Question 1

Scenario 21-2
Lawrence has recently graduated from college with a degree in journalism and economics. He has decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Lawrence is typically awake for 112 hours each week (he sleeps an average of 8 hours each day) . For each hour Lawrence spends writing, he can earn $75. Lawrence is such a good writer that he can get paid for as many hours of writing as he chooses to work.
-Refer to Scenario 21-2. If Lawrence decides to spend 80 hours a week playing volleyball on the beach and the rest of his time writing, how much income will he have available to spend on consumption goods?

Accepted Answer

A)   $900
B)   $1,500
C)   $2,400
D)   $3,000E) B) and C)
F) A) and D)

Question 2

Figure 21-32
The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. 
-Refer to Figure 21-32. If Hannah chose to spend $30,000 on consumption when young, then how much could she spend on consumption when old?

Accepted Answer

The interest rate is 50,000 ÷ ...

Question 3

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

Question 4

A consumer chooses an optimal consumption point where the

Accepted Answer

A)   marginal rate of substitution exceeds the relative price ratio.
B)   slope of the indifference curve equals the slope of the budget constraint.
C)   ratio of the prices equals one.
D)   All of the above are correct.E) All of the above
F) None of the above

Question 5

Consider the indifference curve map and budget constraint for two goods, beef and potatoes. Suppose the good measured on the horizontal axis, potatoes, is a Giffen good. Beef is measured on the vertical axis and is a normal good. When the price of potatoes increases, the substitution effect causes

Accepted Answer

A)   an increase in the consumption of potatoes, and the income effect causes a decrease in the consumption of potatoes. The substitution effect is less than the income effect.
B)   a decrease in the consumption of potatoes, and the income effect causes an increase in the consumption of potatoes. The substitution effect is greater than the income effect.
C)   an increase in the consumption of potatoes, and the income effect causes a decrease in the consumption of potatoes. The substitution effect is greater than the income effect.
D)   a decrease in the consumption of potatoes, and the income effect causes an increase in the consumption of potatoes. The substitution effect is less than the income effect.E) None of the above
F) B) and C)

Question 6

If the consumer's income and all prices simultaneously decrease by one-half, then the optimum consumption will

Accepted Answer

A)   shift outward relative to the original optimum.
B)   move leftward along the original budget constraint.
C)   shift inward relative to the original optimum.
D)   not change.E) C) and D)
F) None of the above

Question 7

If the price of a good increases, all else equal, consumers perceive

Accepted Answer

A)   an increase in purchasing power if the good is an inferior good.
B)   an increase in income if the price increase occurs for a normal good.
C)   a decrease in purchasing power.
D)   a net gain in purchasing power if they decrease consumption of some goods.E) All of the above
F) A) and B)

Question 8

What is significant about a point on a graph at which an indifference curve is tangent to a budget constraint?

Accepted Answer

A point of tangency between an...

Question 9

Janet knows that she will ultimately face retirement. Assume that Janet will experience two periods in her life, one in which she works and earns income, and one in which she is retired and earns no income. Janet can earn $250,000 during her working period and nothing in her retirement period. She must both save and consume in her work period and can earn 10 percent interest on her savings.
a. Use a graph to demonstrate Janet's budget constraint.
b. On your graph, show Janet at an optimal level of consumption in the work period equal to $150,000. What is the implied optimal level of consumption in her retirement period?
c. Now, using your graph from part b above, demonstrate how Janet will be affected by an increase in the interest rate on savings to 14 percent. Discuss the role of income and substitution effects in determining whether Janet will increase, or decrease her savings in the work period.
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Accepted Answer

a. see graph below
a. see graph be...

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

Question 11

Figure 21-27 
-Refer to Figure 21-27. Anna experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Anna,

Accepted Answer

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

Question 12

Accepted Answer

The consumer's optimum choice is represented by ) undefined
 ) undefined

Question 13

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?

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

Question 14

Figure 21-9 
-Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good Y?

Accepted Answer

A)   $20
B)   $6
C)   $3
D)   $0.33E) A) and B)
F) B) and C)

Question 15

The indifference curves for perfect substitutes are straight lines.

