Question 1

Assume that a person consumes two goods, Coke and Snickers. Use a graph to demonstrate how the consumer adjusts his/her optimal consumption bundle when the price of Coke decreases. Carefully label all curves and axes. What will happen to consumption if Coke is a normal good? What will happen to consumption if Coke is an inferior good? (Remember to explain the possible change when the income effect dominates and when the substitution effect dominates.)

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> If Coke is a normal good, the consumpti...

Question 2

Figure 21-5
(a) 
(b)  y/Px) ? A) 1/4 B) 1/3 C) 3 D) 4" class="answers-bank-image d-inline" rel="preload" > y/Px) ? A) 1/4 B) 1/3 C) 3 D) 4" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-5. In graph (a) , what is the price of good Y relative to the price of good X (i.e., Py/Px) ?

Accepted Answer

A)  1/4
B)  1/3
C)  3
D)  4E) C) and D)
F) All of the above

Question 3

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

Accepted Answer

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

Question 4

The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer.  What is the marginal rate of substitution between points A and B?

Accepted Answer

A)  1/2
B)  4/3
C)  2
D)  3E) A) and C)
F) A) and B)

Question 5

What does the slope of a consumer's indifference curve represent?

Accepted Answer

The slope of a consumer's indi...

Question 6

Economists represent a consumer's preferences using

Accepted Answer

A)  demand curves.
B)  budget constraints.
C)  indifference curves.
D)  supply curves.E) A) and B)
F) A) and C)

Question 7

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.    
-Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price of good X only?

Accepted Answer

A)  graph a
B)  graph b
C)  graph c
D)  graph dE) A) and D)
F) B) and D)

Question 8

Suppose the price of good X falls and the consumption of good X increases. From this we can infer that X is a(n) (i) normal good.
(ii) inferior good.
(iii) Giffen good.

Accepted Answer

A)  (i)  only
B)  (i)  or (ii)  only
C)  (iii)  only
D)  (ii)  or (iii)  onlyE) All of the above
F) B) and C)

Question 9

Economic theory predicts that an increase in wages

Accepted Answer

A)  will cause a wage earner to work more.
B)  will cause a wage earner to work less.
C)  will cause a wage earner to be more productive.
D)  might cause a wage earner to work more or work less.E) A) and D)
F) A) and B)

Question 10

Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of

Accepted Answer

A)  demand.
B)  profits.
C)  production possibility frontiers.
D)  wages.E) A) and D)
F) A) and C)

Question 11

A consumer likes two goods: pizza and beer. The four bundles shown in the table below lie on the same indifference curve for the consumer.

Which of the following statements regarding these bundles is correct?

Accepted Answer

A)  The goods are perfect substitutes for this consumer.
B)  The goods are perfect complements for this consumer.
C)  These bundles illustrate the property that indifference curves are bowed inward.
D)  These bundles violate the property that indifference curves do not cross.E) A) and B)
F) A) and C)

Question 12

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) A) and C)

Question 13

Explain the relationship between the budget constraint and indifference curve at a consumer's optimum.

Accepted Answer

Because the budget constraint is tangent...

Question 14

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 B)
F) A) and C)

Question 15

Figure 21-18 xy > Py/Px. B) MRSxy = Px/Py. C) MRSxy x/Py. D) MRSxy > Px/Py." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-18. Bundle C represents a point where

Accepted Answer

A)  MRSxy > Py/Px.
B)  MRSxy = Px/Py.
C)  MRSxy x/Py.
D)  MRSxy > Px/Py.E) C) and D)
F) A) and D)

Question 16

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

Question 17

Suppose a consumer spends his income on CDs and DVDs. If his income decreases, the budget constraint for CDs and DVDs will

Accepted Answer

A)  shift outward, parallel to the original budget constraint.
B)  shift inward, parallel to the original budget constraint.
C)  rotate outward along the CD axis because he can afford more CDs.
D)  rotate outward along the DVD axis because he can afford more DVDs.E) B) and C)
F) None of the above

Question 18

Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.    
-Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good X only?

