Question 1

A Giffen good is a good for which

Accepted Answer

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

Question 2

The following diagram shows two budget lines: A and B.  Which of the following could explain the change in the budget line from A to B?

Accepted Answer

A)   a decrease in the price of X
B)   an increase in the price of Y
C)   a decrease in the price of Y
D)   More than one of the above could explain this change.E) None of the above
F) All of the above

Question 3

Figure 21-18 
-Refer to Figure 21-18. It would be possible for the consumer to reach I2 if

Accepted Answer

A)   the price of Y decreases.
B)   the price of X decreases.
C)   income increases.
D)   All of the above would be correct.E) A) and D)
F) A) and B)

Question 4

A consumer's budget constraint is drawn with the quantity of pizza measured along the horizontal axis and the price of Pepsi measured along the vertical axis. If the market is offering the consumer the trade-off of 3 pints of Pepsi for 1 pizza, then what is the slope of the consumer's budget constraint?

Accepted Answer

A pizza costs three times as m...

Question 5

Suppose a consumer consumes two goods, X and Y. The relative price of the two goods equals the

Accepted Answer

A)   marginal rate of substitution.
B)   rate at which the consumer will give up X to gain Y while maintaining the same level of utility.
C)   slope of the budget constraint.
D)   All of the above are correct.E) All of the above
F) A) and D)

Question 6

Figure 21-28
The figure below illustrates the preferences for a representative consumer, Christopher. 
-Refer to Figure 21-28. Interest rates increase by 3 percent. Christopher's optimal choice point moves from A to B Christopher consumes

Accepted Answer

A)   less while he is younger and saves more than he did before interest rates increased.
B)   more while he is younger and saves more than he did before interest rates increased.
C)   less while he is younger and saves less than he did before interest rates increased.
D)   more while he is younger and saves less than he did before interest rates increased.E) All of the above
F) A) and D)

Question 7

Billie spends all of her income on soccer balls and jeans, and the price of a pair of jeans is three times the price of soccer balls. In order to maximize total utility, Billie should

Accepted Answer

A)   buy three times as many soccer balls as pairs of jeans.
B)   buy three times as many pairs of jeans as soccer balls.
C)   buy both items until the marginal utility of soccer balls is three times the marginal utility of a pair of jeans.
D)   buy both items until the marginal utility of a pair of jeans is three times the marginal utility of soccer balls.E) None of the above
F) A) and B)

Question 8

A consumer chooses an optimal consumption point where the

Accepted Answer

A)   marginal rate of substitution equals the relative price ratio.
B)   slope of the indifference curve exceeds the slope of the budget constraint.
C)   ratios of all the marginal utilities are equal.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 9

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 prices of both goods? (i)  graph a
(ii)  graph b
(iii)  graph c
(iv)  graph d

Accepted Answer

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

Question 10

Suppose that Elmer's hourly wage increases, and he decides to work fewer hours. For Elmer, the substitution effect of the wage change is

Accepted Answer

A)   only partially offset by the income effect.
B)   more than offset by the income effect.
C)   exactly offset by the income effect.
D)   We do not have enough information with which to answer the question.E) B) and D)
F) A) and D)

Question 11

An optimizing consumer will select the consumption bundle in which the

Accepted Answer

A)   ratio of total utilities is equal to the relative price ratio.
B)   ratio of income to price equals the marginal rate of substitution.
C)   marginal rate of substitution is equal to the relative price ratio of the goods.
D)   marginal rate of substitution is equal to marginal utility.E) B) and C)
F) C) and D)

Question 12

Using our model of consumer choice, is it possible for a consumer to buy less of a particular good when his income rises? Briefly explain.

Accepted Answer

Yes, an increase in ...

Question 13

When the price of a normal good increases,

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

Question 14

If income decreases 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) B) and C)
F) A) and B)

Question 15

A consumer consumes two normal goods, sandwiches and milk. When the price of milk is $0.50 per glass, the consumer purchases 40 glasses. When the price rises to $0.65 per glass, the consumer purchases 30 glasses. We can use the information provided by the consumer's optimum choices to derive the

Accepted Answer

A)   demand curve for milk.
B)   demand curve for sandwiches.
C)   supply curve for milk.
D)   labor-leisure tradeoff.E) None of the above
F) A) and D)

Question 16

Accepted Answer

The consumer's optimum is where ) undefined
 ) undefined

Question 17

A consumer has preferences over two goods, X and Y. Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves)  and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis. At the consumer's current consumption bundle, the consumer is spending all available income, and the marginal rate of substitution is less than the slope of the budget constraint. We can conclude that the consumer

Accepted Answer

A)   is currently maximizing satisfaction subject to the budget constraint.
B)   could increase satisfaction by consuming more X and less Y.
C)   could increase satisfaction by consuming less X and more Y.
D)   could purchase more X and more Y and increase total satisfaction.E) All of the above
F) B) and C)

Question 18

Figure 21-7 
-Refer to Figure 21-7. Suppose a consumer has $500 in income, the price of a book is $10, and the value of B is 50. What is the price of a DVD?

