Question 1

Figure 21-5
 
-Refer to Figure 21-5.Which of the graphs shown represent indifference curves for perfect substitutes?

Accepted Answer

A)  graph (a) 
B)  graph (b) 
C)  graph (c) 
D)  None of the above is correct.E) B) and C)
F) B) and D)

Question 2

When two goods are perfect complements they will have

Accepted Answer

A)  indifference curves with a positive slope.
B)  indifference curves that are right angles.
C)  indifference curves with a constant marginal rate of substitution.
D)  Both b and c are correct.E) None of the above
F) A) and B)

Question 3

Ken consumes two goods,beer and pretzels.A beer costs $1 per bottle and he consumes it to the point where the marginal utility he receives from his last beer is 3.Pretzels cost $2 per bag,and the relationship between the marginal utility he gets from eating a bag of pretzels and the number of bags he eats per month is as follows: 
If Ken is maximizing his utility,how much does he spend on pretzels each month?

Accepted Answer

A)  $2
B)  $6
C)  $8
D)  $12E) C) and D)
F) A) and B)

Question 4

Beer and pretzels are normal goods.When the price of beer falls,the substitution effect causes

Accepted Answer

A)  the consumer to feel richer, so the consumer buys more pretzels.
B)  the consumer to feel richer, so the consumer buys less pretzels.
C)  pretzels to be relatively more expensive, so the consumer buys less pretzels.
D)  pretzels to be relatively less expensive, so the consumer buys more pretzels.E) B) and C)
F) B) and D)

Question 5

When a budget constraint shifts outward

Accepted Answer

A)  it could only have been caused by in increase in income.
B)  the consumer is indifferent to goods X and Y.
C)  it could only have been caused by an increase in the price of one of the goods.
D)  the consumer can reach a higher indifference curve.E) None of the above
F) A) and B)

Question 6

Figure 21-6
 
-Refer to Figure 21-6.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) B) and D)
F) A) and B)

Question 7

The consumer's optimum choice is represented by

Accepted Answer

A)  MUₓ/MUᵧ = Pₓ/Pᵧ
B)  MUₓ/Pₓ = MUᵧ/Pᵧ
C)  MRSₓᵧ = Pₓ/Pᵧ
D)  All of the above are correct.E) None of the above
F) B) and C)

Question 8

Which of the following is most likely an inferior good?

Accepted Answer

A)  an antique car
B)  gasoline
C)  a bus ticket
D)  an airline ticketE) C) and D)
F) B) and D)

Question 9

Figure 21-7
 
-Refer to Figure 21-7.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 $2.This consumer will choose to optimize by consuming

Accepted Answer

A)  bundle a.
B)  bundle B.
C)  bundle C.
D)  bundle D.E) C) and D)
F) None of the above

Question 10

Figure 21-1
 
-Refer to Figure 21-1.Which point in the figure showing a consumer's budget constraint represents the consumer's income divided by the price of a CD?

Accepted Answer

A)  Point A
B)  Point C
C)  Point D
D)  Point EE) All of the above
F) B) and D)

Question 11

Jane is maximizing total utility while consuming food and clothing.Her marginal utility from food and clothing are 50 utils and 25 utils,respectively.If clothing is priced at $10 per unit,the price of food must

Accepted Answer

A)  be rising.
B)  be falling.
C)  equal $5.
D)  equal $20.E) B) and D)
F) B) and C)

Question 12

If the consumer's income and all prices simultaneously decrease by one-half,then

Accepted Answer

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

Question 13

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.If you save all your money,how much money will you have one year from today?

Accepted Answer

A)  $100
B)  $125
C)  $200
D)  $225E) A) and B)
F) None of the above

Question 14

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

The answer of Draw a budget constraint that is consistent...

Question 15

Figure 21-4
 
-Refer to Figure 21-4.Which of the following statements is not true for a consumer who moves from point B to point C?

Accepted Answer

A)  At point C the consumer would be willing to give up a larger number of Ho-Hos in exchange for a Twinkie than at point B.
B)  The marginal rate of substitution at points C and B are the same since the points lie on the same indifference curve.
C)  The consumer is willing to sacrifice Twinkies to obtain Ho-Ho's.
D)  The consumer receives the same level of satisfaction at points B and C.E) All of the above
F) A) and D)

Question 16

Higher education is a normal good.If its price falls

Accepted Answer

A)  the quantity demanded of higher education will fall.
B)  the substitution and income effects work in opposite directions.
C)  the income effect is positive.
D)  higher education will be a Giffen good.E) A) and B)
F) A) and C)

Question 17

Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs.If the price of a CD is $9,the price of a DVD is $18,and she is currently consuming 10 CDs and 5 DVDs,what is the consumer's income?

