Question 1

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 C)
F) A) and B)

Question 2

If Suzette responds to an increase in the interest rate by decreasing her saving, then, for Suzette,

Accepted Answer

A)   the increase in the interest rate creates an income effect that is greater than the substitution effect.
B)   the increase in the interest rate creates a substitution effect that is greater than the income effect.
C)   consumption when young and consumption when old are perfect substitutes.
D)   consumption when young and consumption when old are perfect complements.E) A) and B)
F) All of the above

Question 3

The theory of consumer choice examines how

Accepted Answer

A)   firms make profit-maximizing decisions.
B)   consumers make utility-maximizing decisions.
C)   wages are determined in competitive labor markets.
D)   prices are determined in competitive goods markets.E) All of the above
F) B) and D)

Question 4

Which of the following examples would illustrate a backward-sloping labor supply-curve?

Accepted Answer

A)   An increase in a person's wages results in the person working fewer hours per week.
B)   A decrease in a person's wages results in the person working more hours per week.
C)   An increase in a person's wages results in the person working more hours per week.
D)   Both a and b are correct.E) A) and B)
F) A) and C)

Question 5

A consumer chooses an optimal consumption point where the

Accepted Answer

A)   marginal rate of substitution is maximized.
B)   rate at which the consumer is willing to trade one good for another equals the price ratio.
C)   price ratio is minimized.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 6

Jake experiences an increase in his wages. The hours of labor that he supplies to the market would decrease if

Accepted Answer

A)   the income effect is larger than the substitution effect.
B)   the substitution effect is larger than the income effect.
C)   neither the income effect nor the substitution effect apply to Harry's labor­leisure tradeoff.
D)   Jake views both labor and leisure as inferior goods.E) B) and C)
F) A) and C)

Question 7

Figure 21-2
The downward­sloping line on the figure represents a consumer's budget constraint. 
-Refer to Figure 21-2. Which of the following statements is correct?

Accepted Answer

A)   Points W, X, and Y all cost the consumer the same amount of money.
B)   Point V is unaffordable for the consumer given his budget constraint.
C)   Point Z costs less than point V.
D)   Points W, X, and Y give the consumer the same level of satisfaction.E) C) and D)
F) A) and B)

Question 8

The income effect in the work-leisure model induces a person to work less in response to higher wages, which tends to make the labor-supply curve slope backward.

Accepted Answer

A) True 
 B)False

Question 9

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's optimal choice is point

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.E) All of the above
F) A) and B)

Question 10

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. The four curves that are drawn on the figure are

Accepted Answer

A)   indifference curves.
B)   budget constraints.
C)   demand curves.
D)   income curves.E) None of the above
F) All of the above

Question 11

Figure 21-30
The graph shows two budget constraints for a consumer. 
-Refer to Figure 21-30. Suppose the price of a light bulb is $3 and Budget Constraint B applies. What is the consumer's income? What is the price of a hamburger?

Accepted Answer

The consumer's incom...

Question 12

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

Question 13

If income increases and prices are unchanged, the consumer's budget constraint

Accepted Answer

A)   remains the same.
B)   shifts outward.
C)   shifts inward.
D)   rotates outward along the horizontal axis.E) B) and C)
F) A) and D)

Question 14

Suppose the only two goods that Charlie 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. The bundle of wine and cheese that he purchased at the old prices now costs

Accepted Answer

A)   the same amount at the new prices.
B)   less than Charlie's income at the new prices.
C)   more than Charlie's income at the new prices.
D)   We do not have enough information to answer the question.E) A) and D)
F) A) and C)

Question 15

If the consumer's income and all prices simultaneously double, then the optimum consumption bundle will

Accepted Answer

A)   shift outward relative to the original optimum.
B)   move leftward along the original budget constraint.
C)   not change.
D)   shift inward relative to the original optimum.E) A) and D)
F) B) and C)

Question 16

Draw a budget constraint that is consistent with the following prices and income.
Income = 200
PY = 50
PX = 25
a. Demonstrate how your original budget constraint would change if income increases to 500.
b. Demonstrate how your original budget constraint would change if PY decreases to 20.
c. Demonstrate how your original budget constraint would change if PX increases to 40.

Accepted Answer

Question 17

The indifference curves for left gloves and right gloves are straight lines.

