Question 1

A consumer's budget constraint for goods X and Y is determined by how much the consumer likes good X relative to good Y.

Accepted Answer

A) True 
 B)False

Question 2

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 simultaneous increase in the price of good X and decrease in the price of good Y?

Accepted Answer

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

Question 3

Suppose the only two goods that Lorenzo consumes are wine and cheese. When wine sells for $10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100. One day the price of wine falls to $5 a bottle, and the price of cheese increases to $20 a pound, while his income does not change. If you illustrate wine on the vertical axis and cheese on the horizontal axis, then

Accepted Answer

A)   the slope of Lorenzo's budget has not changed.
B)   the slope of Lorenzo's budget constraint is flatter at the new prices.
C)   the slope of Lorenzo's budget constraint is steeper at the new prices.
D)   Lorenzo's budget constraint has shifted in a parallel fashion to the budget constraint with the old prices.E) A) and D)
F) B) and C)

Question 4

The marginal rate of substitution is the slope of the budget constraint.

Accepted Answer

A) True 
 B)False

Question 5

A Giffen good is a good for which an increase in the price

Accepted Answer

A)   decreases the quantity supplied.
B)   increases the quantity supplied.
C)   decreases the quantity demanded.
D)   increases the quantity demanded.E) None of the above
F) C) and D)

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

Goods x and y are available to Jeff. At Jeff's optimum, the marginal utility per dollar spent on good x equals__________________.

Accepted Answer

the margin...

Question 8

Figure 21-21 
-Refer to Figure 21-21. Suppose that a consumer is originally at point R. Then the price of good X decreases. Which of the following represents the substitution effect of the price decrease?

Accepted Answer

A)   the movement from point R to point S
B)   the movement from point R to point T
C)   the movement from point T to point S
D)   None of the above is correct.E) A) and B)
F) None of the above

Question 9

Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and the price of a book is $15. If she has $120 in income, she could choose to consume

Accepted Answer

A)   8 pizzas and 4 books.
B)   4 pizzas and 6 books.
C)   5 pizzas and 5 books.
D)   2 pizzas and 7 books.E) B) and D)
F) B) and C)

Question 10

Jerry consumes two goods, hamburgers and ice cream sandwiches. He has maximized his utility given his income. Ice cream sandwiches costs $2, and he consumes them to the point where the marginal utility he receives is 6. Hamburgers cost $4, and the relationship between the marginal utility that Jerry gets from eating hamburgers and the number he eats per month is as follows:  How many hamburgers does Jerry buy each month?

Accepted Answer

A)   1
B)   2
C)   3
D)   4E) A) and B)
F) None of the above

Question 11

If the price of bread is zero and the price of cheese is positive, then the budget constraint between bread (on the horizontal axis)  and cheese (on the vertical axis)  would

Accepted Answer

A)   be vertical.
B)   coincide with the vertical axis.
C)   coincide with the horizontal axis.
D)   be horizontal.E) B) and C)
F) None of the above

Question 12

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Accepted Answer

A) True 
 B)False

Question 13

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

Question 14

A consumer chooses an optimal consumption point where the

Accepted Answer

A)   marginal rate of substitution is maximized.
B)   slope of the indifference curve exceeds the slope of the budget constraint by the greatest amount.
C)   ratio of the marginal utilities equals the ratio of the prices.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 15

As more units of an item are purchased, everything else equal, marginal satisfaction from consuming additional units will tend to

Accepted Answer

A)   decrease at the same rate for all consumers.
B)   decrease but at different rates for different people.
C)   increase at the same rate for all consumers.
D)   increase but at a decreasing rate for all consumers.E) None of the above
F) A) and B)

Question 16

Suppose the price of good X falls. As a result, the quantity demanded for good X increases for a particular consumer. For this consumer, the substitution effect induced the consumer to purchase more X while the income effect induced the consumer to purchase less X. We can infer that X is a(n)

Accepted Answer

A)   normal good.
B)   inferior good.
C)   Giffen good.
D)   luxury good.E) C) and D)
F) None of the above

Question 17

Figure 21-8 
-Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is

Accepted Answer

A)   AB.
B)   BC.
C)   CD.
D)   DE.E) A) and D)
F) A) and C)

Question 18

Scenario 21-1
Suppose the price of hot wings is $10, the price of beer is $1, and the consumer's income is $50. In addition, suppose the consumer's budget constraint illustrates hot wings on the horizontal axis and beer on the vertical axis.
-Refer to Scenario 21-1. If the consumer's income rises to $60, then the budget line for hot wings and beer would