Accepted Answer

A)   $5
B)   $10
C)   $50
D)   $100E) None of the above
F) All of the above

Question 19

At a consumer's optimal choice, the consumer chooses the combination of goods that equates the marginal rate of substitution and the price ratio.

Accepted Answer

A) True 
 B)False

Question 20

Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 8 gallons of ice cream and 5 paperback novels?

Accepted Answer

A)   Karen, Tara, and Chelsea
B)   Karen only
C)   Tara and Chelsea but not Karen
D)   none of the womenE) A) and B)
F) A) and C)

Exam 21: The Theory of Consumer Choice

Correct Answer
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An optimizing consumer will select the consumption bundle in which the

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 prices of both goods? (i) graph a (ii) graph b (iii) graph c (iv) graph d

Correct Answer
verified

Figure 21-28 The figure below illustrates the preferences for a representative consumer, Christopher. -Refer to Figure 21-28. Interest rates increase by 3 percent. Christopher's optimal choice point moves from A to B Christopher consumes

Correct Answer
verified

Correct Answer
verified
A pizza costs three times as m...
View Answer

At a consumer's optimal choice, the consumer chooses the combination of goods that equates the marginal rate of substitution and the price ratio.

Correct Answer
verified

A Giffen good is a good for which

Correct Answer
verified

Billie spends all of her income on soccer balls and jeans, and the price of a pair of jeans is three times the price of soccer balls. In order to maximize total utility, Billie should

Correct Answer
verified

Figure 21-18 -Refer to Figure 21-18. It would be possible for the consumer to reach I2 if

Correct Answer
verified

Figure 21-7 -Refer to Figure 21-7. Suppose a consumer has $500 in income, the price of a book is $10, and the value of B is 50. What is the price of a DVD?

Correct Answer
verified

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

Correct Answer
verified

When the price of a normal good increases,

Correct Answer
verified

A consumer consumes two normal goods, sandwiches and milk. When the price of milk is $0.50 per glass, the consumer purchases 40 glasses. When the price rises to $0.65 per glass, the consumer purchases 30 glasses. We can use the information provided by the consumer's optimum choices to derive the

Correct Answer
verified

Suppose that Elmer's hourly wage increases, and he decides to work fewer hours. For Elmer, the substitution effect of the wage change is

Correct Answer
verified

A consumer chooses an optimal consumption point where the

Correct Answer
verified

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Suppose a consumer consumes two goods, X and Y. The relative price of the two goods equals the

Correct Answer
verified

Using our model of consumer choice, is it possible for a consumer to buy less of a particular good when his income rises? Briefly explain.

Correct Answer
verified
Yes, an increase in ...
View Answer

Exam 21: The Theory of Consumer Choice

Correct AnswerverifiedShow Answer

An optimizing consumer will select the consumption bundle in which the

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 prices of both goods? (i) graph a (ii) graph b (iii) graph c (iv) graph d

Correct AnswerverifiedShow Answer

Figure 21-28 The figure below illustrates the preferences for a representative consumer, Christopher. -Refer to Figure 21-28. Interest rates increase by 3 percent. Christopher's optimal choice point moves from A to B Christopher consumes

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA pizza costs three times as m...View AnswerShow Answer

At a consumer's optimal choice, the consumer chooses the combination of goods that equates the marginal rate of substitution and the price ratio.

Correct AnswerverifiedShow Answer

A Giffen good is a good for which

Correct AnswerverifiedShow Answer

Billie spends all of her income on soccer balls and jeans, and the price of a pair of jeans is three times the price of soccer balls. In order to maximize total utility, Billie should

Correct AnswerverifiedShow Answer

Figure 21-18 -Refer to Figure 21-18. It would be possible for the consumer to reach I2 if

Correct AnswerverifiedShow Answer

Figure 21-7 -Refer to Figure 21-7. Suppose a consumer has $500 in income, the price of a book is $10, and the value of B is 50. What is the price of a DVD?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the price of a normal good increases,

Correct AnswerverifiedShow Answer

A consumer consumes two normal goods, sandwiches and milk. When the price of milk is $0.50 per glass, the consumer purchases 40 glasses. When the price rises to $0.65 per glass, the consumer purchases 30 glasses. We can use the information provided by the consumer's optimum choices to derive the

Correct AnswerverifiedShow Answer

Suppose that Elmer's hourly wage increases, and he decides to work fewer hours. For Elmer, the substitution effect of the wage change is

Correct AnswerverifiedShow Answer

A consumer chooses an optimal consumption point where the

Correct AnswerverifiedShow Answer

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose a consumer consumes two goods, X and Y. The relative price of the two goods equals the

Correct AnswerverifiedShow Answer

Using our model of consumer choice, is it possible for a consumer to buy less of a particular good when his income rises? Briefly explain.

Correct AnswerverifiedYes, an increase in ...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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A pizza costs three times as m...
View Answer

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Correct Answer
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Correct Answer
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Yes, an increase in ...
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