Accepted Answer

A)  graph a
B)  graph b
C)  graph c
D)  graph dE) A) and B)
F) A) and C)

Question 19

Abby, Bobbi, and Deborah each buy ice cream and paperback novels to enjoy on hot summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Abby has a budget of $80, Bobbi has a budget of $60, and Deborah has a budget of $40 to spend on ice cream and paperback novels. Which of the following statements is correct?

Accepted Answer

A)  Each woman faces the same budget constraint.
B)  The slope of the budget constraint is the same for each woman.
C)  The area underneath the budget constraint is larger for Deborah than for Abby.
D)  All of the above are correct.E) B) and D)
F) B) and C)

Question 20

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

Exam 21: The Theory of Consumer Choice

Figure 21-18 -Refer to Figure 21-18. Bundle C represents a point where

Correct Answer
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A consumer likes two goods: pizza and beer. The four bundles shown in the table below lie on the same indifference curve for the consumer. Which of the following statements regarding these bundles is correct?

Correct Answer
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Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good X only?

Correct Answer
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Correct Answer
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Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , what is the price of good Y relative to the price of good X (i.e., P_y/P_x) ?

Correct Answer
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Explain the relationship between the budget constraint and indifference curve at a consumer's optimum.

Correct Answer
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Because the budget constraint is tangent...
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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 B to C?

Correct Answer
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Economic theory predicts that an increase in wages

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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The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer. What is the marginal rate of substitution between points A and B?

Correct Answer
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What does the slope of a consumer's indifference curve represent?

Correct Answer
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The slope of a consumer's indi...
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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

Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of

Correct Answer
verified

A Giffen good is a good for which

Correct Answer
verified

Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price of good X only?

Correct Answer
verified

Suppose a consumer spends his income on CDs and DVDs. If his income decreases, the budget constraint for CDs and DVDs will

Correct Answer
verified

Economists represent a consumer's preferences using

Correct Answer
verified

Suppose the price of good X falls and the consumption of good X increases. From this we can infer that X is a(n) (i) normal good. (ii) inferior good. (iii) Giffen good.

Correct Answer
verified

Correct Answer
verified
If Coke is a normal good, the consumpti...
View 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 Answer
verified

Exam 21: The Theory of Consumer Choice

Figure 21-18 -Refer to Figure 21-18. Bundle C represents a point where

Correct AnswerverifiedShow Answer

A consumer likes two goods: pizza and beer. The four bundles shown in the table below lie on the same indifference curve for the consumer. Which of the following statements regarding these bundles is correct?

Correct AnswerverifiedShow Answer

Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good X only?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , what is the price of good Y relative to the price of good X (i.e., Py/Px) ?

Correct AnswerverifiedShow Answer

Explain the relationship between the budget constraint and indifference curve at a consumer's optimum.

Correct AnswerverifiedBecause the budget constraint is tangent...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Economic theory predicts that an increase in wages

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?

Correct AnswerverifiedShow Answer

The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer. What is the marginal rate of substitution between points A and B?

Correct AnswerverifiedShow Answer

What does the slope of a consumer's indifference curve represent?

Correct AnswerverifiedThe slope of a consumer's indi...View AnswerShow Answer

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

Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of

Correct AnswerverifiedShow Answer

A Giffen good is a good for which

Correct AnswerverifiedShow Answer

Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price of good X only?

Correct AnswerverifiedShow Answer

Suppose a consumer spends his income on CDs and DVDs. If his income decreases, the budget constraint for CDs and DVDs will

Correct AnswerverifiedShow Answer

Economists represent a consumer's preferences using

Correct AnswerverifiedShow Answer

Suppose the price of good X falls and the consumption of good X increases. From this we can infer that X is a(n) (i) normal good. (ii) inferior good. (iii) Giffen good.

Correct AnswerverifiedShow Answer

Correct Answerverified If Coke is a normal good, the consumpti...View AnswerShow 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

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Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , what is the price of good Y relative to the price of good X (i.e., P_y/P_x) ?

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Because the budget constraint is tangent...
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The slope of a consumer's indi...
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If Coke is a normal good, the consumpti...
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