Question 1

Figure 21-30 The graph shows two budget constraints for a consumer. 
-Refer to Figure 21-30. Suppose the consumer's income is $90 and Budget Constraint A applies. What is the price of a light bulb?

Accepted Answer

The price ...

Question 2

You can think of an indifference curve as an

Accepted Answer

A)  equal-cost curve.
B)  equal-marginal-cost curve.
C)  equal-utility curve.
D)  equal-marginal-utility curve.E) B) and C)
F) All of the above

Question 3

Fiona uses all of her income to purchase popcorn and butter. At any two points A and B on Fiona's budget constraint,

Accepted Answer

A)  Fiona is equally happy.
B)  Fiona is spending more money on popcorn than she is spending on butter.
C)  Fiona's income is different.
D)  the price of popcorn relative to the price of butter is the same.E) B) and C)
F) A) and B)

Question 4

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

Accepted Answer

A)  is equal to the relative price ratio of the goods.
B)  exceeds the marginal utility of each good by the greatest amount.
C)  is less than the slope of the budget constraint.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 5

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) B) and D)
F) None of the above

Question 6

Draw indifference curves that reflect the following preferences.
a.pencils with white erasers and pencils with pink erasers
b.left shoes and right shoes
c.potatoes and rice
d.income and polluted water

Accepted Answer

The answer of Draw indifference curves that reflect the following...

Question 7

The theory of consumer choice is representative of how consumers make decisions but is not intended to be a literal account of the process.

Accepted Answer

A) True 
 B)False

Question 8

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) A) and D)
F) None of the above

Question 9

Irene is a vegetarian, so she does not eat pork. That is, pork provides no additional utility to Irene. She loves broccoli, however. If we illustrate Irene's indifference curves by drawing broccoli on the horizontal axis and pork on the vertical axis, her indifference curves will

Accepted Answer

A)  slope downward.
B)  be vertical straight lines.
C)  slope upward.
D)  be horizontal straight lines.E) All of the above
F) B) and C)

Question 10

Figure 21-10 
-Refer to Figure 21-10. Which of the following comparisons is correct regarding the marginal rate of substitution (MRS)  of donuts for cake?

Accepted Answer

A)  The MRS is greater between bundles A and B than between bundles B and C.
B)  The MRS is greater between bundles B and C than between bundles A and B.
C)  The MRS is the same between bundles A and B and bundles B and C because all three bundles lie on the same indifference curve.
D)  The MRS is greater between bundles E and B than between bundles B and D.E) B) and D)
F) C) and D)

Question 11

​A decrease in the price of the good on the horizontal axis rotates the budget constraint counterclockwise.

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

When a consumer experiences a price increase for an inferior good, if the income effect is

Accepted Answer

A)  greater than the substitution effect, the demand curve will be downward sloping.
B)  greater than the substitution effect, the demand curve will be upward sloping.
C)  less than the substitution effect, the demand curve will be upward sloping.
D)  less than the substitution effect but the substitution effect is positive, the demand curve will be upward sloping.E) A) and C)
F) B) and D)

Question 14

Which of the following descriptions best depicts the substitution effect?

Accepted Answer

A)  the change in consumption resulting from a change in the consumer's income, holding the prices of the goods constant
B)  the change in consumption resulting from a change in the consumer's income, holding the consumer's level of satisfaction constant
C)  the change in consumption resulting from a change in the price of one good, holding the consumer's level of satisfaction constant
D)  the change in consumption resulting from a change in the price of one good, allowing the consumer's level of satisfaction to changeE) B) and D)
F) All of the above

Question 15

Suppose that you have $100 today and expect to receive $100 one year from today. Your money market account pays an annual interest rate of 25%, and you may borrow money at that interest rate. If you save all your money, how much money will you have one year from today?

Accepted Answer

A)  $100
B)  $125
C)  $200
D)  $225E) A) and D)
F) B) and D)

Question 16

The goal of the consumer is to

Accepted Answer

A)  maximize utility.
B)  be on the highest indifference curve.
C)  maximize satisfaction.
D)  All of the above are the goals of the consumer.E) A) and B)
F) A) and C)

Question 17

Which of the following is a property of typical indifference curves?

Accepted Answer

A)  Indifference curves usually intersect.
B)  Indifference curves have positive slopes.
C)  Indifference curves are downward sloping and always linear.
D)  Indifference curves are usually bowed in toward the origin.E) C) and D)
F) None of the above

Question 18

If goods A and B are perfect substitutes, then the marginal rate of substitution of good A for good B is constant.

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

Question 20

A family on a trip budgets $1,000 for meals and gasoline. If the price of a meal for the family is $50 and if gasoline costs $3.50 per gallon, then how many meals can the family buy if they buy 100 gallons of gasoline?

Accepted Answer

A)  13
B)  16
C)  19
D)  21E) A) and C)
F) B) and C)

Exam 21: The Theory of Consumer Choice

A family on a trip budgets $1,000 for meals and gasoline. If the price of a meal for the family is $50 and if gasoline costs $3.50 per gallon, then how many meals can the family buy if they buy 100 gallons of gasoline?

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If goods A and B are perfect substitutes, then the marginal rate of substitution of good A for good B is constant.

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When the price of a normal good increases,

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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

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You can think of an indifference curve as an

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

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Which of the following is a property of typical indifference curves?

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Irene is a vegetarian, so she does not eat pork. That is, pork provides no additional utility to Irene. She loves broccoli, however. If we illustrate Irene's indifference curves by drawing broccoli on the horizontal axis and pork on the vertical axis, her indifference curves will

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Figure 21-10 -Refer to Figure 21-10. Which of the following comparisons is correct regarding the marginal rate of substitution (MRS) of donuts for cake?

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An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

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​A decrease in the price of the good on the horizontal axis rotates the budget constraint counterclockwise.

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Draw indifference curves that reflect the following preferences. a.pencils with white erasers and pencils with pink erasers b.left shoes and right shoes c.potatoes and rice d.income and polluted water

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Fiona uses all of her income to purchase popcorn and butter. At any two points A and B on Fiona's budget constraint,

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Suppose that you have $100 today and expect to receive $100 one year from today. Your money market account pays an annual interest rate of 25%, and you may borrow money at that interest rate. If you save all your money, how much money will you have one year from today?

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

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Which of the following descriptions best depicts the substitution effect?

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The theory of consumer choice is representative of how consumers make decisions but is not intended to be a literal account of the process.

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When a consumer experiences a price increase for an inferior good, if the income effect is

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Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. Suppose the consumer's income is $90 and Budget Constraint A applies. What is the price of a light bulb?

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The goal of the consumer is to

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A decrease in the price of the good on the horizontal axis rotates the budget constraint counterclockwise.

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The price ...
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