Question 1

The opportunity cost of current household consumption is the

Accepted Answer

A)  wage rate.
B)  market interest rate.
C)  price of the goods consumed.
D)  explicit cost of consumption.E) All of the above
F) None of the above

Question 2

The theory of consumer choice provides a(n)

Accepted Answer

A)  literal account of how people make decisions.
B)  unrealistic picture of how people make decisions.
C)  model that is consistent with how people make decisions.
D)  in-depth model that is based more in psychology than in economics.E) B) and C)
F) All of the above

Question 3

Evaluate the following statement,"Warren Buffet is the second richest person in the world.He doesn't face any constraint on his ability to purchase commodities he wants."

Accepted Answer

All people face scarcity of re...

Question 4

Figure 21-3
In each case,the budget constraint moves from BC-1 to BC-2.    
-If the price of bread is zero,the budget constraint between bread (on the vertical axis) and cheese (on the horizontal axis) would

Accepted Answer

A)  be vertical.
B)  coincide with the vertical axis.
C)  coincide with the horizontal axis.
D)  be horizontal.E) All of the above
F) B) and D)

Question 5

Kristi spends all of her income on tank tops and running shoes,and the price of a pair of running shoes is four times the price of a tank top.In order to maximize total utility,Kristi should buy

Accepted Answer

A)  four times as many tank tops as pairs of running shoes.
B)  four times as many pairs of running shoes as tank tops.
C)  both items until the marginal utility of a pair of running shoes is four times the marginal utility of a tank top.
D)  both items until the marginal utility of a tank top is four times the marginal utility of a pair of running shoes.E) C) and D)
F) A) and B)

Question 6

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

Question 7

The theory of consumer choice illustrates that people face tradeoffs,which is one of the Ten Principles of Economics.

Accepted Answer

A) True 
 B)False

Question 8

Graphically demonstrate the conditions associated with a consumer optimum.Carefully label all curves and axes.

Accepted Answer

The answer of Graphically demonstrate the conditions associated with a...

Question 9

Assume that consumption when young and consumption when old are both normal goods.The income effect of an increase in the interest rate will result in

Accepted Answer

A)  an increase in saving when young.
B)  an increase in saving when old.
C)  a decrease in saving when young.
D)  a decrease in saving when old.E) A) and C)
F) B) and D)

Question 10

Bundle A contains 10 units of good X and 5 units of good Y.Bundle B contains 5 units of good X and 10 units of good Y.Bundle C contains 10 units of good X and 10 units of good Y.The consumer is indifferent between bundle A and bundle B.Assume that the consumer's preferences satisfy the four properties of indifference curves.Which of the following statements is correct?

Accepted Answer

A)  The consumer must prefer bundle C to either bundle A or B.
B)  Bundle A and bundle B lie on the same indifference curve.
C)  The consumer must prefer bundle B to bundle C.
D)  Both a) and b) are correct.E) A) and B)
F) A) and C)

Question 11

Dave consumes two normal goods,X and Y,and is currently at an optimum.If the price of good X falls,we can predict with certainty that

Accepted Answer

A)  Dave will consume more of both goods because his real income has risen.
B)  the substitution effect will be positive for good X and negative for good Y.
C)  Dave may consume more or less of good X,but he will consume less of good Y.
D)  the substitution effect will offset the income effect for good X.E) A) and D)
F) B) and C)

Question 12

Figure 21-17 2 if A) the price of Y decreases. B) the price of X decreases. C) income increases. D) All of the above would be correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-17.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 B)
F) All of the above

Question 13

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Accepted Answer

A) True 
 B)False

Question 14

Consider the indifference curve map and budget constraint for two goods,X and Y.Suppose the good on the horizontal axis,X,is normal.When the price of X increases,the substitution effect

Accepted Answer

A)  and income effect both cause an increase in the consumption of X.
B)  causes a decrease in the consumption of X,and the income effect causes an increase in the consumption of X.However,the substitution effect is greater than the income effect.
C)  causes an increase in the consumption of X,and the income effect causes a decrease in the consumption of X.However,the substitution effect is greater than the income effect.
D)  and income effect both cause a decrease in the consumption of X.E) C) and D)
F) None of the above

Question 15

An indifference curve illustrates

Accepted Answer

A)  a firm's profits.
B)  a consumer's budget.
C)  a consumer's preferences.
D)  the prices of two goods.E) A) and C)
F) B) and D)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

List and briefly explain each of the four properties of indifference curves.

Accepted Answer

1: Higher indifference curves are prefer...

Question 18

For a typical consumer,most indifference curves are bowed inward.