Accepted Answer

A) True 
 B)False

Question 18

Figure 21-24
The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. 
-Refer to Figure 21-24. In moving from point A to point C, Steve gives up

Accepted Answer

A)   4.9 pounds of apples, gains 2.0 pounds of pears, and becomes worse off.
B)   4.9 pounds of apples, gains 2.0 pounds of pears, and becomes better off.
C)   5.5 pounds of apples, gains 4.1 pounds of pears, and becomes worse off.
D)   5.5 pounds of apples, gains 4.1 pounds of pears, and becomes better off.E) C) and D)
F) All of the above

Question 19

Assume that a consumer faces the following budget constraints.  
a. Assuming that income is the same on both occasions, describe the difference in relative prices between Panel A and Panel B.
b. If income in Panel B is $126, what is the price of good X?
c. If income in Panel A is $84, what is the price of good Y?
d. Assuming that the price of good X is the same on both occasions, describe the difference in income and price of good Y between Panel A and Panel B.

Accepted Answer

The answer of Assume that a consumer faces the following...

Question 20

A consumer's optimal choice occurs when the

Accepted Answer

A)   consumer's valuation of the two goods equals the market's valuation of the two goods.
B)   consumer minimizes her expenditures.
C)   consumer attains the highest indifference curve.
D)   consumer's valuation of the two goods exceeds the market's valuation of the two goods.E) A) and D)
F) A) and C)

Exam 21: The Theory of Consumer Choice

A consumer's optimal choice occurs when the

Correct Answer
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Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. Suppose the price of a light bulb is $3 and Budget Constraint B applies. What is the consumer's income? What is the price of a hamburger?

Correct Answer
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The consumer's incom...
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The indifference curves for left gloves and right gloves are straight lines.

Correct Answer
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A consumer chooses an optimal consumption point where the

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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Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. In moving from point A to point C, Steve gives up

Correct Answer
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The income effect in the work-leisure model induces a person to work less in response to higher wages, which tends to make the labor-supply curve slope backward.

Correct Answer
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If Suzette responds to an increase in the interest rate by decreasing her saving, then, for Suzette,

Correct Answer
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Jake experiences an increase in his wages. The hours of labor that he supplies to the market would decrease if

Correct Answer
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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. The four curves that are drawn on the figure are

Correct Answer
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If the consumer's income and all prices simultaneously double, then the optimum consumption bundle will

Correct Answer
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Which of the following examples would illustrate a backward-sloping labor supply-curve?

Correct Answer
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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's optimal choice is point

Correct Answer
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Figure 21-2 The downwardsloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which of the following statements is correct?

Correct Answer
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The theory of consumer choice examines how

Correct Answer
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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
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If income increases and prices are unchanged, the consumer's budget constraint

Correct Answer
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Exam 21: The Theory of Consumer Choice

A consumer's optimal choice occurs when the

Correct AnswerverifiedShow Answer

Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. Suppose the price of a light bulb is $3 and Budget Constraint B applies. What is the consumer's income? What is the price of a hamburger?

Correct AnswerverifiedThe consumer's incom...View AnswerShow Answer

The indifference curves for left gloves and right gloves are straight lines.

Correct AnswerverifiedShow Answer

A consumer chooses an optimal consumption point where the

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?

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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. In moving from point A to point C, Steve gives up

Correct AnswerverifiedShow Answer

The income effect in the work-leisure model induces a person to work less in response to higher wages, which tends to make the labor-supply curve slope backward.

Correct AnswerverifiedShow Answer

If Suzette responds to an increase in the interest rate by decreasing her saving, then, for Suzette,

Correct AnswerverifiedShow Answer

Jake experiences an increase in his wages. The hours of labor that he supplies to the market would decrease if

Correct AnswerverifiedShow Answer

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. The four curves that are drawn on the figure are

Correct AnswerverifiedShow Answer

If the consumer's income and all prices simultaneously double, then the optimum consumption bundle will

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Which of the following examples would illustrate a backward-sloping labor supply-curve?

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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's optimal choice is point

Correct AnswerverifiedShow Answer

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Figure 21-2 The downward­sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which of the following statements is correct?

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The theory of consumer choice examines how

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

If income increases and prices are unchanged, the consumer's budget constraint

Correct AnswerverifiedShow Answer

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The consumer's incom...
View Answer

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Figure 21-2 The downwardsloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which of the following statements is correct?

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