Question 1

Figure 21-5
(a)  (b)   
-Refer to Figure 21-5. In graph (a) , if income is equal to $200, then the price of good Y is

Accepted Answer

A)   $3.
B)   $5.
C)   $7.
D)   $10.E) All of the above
F) A) and C)

Question 2

The direction of the substitution effect is not influenced by whether the good is normal or inferior.

Accepted Answer

A) True 
 B)False

Question 3

A Giffen good is a good for which

Accepted Answer

A)   a decrease in the price decreases 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) B) and D)
F) C) and D)

Question 4

When the price of an inferior good decreases,

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

Question 5

Scenario 21-3
Scott knows that he will ultimately face retirement. Assume that Scott will experience two periods in his life, one in which he works and earns income, and one in which he is retired and earns no income. Scott can earn $250,000 during his working period and nothing in his retirement period. He must both save and consume in his work period with an interest rate of 10 percent on savings.
-Refer to Scenario 21-3. If the interest rate on savings increases, it is possible that

Accepted Answer

A)   Scott will decrease his savings in the work period.
B)   Scott will increase his savings in the work period.
C)   Scott will not change his consumption in the work period.
D)   All of the above are possible.E) B) and C)
F) None of the above

Question 6

Scenario 21-3
Scott knows that he will ultimately face retirement. Assume that Scott will experience two periods in his life, one in which he works and earns income, and one in which he is retired and earns no income. Scott can earn $250,000 during his working period and nothing in his retirement period. He must both save and consume in his work period with an interest rate of 10 percent on savings.
-Refer to Scenario 21-3. Assume that Scott decides to consume $100,000 in the work period. How much money will he have available for consumption in his retirement period?

Accepted Answer

A)   $100,000
B)   $110,000
C)   $150,000
D)   $165,000E) All of the above
F) C) and D)

Question 7

Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs. If the price of a CD is $9, the price of a DVD is $18, and she is currently consuming 10 CDs and 5 DVDs, what is the consumer's income?

Accepted Answer

A)   $90
B)   $180
C)   $270
D)   $360E) C) and D)
F) B) and D)

Question 8

For Antonio, the income effect of an interest-rate increase is stronger than the substitution effect. In response to a higher interest rate, will Antonio save more or will he save less?

Accepted Answer

In response to a hig...

Question 9

Figure 21-25
The figure pertains to a particular consumer. On the axes, X represents the quantity of good X and Y represents the quantity of good Y. 
-Refer to Figure 21-25. Suppose the price of good X is $15, the price of good Y is $10, and the consumer's income is $450. Then the consumer's optimal choice is represented by a point on which curve?

Accepted Answer

A)   I1
B)   I2
C)   I3
D)   I4E) A) and B)
F) B) and C)

Question 10

Which of the following equations corresponds to an optimal choice point?

Accepted Answer

A)   (i)  only
B)   (i) , (ii) , and (iii)  only
C)   (ii)  and (iv)  only
D)   (i) , (ii) , (iii) , and (iv) E) B) and C)
F) A) and D)

Question 11

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

Accepted Answer

A)   is equal to the price of the least-expensive good.
B)   exceeds the marginal utility of each good by the greatest amount.
C)   is less than the slope of the budget constraint.
D)   None of the above is correct.E) A) and C)
F) None of the above

Question 12

At the consumer's optimum the

Accepted Answer

A)   budget constraint will have a slope of MUx/Px.
B)   slope of the indifference curve is equal to the slope of the budget constraint.
C)   indifference curve will intersect the budget constraint at the midpoint of the budget constraint.
D)   Both b and c are correct.E) A) and D)
F) A) and C)

Question 13

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) B) and D)

Question 14

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of DVDs the consumer can purchase?

Accepted Answer

A)   10
B)   20
C)   40
D)   50E) A) and B)
F) None of the above

Question 15

Budget constraints exist for consumers because

Accepted Answer

A)   their utility from consuming goods eventually reaches a maximum level.
B)   even with unlimited incomes they have to pay for each good they consume.
C)   they have to pay for goods, and they have limited incomes.
D)   prices and incomes are inversely related.E) A) and C)
F) None of the above

Question 16

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 17

The consumer's optimum choice is represented by

Accepted Answer

A)   MUx/MUy = Px/Py.
B)   MUx/Px = MUy/Py.
C)   MRSxy = Px/Py.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 18

A worker with a backward-bending labor supply curve responds to an increase in wages by working more hours.

Accepted Answer

A) True 
 B)False

Question 19

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

Question 20

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin. 
-Refer to Figure 21-31. If Kevin's income is $2,520 and point B is his optimum, then what is the price of a shirt?

Accepted Answer

The price ...

Exam 21: The Theory of Consumer Choice

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of DVDs the consumer can purchase?

Correct Answer
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The direction of the substitution effect is not influenced by whether the good is normal or inferior.

Correct Answer
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Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If Kevin's income is $2,520 and point B is his optimum, then what is the price of a shirt?

Correct Answer
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The price ...
View Answer

Correct Answer
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Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs. If the price of a CD is $9, the price of a DVD is $18, and she is currently consuming 10 CDs and 5 DVDs, what is the consumer's income?

Correct Answer
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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

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 worker with a backward-bending labor supply curve responds to an increase in wages by working more hours.

Correct Answer
verified

The consumer's optimum choice is represented by

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

For Antonio, the income effect of an interest-rate increase is stronger than the substitution effect. In response to a higher interest rate, will Antonio save more or will he save less?

Correct Answer
verified
In response to a hig...
View Answer

A Giffen good is a good for which

Correct Answer
verified

When the price of an inferior good decreases,

Correct Answer
verified

Budget constraints exist for consumers because

Correct Answer
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A Giffen good is a good for which

Correct Answer
verified

Correct Answer
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Which of the following equations corresponds to an optimal choice point?

Correct Answer
verified

At the consumer's optimum the

Correct Answer
verified

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , if income is equal to $200, then the price of good Y is

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of DVDs the consumer can purchase?

Correct AnswerverifiedShow Answer

The direction of the substitution effect is not influenced by whether the good is normal or inferior.

Correct AnswerverifiedShow Answer

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If Kevin's income is $2,520 and point B is his optimum, then what is the price of a shirt?

Correct AnswerverifiedThe price ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs. If the price of a CD is $9, the price of a DVD is $18, and she is currently consuming 10 CDs and 5 DVDs, what is the consumer's income?

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

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 worker with a backward-bending labor supply curve responds to an increase in wages by working more hours.

Correct AnswerverifiedShow Answer

The consumer's optimum choice is represented by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For Antonio, the income effect of an interest-rate increase is stronger than the substitution effect. In response to a higher interest rate, will Antonio save more or will he save less?

Correct AnswerverifiedIn response to a hig...View AnswerShow Answer

A Giffen good is a good for which

Correct AnswerverifiedShow Answer

When the price of an inferior good decreases,

Correct AnswerverifiedShow Answer

Budget constraints exist for consumers because

Correct AnswerverifiedShow Answer

A Giffen good is a good for which

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following equations corresponds to an optimal choice point?

Correct AnswerverifiedShow Answer

At the consumer's optimum the

Correct AnswerverifiedShow Answer

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , if income is equal to $200, then the price of good Y is

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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The price ...
View Answer

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In response to a hig...
View Answer

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