Accepted Answer

A) True 
 B)False

Question 19

Good X is 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) A) and D)
F) C) and D)

Question 20

A consumer's preferences provide a ranking of

Accepted Answer

A)  all possible consumption bundles.
B)  only the consumption bundles that fall on the same indifference curve.
C)  consumption bundles based their prices.
D)  consumption bundles based on the consumer's income.E) B) and D)
F) C) and D)

Exam 21: The Theory of Consumer Choice

Figure 21-3 In each case,the budget constraint moves from BC-1 to BC-2. -If the price of bread is zero,the budget constraint between bread (on the vertical axis) and cheese (on the horizontal axis) would

Correct Answer
verified

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

Correct Answer
verified

The theory of consumer choice illustrates that people face tradeoffs,which is one of the Ten Principles of Economics.

Correct Answer
verified

Kristi spends all of her income on tank tops and running shoes,and the price of a pair of running shoes is four times the price of a tank top.In order to maximize total utility,Kristi should buy

Correct Answer
verified

Figure 21-17 -Refer to Figure 21-17.It would be possible for the consumer to reach I₂ if

Correct Answer
verified

The theory of consumer choice provides a(n)

Correct Answer
verified

Consider the indifference curve map and budget constraint for two goods,X and Y.Suppose the good on the horizontal axis,X,is normal.When the price of X increases,the substitution effect

Correct Answer
verified

A consumer's preferences provide a ranking of

Correct Answer
verified

Assume that consumption when young and consumption when old are both normal goods.The income effect of an increase in the interest rate will result in

Correct Answer
verified

Evaluate the following statement,"Warren Buffet is the second richest person in the world.He doesn't face any constraint on his ability to purchase commodities he wants."

Correct Answer
verified
All people face scarcity of re...
View Answer

For a typical consumer,most indifference curves are bowed inward.

Correct Answer
verified

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Correct Answer
verified

Good X is a Giffen good.When the price of X increases,the consumer will consume

Correct Answer
verified

An indifference curve illustrates

Correct Answer
verified

Graphically demonstrate the conditions associated with a consumer optimum.Carefully label all curves and axes.

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

Dave consumes two normal goods,X and Y,and is currently at an optimum.If the price of good X falls,we can predict with certainty that

Correct Answer
verified

The opportunity cost of current household consumption is the

Correct Answer
verified

List and briefly explain each of the four properties of indifference curves.

Correct Answer
verified
1: Higher indifference curves are prefer...
View Answer

Exam 21: The Theory of Consumer Choice

Figure 21-3 In each case,the budget constraint moves from BC-1 to BC-2. -If the price of bread is zero,the budget constraint between bread (on the vertical axis) and cheese (on the horizontal axis) would

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The theory of consumer choice illustrates that people face tradeoffs,which is one of the Ten Principles of Economics.

Correct AnswerverifiedShow Answer

Kristi spends all of her income on tank tops and running shoes,and the price of a pair of running shoes is four times the price of a tank top.In order to maximize total utility,Kristi should buy

Correct AnswerverifiedShow Answer

Figure 21-17 -Refer to Figure 21-17.It would be possible for the consumer to reach I2 if

Correct AnswerverifiedShow Answer

The theory of consumer choice provides a(n)

Correct AnswerverifiedShow Answer

Consider the indifference curve map and budget constraint for two goods,X and Y.Suppose the good on the horizontal axis,X,is normal.When the price of X increases,the substitution effect

Correct AnswerverifiedShow Answer

A consumer's preferences provide a ranking of

Correct AnswerverifiedShow Answer

Assume that consumption when young and consumption when old are both normal goods.The income effect of an increase in the interest rate will result in

Correct AnswerverifiedShow Answer

Evaluate the following statement,"Warren Buffet is the second richest person in the world.He doesn't face any constraint on his ability to purchase commodities he wants."

Correct AnswerverifiedAll people face scarcity of re...View AnswerShow Answer

For a typical consumer,most indifference curves are bowed inward.

Correct AnswerverifiedShow Answer

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Correct AnswerverifiedShow Answer

Good X is a Giffen good.When the price of X increases,the consumer will consume

Correct AnswerverifiedShow Answer

An indifference curve illustrates

Correct AnswerverifiedShow Answer

Graphically demonstrate the conditions associated with a consumer optimum.Carefully label all curves and axes.

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

Dave consumes two normal goods,X and Y,and is currently at an optimum.If the price of good X falls,we can predict with certainty that

Correct AnswerverifiedShow Answer

The opportunity cost of current household consumption is the

Correct AnswerverifiedShow Answer

List and briefly explain each of the four properties of indifference curves.

Correct Answerverified1: Higher indifference curves are prefer...View AnswerShow Answer

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Figure 21-17 -Refer to Figure 21-17.It would be possible for the consumer to reach I₂ if

Correct Answer
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All people face scarcity of re...
View Answer

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1: Higher indifference curves are prefer...
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