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Exam 21: The Theory of Consumer Choice

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Question 51

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Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese. The price of one pound of cheese is $6, and the price of a bottle of wine is $10. The consumer should increase his consumption of

A) cheese, decrease his consumption of wine, and move to a lower indifference curve.
B) cheese, decrease his consumption of wine, and move to a higher indifference curve.
C) wine, decrease consumption of cheese, and move to a higher indifference curve.
D) cheese, decrease consumption of wine, and remain on the same indifference curve.

E) B) and C)
F) A) and B)

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Question 52

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Suppose Joshua has budgeted $300 of his monthly income toward two goods: t-shirts and jeans. If the price of a pair of jeans is $60 and last month he spent his $300 on a bundle containing 2 pairs of jeans and 12 t-shirts, which of the following is another point on Joshua's budget line?

A) 3 pairs of jeans and 10 t-shirts
B) 1 pair of jeans and 18 t-shirts
C) 0 pairs of jeans and 24 t-shirts
D) 4 pairs of jeans and 4 t-shirts

E) A) and B)
F) A) and C)

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Question 53

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For Meg, the substitution effect of an interest-rate increase is stronger than the income effect. In response to a higher interest rate, will Meg save more or will she save less?

The indifference curves for perfect substitutes are right angles.

Table 21-2 A consumer likes two goods: pizza and beer. The five bundles shown in the following table lie on the same indifference curve for the consumer. ​ $\begin{array} { | c | c | c | } \hline \text { Bundle } & \text { Pizza } & \text { Beer } \\\hline \text { A } & 6 & 9 \\\hline \text { B } & 6 & 7 \\\hline \text { C } & 6 & 5 \\\hline \text { D } & 9 & 5 \\\hline \text { E } & 10 & 5 \\\hline\end{array}$ -Suppose that Akiko likes to consume one glass of chocolate milk with every three peanut butter cookies. For Akiko, an additional cookie has no value unless she can consume it with the appropriate proportion of chocolate milk. Akiko's indifference curves for chocolate milk and cookies are

Figure 21-6 -Refer to Figure 21-6. If the consumer has $600 in income, what is the price of good Y?

Table 21-2 A consumer likes two goods: pizza and beer. The five bundles shown in the following table lie on the same indifference curve for the consumer. ​ $\begin{array} { | c | c | c | } \hline \text { Bundle } & \text { Pizza } & \text { Beer } \\\hline \text { A } & 6 & 9 \\\hline \text { B } & 6 & 7 \\\hline \text { C } & 6 & 5 \\\hline \text { D } & 9 & 5 \\\hline \text { E } & 10 & 5 \\\hline\end{array}$ -Refer to Table 21-2. Which of the following statements regarding these bundles is correct?

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 interior of the consumer's budget constraint?

Figure 21-17 The graph shows two budget constraints for a consumer. ​ ​ -Refer to Figure 21-17. Suppose the consumer's income is $90 and Budget Constraint A applies. What is the price of a light bulb?

The slope at any point on an indifference curve equals the absolute price at which a consumer is willing to substitute one good for the other.

A typical indifference curve is upward sloping.

Figure 21-9 ​ Graph (a) Graph (b) Graph (c) ​ -Refer to Figure 21-9. Which of the following statements is correct?

If consumers purchase more of a good when their income rises, the good is a normal good.

The marginal rate of substitution is the slope of the indifference curve.

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.

On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then

Figure 21-2 In each case, the budget constraint moves from BC₁ to BC₂. Graph (a) Graph (b) Graph (c) Graph (d) -Refer to Figure 21-2. Which of the graphs in the figure reflects an increase in the price of good X only?

For Brent, the income effect of a wage increase is stronger than the substitution effect. In response to a wage increase, will Brent work more hours or will he work fewer hours?

When the price of a normal good increases,

Suppose William can choose between the consumption of two goods. If we observe that William's budget constraint has moved inward, then we know for certain that