Accepted Answer

A) True 
 B)False

Question 16

We can use the theory of consumer choice to analyze

Accepted Answer

A)   why most demand curves slope downward.
B)   the tradeoff between work and leisure
C)   how interest rates affect household saving.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 17

At the consumer's optimum

Accepted Answer

A)   the budget constraint will have a slope of MUx/Px.
B)   it is still possible for the consumer to increase his consumption of both goods.
C)   the indifference curve will intersect the budget constraint at the midpoint of the budget constraint.
D)   the slope of the indifference curve is equal to the slope of the budget constraint.E) None of the above
F) All of the above

Question 18

When considering her budget, the highest indifference curve that a consumer can reach is the

Accepted Answer

A)   one that is tangent to the budget constraint.
B)   indifference curve farthest from the origin
C)   indifference curve that intersects the budget constraint in at least two places.
D)   None of the above is correct.E) A) and D)
F) All of the above

Question 19

Accepted Answer

Figure 21-18 -Refer to Figure 21-18. Bundle D represents a point where ) undefined
 ) undefined

Question 20

A consumer's optimal choice is affected by income, prices of goods, and preferences.

Accepted Answer

A) True 
 B)False

Exam 21: The Theory of Consumer Choice

What is significant about a point on a graph at which an indifference curve is tangent to a budget constraint?

Correct Answer
verified
A point of tangency between an...
View Answer

Figure 21-9 -Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good Y?

Correct Answer
verified

Consider the indifference curve map and budget constraint for two goods, beef and potatoes. Suppose the good measured on the horizontal axis, potatoes, is a Giffen good. Beef is measured on the vertical axis and is a normal good. When the price of potatoes increases, the substitution effect causes

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
The interest rate is 50,000 ÷ ...
View Answer

Correct Answer
verified

Correct Answer
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A consumer chooses an optimal consumption point where the

Correct Answer
verified

Correct Answer
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a. see graph below
a. see graph be...
View Answer

At the consumer's optimum

Correct Answer
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Figure 21-27 -Refer to Figure 21-27. Anna experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Anna,

Correct Answer
verified

We can use the theory of consumer choice to analyze

Correct Answer
verified

The indifference curves for perfect substitutes are straight lines.

Correct Answer
verified

If the consumer's income and all prices simultaneously decrease by one-half, then the optimum consumption will

Correct Answer
verified

Correct Answer
verified

A consumer's optimal choice is affected by income, prices of goods, and preferences.

Correct Answer
verified

When considering her budget, the highest indifference curve that a consumer can reach is the

Correct Answer
verified

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

Correct Answer
verified

If the price of a good increases, all else equal, consumers perceive

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

What is significant about a point on a graph at which an indifference curve is tangent to a budget constraint?

Correct AnswerverifiedA point of tangency between an...View AnswerShow Answer

Figure 21-9 -Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good Y?

Correct AnswerverifiedShow Answer

Consider the indifference curve map and budget constraint for two goods, beef and potatoes. Suppose the good measured on the horizontal axis, potatoes, is a Giffen good. Beef is measured on the vertical axis and is a normal good. When the price of potatoes increases, the substitution effect causes

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe interest rate is 50,000 ÷ ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A consumer chooses an optimal consumption point where the

Correct AnswerverifiedShow Answer

Correct Answerverified a. see graph belowa. see graph be...View AnswerShow Answer

At the consumer's optimum

Correct AnswerverifiedShow Answer

Figure 21-27 -Refer to Figure 21-27. Anna experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Anna,

Correct AnswerverifiedShow Answer

We can use the theory of consumer choice to analyze

Correct AnswerverifiedShow Answer

The indifference curves for perfect substitutes are straight lines.

Correct AnswerverifiedShow Answer

If the consumer's income and all prices simultaneously decrease by one-half, then the optimum consumption will

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A consumer's optimal choice is affected by income, prices of goods, and preferences.

Correct AnswerverifiedShow Answer

When considering her budget, the highest indifference curve that a consumer can reach is the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the price of a good increases, all else equal, consumers perceive

Correct AnswerverifiedShow Answer

Correct Answer
verified
A point of tangency between an...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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The interest rate is 50,000 ÷ ...
View Answer

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Correct Answer
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a. see graph below
a. see graph be...
View Answer

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