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Exam 21: The Theory of Consumer Choice

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Question 211

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Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. At his optimum, Steve is willing to give up about

A) 0.75 pounds of pears for 1 pound of apples.
B) 0.75 pounds of apples for 1 pound of pears.
C) 1.20 pounds of pears for 1 pound of apples.
D) 1.20 pounds of apples for 1 pound of pears.

E) A) and B)
F) None of the above

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Question 212

Multiple Choice

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When the price of an inferior good increases,

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 C)
F) A) and D)

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Question 213

Multiple Choice

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

A consumer has preferences over consumption and leisure, both of which are normal goods. When the wage decreases, the consumer chooses to consume less leisure. For this consumer the labor supply curve will

When considering household savings, the relative price between consuming when young and consuming when old is the

When economists describe preferences, they often use the concept of

A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals. How many meals could the family afford if they gave up two nights in the hotel?

The slope of the budget constraint reveals the relative price of good X compared to good Y.

Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4. Which of the graphs in the figure could reflect a decrease in income?

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

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

Katie wins $3 million in her state's lottery. If Katie drastically reduces the number of hours she works after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

The substitution effect of a price change is depicted by a

Evaluate the following statement, "Warren Buffet is the second richest person in the world. He doesn't face any constraint on his ability to purchase commodities he wants."

Figure 21-9 -Refer to Figure 21-9. If the price of good X is $15, what is the price of good Y?

A typical consumer consumes both coffee and donuts. After the consumer's income decreases, the consumer consumes more coffee but fewer donuts than before. For this consumer, donuts are a normal good, but coffee is an inferior good.

A Giffen good is a good for which

Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. Suppose the price of a hamburger is $10 and Budget Constraint A applies. What is the consumer's income? What is the price of a light bulb?

Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. Suppose the price of pears, the price of apples, and Steve's income remain constant, and Steve moves from point B to point C. In doing so, Steve

Figure 21-32 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. -Refer to Figure 21-32. From the figure we can determine how much income Hannah earns when young and we can determine the interest rate. Could the interest rate rise to a level at which Hannah could afford to be at point D?