Question 1

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 greater 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) A) and B)
F) A) and C)

Question 2

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

Question 3

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 income and a decrease in the price of X
B)  a decrease in income and an increase in the price of X
C)  an increase in income and a decrease in the price of X
D)  an increase in income and an increase in the price of XE) B) and D)
F) A) and C)

Question 4

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 simultaneous decrease in the price of X and the price of Y
B)  an increase in income
C)  a decrease in income and a decrease in the price of Y
D)  Both a and b are correct.E) A) and C)
F) All of the above

Question 5

Which of the following statements is not correct?

Accepted Answer

A)  Reducing taxes on interest income might encourage people to save more.
B)  Reducing taxes on interest income might reduce saving.
C)  A price increase will create income and substitution effects that will both always work to reduce consumption of the good.
D)  Utility is maximized when the marginal rate of substitution between any two goods equals the relative prices of the two goods.E) A) and D)
F) B) and D)

Question 6

Figure 21-5
(a) 
(b)   
-Refer to Figure 21-5. Assume that a consumer faces the budget constraint shown in graph (a)  in January and the budget constraint shown in graph (b)  in February. If the consumer's income has remained constant, then what has happened to prices between January and February?

Accepted Answer

A)  The price of X has fallen, but there could not have been a change in the price of Y.
B)  The price of Y has fallen, but there could not have been a change in the price of X.
C)  The price of X has fallen, and the price of Y has risen.
D)  The price of Y has fallen, and the price of X has risen.E) All of the above
F) None of the above

Question 7

Suppose the only two goods that Charlie consumes are wine and cheese. When wine sells for $10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100. One day the price of wine falls to $5 a bottle and the price of cheese increases to $20 a pound, while his income does not change. The bundle of wine and cheese that he purchased at the old prices now costs

Accepted Answer

A)  the same amount at the new prices.
B)  less than Charlie's income at the new prices.
C)  more than Charlie's income at the new prices.
D)  We do not have enough information to answer the question.E) None of the above
F) B) and C)

Question 8

Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

Accepted Answer

A)  $10
B)  $5
C)  $4
D)  $2E) A) and C)
F) B) and C)

Question 9

Assume that a consumer's indifference curve is bowed inward and satisfies the other three properties of indifference curves. As the consumer moves from left to right along the horizontal axis, the consumer's marginal rate of substitution

Accepted Answer

A)  increases.
B)  decreases.
C)  remains constant.
D)  increases, then decreases.E) A) and B)
F) C) and D)

Question 10

For a typical consumer, most indifference curves are downward sloping.

Accepted Answer

A) True 
 B)False

Question 11

If the interest rate rises, an individual could choose to

Accepted Answer

A)  increase consumption when young.
B)  increase consumption when old.
C)  decrease consumption when young.
D)  Any of the above could be correct.E) A) and B)
F) None of the above

Question 12

Figure 21-10 
-Refer to Figure 21-10. Which of the following statements is correct?

Accepted Answer

A)  If a consumer moves from bundle C to bundle A, her loss of cake cannot be compensated for by an increase in donuts.
B)  Bundle E is preferred to all other points identified in the figure.
C)  Because more is preferred to less, bundle C may be preferred to bundle E in some circumstances for this consumer.
D)  Even though bundle E has more of both goods than bundle B, we could draw a different set of indifference curves in which bundle B is preferred to bundle E.E) A) and C)
F) B) and C)

Question 13

Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save

Accepted Answer

A)  less in the current period if the substitution effect is greater than the income effect.
B)  less in the current period if the income effect is greater than the substitution effect.
C)  more in the current period if the substitution effect is greater than the income effect.
D)  more in the current period, regardless of the sizes of the income and substitution effects.E) A) and C)
F) B) and C)

Question 14

Figure 21-13 
-Refer to Figure 21-13. What is the consumer's marginal rate of substitution as she moves from A to B?

Accepted Answer

A)  4
B)  2
C)  1
D)  0.5E) All of the above
F) None of the above

Question 15

The rate at which a consumer is willing to trade off one good for another is called the __________.

Accepted Answer

marginal r...