Accepted Answer

A)   now intersect the horizontal axis at 6 orders of hot wings and the vertical axis at 60 beers.
B)   not change.
C)   now intersect the horizontal axis at 4 orders of hot wings and the vertical axis at 16 beers.
D)   rotate outward along the beer axis.E) B) and D)
F) C) and D)

Question 19

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

Accepted Answer

A)   substitution effect.
B)   income effect.
C)   budget effect.
D)   price effect.E) A) and D)
F) A) and B)

Question 20

Pepsi and pizza are normal goods. When the price of pizza rises, the substitution effect causes Pepsi to be relatively

Accepted Answer

A)   more expensive, so the consumer buys more Pepsi.
B)   more expensive, so the consumer buys less Pepsi.
C)   less expensive, so the consumer buys more Pepsi.
D)   less expensive, so the consumer buys less Pepsi.E) A) and D)
F) A) and C)

Exam 21: The Theory of Consumer Choice

Suppose the price of good X falls. As a result, the quantity demanded for good X increases for a particular consumer. For this consumer, the substitution effect induced the consumer to purchase more X while the income effect induced the consumer to purchase less X. We can infer that X is a(n)

Correct Answer
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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 simultaneous increase in the price of good X and decrease in the price of good Y?

Correct Answer
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Correct Answer
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Pepsi and pizza are normal goods. When the price of pizza rises, the substitution effect causes Pepsi to be relatively

Correct Answer
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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
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The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Correct Answer
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If the price of bread is zero and the price of cheese is positive, then the budget constraint between bread (on the horizontal axis) and cheese (on the vertical axis) would

Correct Answer
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A consumer chooses an optimal consumption point where the

Correct Answer
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A Giffen good is a good for which an increase in the price

Correct Answer
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Correct Answer
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Figure 21-22 -Refer to Figure 21-22. If the consumer is currently at point A in the figure, a movement to point B as a result of a decrease in the price of potato chips represents the

Correct Answer
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Figure 21-21 -Refer to Figure 21-21. Suppose that a consumer is originally at point R. Then the price of good X decreases. Which of the following represents the substitution effect of the price decrease?

Correct Answer
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Correct Answer
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Figure 21-8 -Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is

Correct Answer
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The marginal rate of substitution is the slope of the budget constraint.

Correct Answer
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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.

Correct Answer
verified

As more units of an item are purchased, everything else equal, marginal satisfaction from consuming additional units will tend to

Correct Answer
verified

Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and the price of a book is $15. If she has $120 in income, she could choose to consume

Correct Answer
verified

Goods x and y are available to Jeff. At Jeff's optimum, the marginal utility per dollar spent on good x equals__________________.

Correct Answer
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the margin...
View Answer

A consumer's budget constraint for goods X and Y is determined by how much the consumer likes good X relative to good Y.

Correct Answer
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Exam 21: The Theory of Consumer Choice

Suppose the price of good X falls. As a result, the quantity demanded for good X increases for a particular consumer. For this consumer, the substitution effect induced the consumer to purchase more X while the income effect induced the consumer to purchase less X. We can infer that X is a(n)

Correct AnswerverifiedShow Answer

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 simultaneous increase in the price of good X and decrease in the price of good Y?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Pepsi and pizza are normal goods. When the price of pizza rises, the substitution effect causes Pepsi to be relatively

Correct AnswerverifiedShow 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

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Correct AnswerverifiedShow Answer

If the price of bread is zero and the price of cheese is positive, then the budget constraint between bread (on the horizontal axis) and cheese (on the vertical axis) would

Correct AnswerverifiedShow Answer

A consumer chooses an optimal consumption point where the

Correct AnswerverifiedShow Answer

A Giffen good is a good for which an increase in the price

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 21-21 -Refer to Figure 21-21. Suppose that a consumer is originally at point R. Then the price of good X decreases. Which of the following represents the substitution effect of the price decrease?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 21-8 -Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is

Correct AnswerverifiedShow Answer

The marginal rate of substitution is the slope of the budget constraint.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

As more units of an item are purchased, everything else equal, marginal satisfaction from consuming additional units will tend to

Correct AnswerverifiedShow Answer

Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and the price of a book is $15. If she has $120 in income, she could choose to consume

Correct AnswerverifiedShow Answer

Goods x and y are available to Jeff. At Jeff's optimum, the marginal utility per dollar spent on good x equals__________________.

Correct Answerverifiedthe margin...View AnswerShow Answer

A consumer's budget constraint for goods X and Y is determined by how much the consumer likes good X relative to good Y.

Correct AnswerverifiedShow Answer

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