Question 1

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of a textbook, by itself, will result in

Accepted Answer

A)   a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
B)   a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles.
C)   an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles.
D)   an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.E) A) and B)
F) All of the above

Question 2

A decrease in the price of DVD players leads consumers to buy more DVD players. From this information we can conclude that DVD players

Accepted Answer

A)   are normal goods.
B)   are inferior goods.
C)   are luxury goods.
D)   could be any of the above.E) B) and C)
F) A) and C)

Question 3

A consumer who doesn't spend all of her income

Accepted Answer

A)   would be at a point outside of her budget constraint.
B)   would be at a point inside her budget constraint.
C)   must not be consuming positive quantities of all goods.
D)   must be consuming at a point where her budget constraint touches one of the axes.E) None of the above
F) B) and D)

Question 4

Figure 21-7 
-Refer to Figure 21-7. Suppose a consumer has $200 in income, the price of a book is $5, and the price of a DVD is $10. What is the value of B?

Accepted Answer

A)   40
B)   20
C)   10
D)   2E) B) and C)
F) A) and C)

Question 5

When a consumer experiences a price decrease for an inferior good, if the income effect is

Accepted Answer

A)   less than the substitution effect, the demand curve will be downward sloping.
B)   greater than the substitution effect, the demand curve will be upward sloping.
C)   less than the substitution effect, the demand curve will be upward sloping.
D)   both a)  and b)  are correct.E) A) and B)
F) A) and C)

Question 6

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 B)
F) A) and C)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

Graphically demonstrate the conditions associated with a consumer optimum. Carefully label all curves and axes.

Accepted Answer

The answer of Graphically demonstrate the conditions associated with a...

Question 10

When indifference curves are downward sloping, the marginal rate of substitution is usually constant.

Accepted Answer

A) True 
 B)False

Question 11

Samantha is maximizing total utility while consuming food and clothing. Her marginal utility from food is 50, and her marginal utility from clothing is 25. If clothing is priced at $10 per unit, the price of food per unit must be

Accepted Answer

A)   $2.
B)   $5.
C)   $2.50.
B)   $20.C) All of the above
D) A) and B)

Question 12

Consider the indifference curve map and budget constraint for two goods, X and Y. Suppose the good on the horizontal axis, X, is normal. When the price of X increases, the substitution effect

Accepted Answer

A)   and income effect both cause an increase in the consumption of X.
B)   causes a decrease in the consumption of X, and the income effect causes an increase in the consumption of
C)   causes an increase in the consumption of X, and the income effect causes a decrease in the consumption of
D)   and income effect both cause a decrease in the consumption of X.E) B) and C)
F) None of the above

Question 13

If an increase in the interest rate raises savings, then

Accepted Answer

A)   the substitution effect is greater than the income effect.
B)   the income effect is greater than the substitution effect.
C)   the income effect and the substitution effect move in the same direction.
D)   we are unable to determine the sizes of the income and substitution effects without more information.E) A) and B)
F) A) and C)

Question 14

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

Accepted Answer

A) True 
 B)False

Question 15

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of CDs the consumer can purchase?

Accepted Answer

A)   10
B)   20
C)   40
D)   50E) B) and D)
F) A) and B)

Question 16

Accepted Answer

Figure 21-18 -Refer to Figure 21-18. Bundle B represents a point where ) undefined
 ) undefined

Question 17

If a consumer consumes two goods, X and Y, and has indifference curves that are bowed inward, the consumer's optional choice occurs when

Accepted Answer

A)   he consumes the maximum affordable quantity of good X.
B)   he consumes the maximum affordable quantity of good Y.
C)   his indifference curve is tangent to his budget constraint.
D)   his indifference curve lies entirely above his budget constraint.E) C) and D)
F) A) and D)

Question 18

Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal rate of substitution?