Question 16

Figure 21-22 
-Refer to Figure 21-22. The shift from point B to point C in the figure is due to the

Accepted Answer

A)  substitution effect of an increase in the price of potato chips.
B)  income effect of an increase in the price of potato chips.
C)  substitution effect of a decrease in the price of potato chips.
D)  income effect of a decrease in the price of potato chips.E) B) and D)
F) A) and D)

Question 17

Figure 21-19 
-Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer will choose a consumption bundle where the marginal rate of substitution is

Accepted Answer

A)  2.
B)  2/3.
C)  1/2.
D)  1/3.E) All of the above
F) B) and C)

Question 18

A budget constraint shows

Accepted Answer

A)  the maximum utility that a consumer can achieve for a given level of income.
B)  a series of bundles that cost the consumer the same amount of money.
C)  a series of bundles that give the consumer the same level of utility.
D)  All of the above are correct.E) None of the above
F) A) and B)

Question 19

Figure 21-12 
-Refer to Figure 21-12. Which of the following statements is not correct?

Accepted Answer

A)  The consumer prefers bundle Y to bundle Z.
B)  The consumer is indifference between bundle W and bundle X.
C)  The consumer is indifference between bundle X and bundle V.
D)  The consumer prefers bundle X to bundle Z.E) A) and B)
F) A) and D)

Question 20

Scenario 21-4 Frank spends all of his income of $240 per month on shirts and hats. The price of a shirt is $40 and the price of a hat is $30.
-Refer to Scenario 21-4. If Frank uses all of his income to buy hats during a certain month, then how many hats does he buy?

Accepted Answer

Frank buys...

Exam 21: The Theory of Consumer Choice

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

Correct Answer
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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
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Figure 21-22 -Refer to Figure 21-22. The shift from point B to point C in the figure is due to the

Correct Answer
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Assume that a consumer's indifference curve is bowed inward and satisfies the other three properties of indifference curves. As the consumer moves from left to right along the horizontal axis, the consumer's marginal rate of substitution

Correct Answer
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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
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Figure 21-13 -Refer to Figure 21-13. What is the consumer's marginal rate of substitution as she moves from A to B?

Correct Answer
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Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

Correct Answer
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The rate at which a consumer is willing to trade off one good for another is called the __________.

Correct Answer
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marginal r...
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Figure 21-10 -Refer to Figure 21-10. Which of the following statements is correct?

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Figure 21-12 -Refer to Figure 21-12. Which of the following statements is not correct?

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A budget constraint shows

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Which of the following statements is not correct?

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For a typical consumer, most indifference curves are downward sloping.

Correct Answer
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Scenario 21-4 Frank spends all of his income of $240 per month on shirts and hats. The price of a shirt is $40 and the price of a hat is $30. -Refer to Scenario 21-4. If Frank uses all of his income to buy hats during a certain month, then how many hats does he buy?

Correct Answer
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Frank buys...
View Answer

Figure 21-5 (a) (b) -Refer to Figure 21-5. Assume that a consumer faces the budget constraint shown in graph (a) in January and the budget constraint shown in graph (b) in February. If the consumer's income has remained constant, then what has happened to prices between January and February?

Correct Answer
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Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer will choose a consumption bundle where the marginal rate of substitution is

Correct Answer
verified

Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save

Correct Answer
verified

If the interest rate rises, an individual could choose to

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

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

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

Figure 21-22 -Refer to Figure 21-22. The shift from point B to point C in the figure is due to the

Correct AnswerverifiedShow Answer

Assume that a consumer's indifference curve is bowed inward and satisfies the other three properties of indifference curves. As the consumer moves from left to right along the horizontal axis, the consumer's marginal rate of substitution

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

Figure 21-13 -Refer to Figure 21-13. What is the consumer's marginal rate of substitution as she moves from A to B?

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Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

Correct AnswerverifiedShow Answer

The rate at which a consumer is willing to trade off one good for another is called the __________.

Correct Answerverifiedmarginal r...View AnswerShow Answer

Figure 21-10 -Refer to Figure 21-10. Which of the following statements is correct?

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Figure 21-12 -Refer to Figure 21-12. Which of the following statements is not correct?

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A budget constraint shows

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Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For a typical consumer, most indifference curves are downward sloping.

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Scenario 21-4 Frank spends all of his income of $240 per month on shirts and hats. The price of a shirt is $40 and the price of a hat is $30. -Refer to Scenario 21-4. If Frank uses all of his income to buy hats during a certain month, then how many hats does he buy?

Correct AnswerverifiedFrank buys...View AnswerShow Answer

Figure 21-5 (a) (b) -Refer to Figure 21-5. Assume that a consumer faces the budget constraint shown in graph (a) in January and the budget constraint shown in graph (b) in February. If the consumer's income has remained constant, then what has happened to prices between January and February?

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Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer will choose a consumption bundle where the marginal rate of substitution is

Correct AnswerverifiedShow Answer

Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save

Correct AnswerverifiedShow Answer

If the interest rate rises, an individual could choose to

Correct AnswerverifiedShow Answer

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marginal r...
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Frank buys...
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