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Exam 21: The Theory of Consumer Choice

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Question 241

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Suppose an individual is choosing between Netflix and Redbox movies. He has $16 a month to spend on movies. The price of a Redbox movie is $1 while Netflix offers unlimited movies for a monthly fee of $8. Which of the following represents this individual's budget line?

A) ​
B) ​
C) ​
D) ​

E) B) and C)
F) All of the above

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Question 242

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Higher education is a normal good. If its price falls,

A) the quantity demanded of higher education will fall.
B) the substitution and income effects work in opposite directions.
C) the income effect is positive.
D) higher education will be a Giffen good.

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

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Question 243

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When Joshua's income increases, he purchases more prime-rib dinners than he did before his income increased. For Joshua, prime-rib dinners are a(n)

If goods X and Y are both normal goods for Brenda, then an increase in Brenda's income will lead her to __________.

Scenario 21-2 Lawrence has recently graduated from college with a degree in journalism and economics. He has decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Lawrence is typically awake for 112 hours each week (he sleeps an average of 8 hours each day) . For each hour Lawrence spends writing, he can earn $75. Lawrence is such a good writer that he can get paid for as many hours of writing as he chooses to work. -Refer to Scenario 21-2. If Lawrence decides to spend 80 hours a week playing volleyball on the beach and the rest of his time writing, how much income will he have available to spend on consumption goods?

Which of the following is not a property of a typical indifference curve?

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

If an increase in the interest rate lowers savings, then

Figure 21-22 -Refer to Figure 21-22. If the consumer were initially at point A in the figure, a movement from point B to point C as a result of a decrease in the price of potato chips represents the

Pete consumes two goods, rice and fish. When the price of fish rises, he consumes less fish. When the price of rice rises, he consumes more rice. For Pete,

A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume

When we draw Katie's indifference curves to represent her preferences for books and movies, we find that her indifference curves are upward-sloping. What does this tell us about Katie's preferences?

Figure 21-7 -Refer to Figure 21-7. Suppose the price of a book is $15, the price of a DVD is $10, the value of A is 5, and the value of B is 7.5. How much income does the consumer have?

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

Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese. The price of one pound of cheese is $6, and the price of a bottle of wine is $10. The consumer should increase his consumption of

At the consumer's optimum

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $50. The price of Skittles is $5 and the price of M&M's is $5. This consumer will choose a consumption bundle where the marginal rate of substitution is

Figure 21-12 -Refer to Figure 21-12. If the consumer moves from bundle W to bundle Z, the

Explain the difference between inferior and normal goods. As a developing economy experiences increases in income (measured by GDP), what would you predict to happen to demand for inferior goods?

If Walter has one hour of leisure time in which to watch a sporting event on television, his preferences are as follows: Walter prefers watching football to watching baseball, but he prefers watching baseball to watching basketball. He is indifferent between watching baseball and watching hockey. Bundle A contains one hour of football and zero hours of all other sports. Bundle B contains one hour of baseball and zero hours of all other sports. Bundle C contains one hour of basketball and zero hours of all other sports. Bundle D contains one hour of hockey and zero hours of all other sports. If we were to graph Walter's preferences using indifference curves, which of the following bundles would be on the same indifference curve?