Accepted Answer

A)  $90
B)  $180
C)  $270
D)  $360E) B) and D)
F) C) and D)

Question 18

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

Accepted Answer

A)  be vertical.
B)  coincide with the vertical axis.
C)  coincide with the horizontal axis.
D)  be horizontal.E) A) and D)
F) B) and C)

Question 19

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 definitely consume more of both goods since his real income has risen.
B)  the substitution effect will be positive for good X and negative for good Y.
C)  may consume more or less of good X and he will definitely consume less of good Y.
D)  the substitution effect will offset the income effect for good X.E) A) and B)
F) B) and C)

Question 20

What are the two effects of a change in a price that a consumer experiences?

Accepted Answer

A)  the income effect and the budget effect
B)  the complement effect and the substitute effect
C)  the price effect and the preference effect
D)  the income effect and the substitution effectE) A) and D)
F) B) and C)

Exam 21: The Theory of Consumer Choice

Figure 21-1 -Refer to Figure 21-1.Which point in the figure showing a consumer's budget constraint represents the consumer's income divided by the price of a CD?

Correct Answer
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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.If you save all your money,how much money will you have one year from today?

Correct Answer
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Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs.If the price of a CD is $9,the price of a DVD is $18,and she is currently consuming 10 CDs and 5 DVDs,what is the consumer's income?

Correct Answer
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Which of the following is most likely an inferior good?

Correct Answer
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Jane is maximizing total utility while consuming food and clothing.Her marginal utility from food and clothing are 50 utils and 25 utils,respectively.If clothing is priced at $10 per unit,the price of food must

Correct Answer
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When a budget constraint shifts outward

Correct Answer
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Figure 21-4 -Refer to Figure 21-4.Which of the following statements is not true for a consumer who moves from point B to point C?

Correct Answer
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Beer and pretzels are normal goods.When the price of beer falls,the substitution effect causes

Correct Answer
verified

Higher education is a normal good.If its price falls

Correct Answer
verified

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
verified

What are the two effects of a change in a price that a consumer experiences?

Correct Answer
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The consumer's optimum choice is represented by

Correct Answer
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Figure 21-5 -Refer to Figure 21-5.Which of the graphs shown represent indifference curves for perfect substitutes?

Correct Answer
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When two goods are perfect complements they will have

Correct Answer
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Figure 21-6 -Refer to Figure 21-6.It would be possible for the consumer to reach I₂ if

Correct Answer
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Figure 21-7 -Refer to Figure 21-7.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 $2.This consumer will choose to optimize by consuming

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

Correct Answer
verified

If the consumer's income and all prices simultaneously decrease by one-half,then

Correct Answer
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Exam 21: The Theory of Consumer Choice

Figure 21-1 -Refer to Figure 21-1.Which point in the figure showing a consumer's budget constraint represents the consumer's income divided by the price of a CD?

Correct AnswerverifiedShow Answer

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.If you save all your money,how much money will you have one year from today?

Correct AnswerverifiedShow Answer

Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs.If the price of a CD is $9,the price of a DVD is $18,and she is currently consuming 10 CDs and 5 DVDs,what is the consumer's income?

Correct AnswerverifiedShow Answer

Which of the following is most likely an inferior good?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Jane is maximizing total utility while consuming food and clothing.Her marginal utility from food and clothing are 50 utils and 25 utils,respectively.If clothing is priced at $10 per unit,the price of food must

Correct AnswerverifiedShow Answer

When a budget constraint shifts outward

Correct AnswerverifiedShow Answer

Figure 21-4 -Refer to Figure 21-4.Which of the following statements is not true for a consumer who moves from point B to point C?

Correct AnswerverifiedShow Answer

Beer and pretzels are normal goods.When the price of beer falls,the substitution effect causes

Correct AnswerverifiedShow Answer

Higher education is a normal good.If its price falls

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

What are the two effects of a change in a price that a consumer experiences?

Correct AnswerverifiedShow Answer

The consumer's optimum choice is represented by

Correct AnswerverifiedShow Answer

Figure 21-5 -Refer to Figure 21-5.Which of the graphs shown represent indifference curves for perfect substitutes?

Correct AnswerverifiedShow Answer

When two goods are perfect complements they will have

Correct AnswerverifiedShow Answer

Figure 21-6 -Refer to Figure 21-6.It would be possible for the consumer to reach I₂ if

Correct AnswerverifiedShow Answer

Figure 21-7 -Refer to Figure 21-7.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 $2.This consumer will choose to optimize by consuming

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the consumer's income and all prices simultaneously decrease by one-half,then

Correct AnswerverifiedShow Answer

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