Question 1

Figure 21-16 
-Refer to Figure 21-16. The price of X is $5, the price of Y is $20, and the consumer's income is $40. Which point represents the consumer's optimal choice?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) A) and B)
F) None of the above

Question 2

Because people are more willing to trade away goods that they have in abundance and less willing to trade away goods of which they have little, indifference curves are ___________.

Accepted Answer

bowed inwa...

Question 3

Suppose a consumer consumes two goods, X and Y. The relative price of the two goods equals the

Accepted Answer

A)   marginal rate of substitution.
B)   rate at which the consumer will give up X to gain Y while maintaining the same level of utility.
C)   slope of the budget constraint.
D)   All of the above are correct.E) A) and D)
F) B) and D)

Question 4

When the price of a normal good increases,

Accepted Answer

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) All of the above
F) A) and C)

Question 5

Good X is a Giffen good. When the price of X increases, the consumer will consume

Accepted Answer

A)   more X.
B)   the same amount of X.
C)   less X.
D)   more or less X depending on the size of the income effect relative to the size of the substitution effect.E) B) and C)
F) None of the above

Question 6

How are the following three questions related: 1)  Do all demand curves slope downward? 2)  How do wages affect labor supply? 3)  How do interest rates affect household saving?

Accepted Answer

A)   They all relate to macroeconomics.
B)   They all relate to monetary economics.
C)   They all relate to the theory of consumer choice.
D)   They are not related to each other in any way.E) None of the above
F) A) and C)

Question 7

Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis. Suppose that you have $100 today and expect to receive $100 one year from today. Your money market account pays an annual interest rate of 25%, and you may borrow money at that interest rate. Suppose now that the interest rate increases to 40%. What happens to the slope of your budget constraint relative to when the interest rate was 25%? The slope

Accepted Answer

A)   becomes steeper.
B)   becomes flatter.
C)   doesn't change because the budget constraint shifts in parallel to the original budget constraint.
D)   doesn't change because the budget constraint shifts out parallel to the original budget constraint.E) All of the above
F) A) and D)

Question 8

Which of the following represents a consumer's optimum?

Accepted Answer

A)   MUx/MUy = Py/Px
B)   MUx/Py = MUy/Px
C)   MUx/Px = MUy/Py
D)   MUy/MUx = Px/PyE) B) and C)
F) A) and D)

Question 9

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

Question 10

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 B)
F) A) and C)

Question 11

Figure 21-18 
-Refer to Figure 21-18. It would be possible for the consumer to reach I2 if

Accepted Answer

A)   the price of Y decreases.
B)   the price of X decreases.
C)   income increases.
D)   All of the above would be correct.E) All of the above
F) None of the above

Exam 21: The Theory of Consumer Choice

Because people are more willing to trade away goods that they have in abundance and less willing to trade away goods of which they have little, indifference curves are ___________.

Correct Answer
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View Answer

Suppose a consumer consumes two goods, X and Y. The relative price of the two goods equals the

Correct Answer
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Which of the following represents a consumer's optimum?

Correct Answer
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Correct Answer
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Good X is a Giffen good. When the price of X increases, the consumer will consume

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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Figure 21-16 -Refer to Figure 21-16. The price of X is $5, the price of Y is $20, and the consumer's income is $40. Which point represents the consumer's optimal choice?

Correct Answer
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Figure 21-18 -Refer to Figure 21-18. It would be possible for the consumer to reach I2 if

Correct Answer
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When the price of a normal good increases,

Correct Answer
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How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving?

Correct Answer
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Correct Answer
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Exam 21: The Theory of Consumer Choice

Because people are more willing to trade away goods that they have in abundance and less willing to trade away goods of which they have little, indifference curves are ___________.

Correct Answerverifiedbowed inwa...View AnswerShow Answer

Suppose a consumer consumes two goods, X and Y. The relative price of the two goods equals the

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Which of the following represents a consumer's optimum?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Good X is a Giffen good. When the price of X increases, the consumer will consume

Correct AnswerverifiedShow Answer

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

Figure 21-16 -Refer to Figure 21-16. The price of X is $5, the price of Y is $20, and the consumer's income is $40. Which point represents the consumer's optimal choice?

Correct AnswerverifiedShow Answer

Figure 21-18 -Refer to Figure 21-18. It would be possible for the consumer to reach I2 if

Correct AnswerverifiedShow Answer

When the price of a normal good increases,

Correct AnswerverifiedShow Answer

How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified
bowed inwa...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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