consumer Choice

Samantha is maximizing total utility while consuming food and clothing. Her marginal utility from food is 50, and her marginal utility from clothing is 25. If clothing is priced at $10 per unit, the price of food per unit must be

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 substitution effect can be illustrated as the movement from

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

Correct Answer
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If Suzette responds to an increase in the interest rate by decreasing her saving, then, for Suzette,

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

Correct Answer
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a.The price of good Y is relatively high...
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A consumer maximizes utility at a point where multiple indifference curves intersect the budget line.

Correct Answer
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A decrease in a consumer's income

Correct Answer
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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 A is Kevin's optimum, then at that optimum, what is his opportunity cost of a shirt in terms of sweaters?

Correct Answer
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Kevin's opportunity ...
View Answer

Katie wins $3 million in her state's lottery. If Katie drastically reduces the number of hours she works after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Correct Answer
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A consumer's indifference curves are straight lines when, for the consumer, the goods in question are __________.

Correct Answer
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A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

Correct Answer
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Figure 21-10 -Refer to Figure 21-10. Which of the following statements is not true for a consumer who moves from bundle B to bundle C?

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

Correct Answer
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Budget constraints exist for consumers because

Correct Answer
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A consumer maximizes utility when she consumes at a point where

Correct Answer
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Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3. Which of the graphs in the figure could reflect a simultaneous decrease in the price of good X and increase in the price of good Y? (i) Graph a (ii) Graph b (iii) Graph c (iv) Graph d

Correct Answer
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Good X is an inferior good but not a Giffen good. When the price of X increases, the consumer will consume

Correct Answer
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Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes a

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

Correct Answer
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Exam 21: The Theory of Consumer Choice

Samantha is maximizing total utility while consuming food and clothing. Her marginal utility from food is 50, and her marginal utility from clothing is 25. If clothing is priced at $10 per unit, the price of food per unit must be

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 substitution effect can be illustrated as the movement from

Correct AnswerverifiedShow Answer

When indifference curves are bowed in toward the origin,

Correct AnswerverifiedShow Answer

If Suzette responds to an increase in the interest rate by decreasing her saving, then, for Suzette,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answerverifieda.The price of good Y is relatively high...View AnswerShow Answer

A consumer maximizes utility at a point where multiple indifference curves intersect the budget line.

Correct AnswerverifiedShow Answer

A decrease in a consumer's income

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 A is Kevin's optimum, then at that optimum, what is his opportunity cost of a shirt in terms of sweaters?

Correct AnswerverifiedKevin's opportunity ...View AnswerShow Answer

Katie wins $3 million in her state's lottery. If Katie drastically reduces the number of hours she works after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Correct AnswerverifiedShow Answer

A consumer's indifference curves are straight lines when, for the consumer, the goods in question are __________.

Correct AnswerverifiedShow Answer

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

Correct AnswerverifiedShow Answer

Figure 21-10 -Refer to Figure 21-10. Which of the following statements is not true for a consumer who moves from bundle B to bundle C?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Budget constraints exist for consumers because

Correct AnswerverifiedShow Answer

A consumer maximizes utility when she consumes at a point where​

Correct AnswerverifiedShow Answer

Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3. Which of the graphs in the figure could reflect a simultaneous decrease in the price of good X and increase in the price of good Y? (i) Graph a (ii) Graph b (iii) Graph c (iv) Graph d

Correct AnswerverifiedShow Answer

Good X is an inferior good but not a Giffen good. When the price of X increases, the consumer will consume

Correct AnswerverifiedShow Answer

Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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a.The price of good Y is relatively high...
View Answer

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Kevin's opportunity ...
View Answer

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A consumer maximizes utility when she consumes at a point where

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