Accepted Answer

A)   the budget effect
B)   the preference effect
C)   the substitution effect
D)   the income effectE) A) and B)
F) None of the above

Question 19

The labor supply curve may have a backward-bending portion if, at higher wages, the income effect is

Accepted Answer

A)   smaller than the substitution effect.
B)   larger than the substitution effect.
C)   negative.
D)   Any of the above could result in a backward-bending supply curve.E) A) and C)
F) C) and D)

Question 20

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X is

Accepted Answer

A)   equal to the marginal utility per dollar saved on good X.
B)   greater than the marginal utility per dollar spent on good Y.
C)   equal to the marginal utility per dollar spent on good Y.
D)   less than the marginal utility per dollar spent on good Y.E) None of the above
F) C) and D)

Exam 21: The Theory of Consumer Choice

Graphically demonstrate the conditions associated with a consumer optimum. Carefully label all curves and axes.

Correct Answer
verified

If a consumer consumes two goods, X and Y, and has indifference curves that are bowed inward, the consumer's optional choice occurs when

Correct Answer
verified

Figure 21-7 -Refer to Figure 21-7. Suppose a consumer has $200 in income, the price of a book is $5, and the price of a DVD is $10. What is the value of B?

Correct Answer
verified

A consumer who doesn't spend all of her income

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

Samantha is maximizing total utility while consuming food and clothing. Her marginal utility from food is 50, and her marginal utility from clothing is 25. If clothing is priced at $10 per unit, the price of food per unit must be

Correct Answer
verified

The labor supply curve may have a backward-bending portion if, at higher wages, the income effect is

Correct Answer
verified

Consider the indifference curve map and budget constraint for two goods, X and Y. Suppose the good on the horizontal axis, X, is normal. When the price of X increases, the substitution effect

Correct Answer
verified

If an increase in the interest rate raises savings, then

Correct Answer
verified

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

Correct Answer
verified

Correct Answer
verified

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of a textbook, by itself, will result in

Correct Answer
verified

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of CDs the consumer can purchase?

Correct Answer
verified

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

Correct Answer
verified

When indifference curves are downward sloping, the marginal rate of substitution is usually constant.

Correct Answer
verified

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X is

Correct Answer
verified

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
verified
bowed inwa...
View Answer

A decrease in the price of DVD players leads consumers to buy more DVD players. From this information we can conclude that DVD players

Correct Answer
verified

Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal rate of substitution?

Correct Answer
verified

When a consumer experiences a price decrease for an inferior good, if the income effect is

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

Graphically demonstrate the conditions associated with a consumer optimum. Carefully label all curves and axes.

Correct AnswerverifiedShow Answer

If a consumer consumes two goods, X and Y, and has indifference curves that are bowed inward, the consumer's optional choice occurs when

Correct AnswerverifiedShow Answer

Figure 21-7 -Refer to Figure 21-7. Suppose a consumer has $200 in income, the price of a book is $5, and the price of a DVD is $10. What is the value of B?

Correct AnswerverifiedShow Answer

A consumer who doesn't spend all of her income

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

Samantha is maximizing total utility while consuming food and clothing. Her marginal utility from food is 50, and her marginal utility from clothing is 25. If clothing is priced at $10 per unit, the price of food per unit must be

Correct AnswerverifiedShow Answer

The labor supply curve may have a backward-bending portion if, at higher wages, the income effect is

Correct AnswerverifiedShow Answer

Consider the indifference curve map and budget constraint for two goods, X and Y. Suppose the good on the horizontal axis, X, is normal. When the price of X increases, the substitution effect

Correct AnswerverifiedShow Answer

If an increase in the interest rate raises savings, then

Correct AnswerverifiedShow Answer

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of a textbook, by itself, will result in

Correct AnswerverifiedShow Answer

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of CDs the consumer can purchase?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When indifference curves are downward sloping, the marginal rate of substitution is usually constant.

Correct AnswerverifiedShow Answer

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X is

Correct AnswerverifiedShow Answer

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

A decrease in the price of DVD players leads consumers to buy more DVD players. From this information we can conclude that DVD players

Correct AnswerverifiedShow Answer

Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal rate of substitution?

Correct AnswerverifiedShow Answer

When a consumer experiences a price decrease for an inferior good, if the income effect is

Correct AnswerverifiedShow Answer

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