Question 1

The marginal rate of substitution between two goods always equals the

Accepted Answer

A)   marginal utility of one divided by the marginal utility of the other.
B)   marginal utility of one times the marginal utility of the other.
C)   price of one good divided by the price of the other.
D)   Both a and c are correct.

Question 2

A budget constraint shows

Accepted Answer

A)   the maximum utility that a consumer can achieve for a given level of income.
B)   a series of bundles that cost the consumer the same amount of money.
C)   a series of bundles that give the consumer the same level of utility.
D)   All of the above are correct.

Question 3

For a typical consumer,most indifference curves are bowed inward.

Accepted Answer

A) True 
 B)False

Question 4

When indifference curves are bowed inward,the marginal rate of substitution is

Accepted Answer

A)   the same at all points along an indifference curve.
B)   increasing as the consumer moves to the right along an indifference curve.
C)   decreasing as the consumer moves to the right along an indifference curve.
D)   constant.

Question 5

Pepsi and pizza are normal goods.When the price of pizza falls,the substitution effect by itself will cause a

Accepted Answer

A)   shift to a lower indifference curve so that the consumer buys less Pepsi.
B)   shift to a higher indifference curve so that the consumer buys more Pepsi.
C)   movement along the indifference curve so that the consumer buys more Pepsi.
D)   movement along the indifference curve so that the consumer buys less Pepsi.

Question 6

Figure 21-2 
-Refer to Figure 21-2.Which of the following statements is not correct?

Accepted Answer

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

Question 7

A Giffen good is a good for which

Accepted Answer

A)   an increase in the price raises the quantity demanded.
B)   the income effect outweighs the substitution effect.
C)   an increase in the price decreases the quantity demanded.
D)   Both a and b are correct.

Question 8

Suppose a consumer has an income of $800 per month and that she spends her entire income each month on beer and bratwurst.The price of a pint of beer is $5,and the price of a bratwurst is $4.Which of the following combinations of beers and bratwursts represents a point that would lie directly on the consumer's budget constraint?

Accepted Answer

A)   160 beers and 200 bratwursts
B)   40 beers and 50 bratwursts
C)   80 beers and 100 bratwursts
D)   80 beers and 0 bratwursts

Question 9

When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs

Accepted Answer

A)   along the highest attainable indifference curve.
B)   where the indifference curve is tangent to the budget constraint.
C)   where the marginal utility per dollar spent is the same for both X and Y.
D)   All of the above are correct.

Question 10

The theory of consumer choice provides the foundation for understanding the

Accepted Answer

A)   structure of a firm.
B)   profitability of a firm.
C)   demand for a firm's product.
D)   supply of a firm's product.

Question 11

Figure 21-19
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: 
-Refer to Figure 21-19.Assume that the consumer has an income of $40.Based on the information available in the graph,which of the following price-quantity combinations would be on her demand curve for marshmallows if the price of chocolate chips were $4?

Accepted Answer

A)   P=$2,Q=3
B)   P=$2,Q=9
C)   P=$4,Q=3
D)   P=$4,Q=9

Question 12

Using indifference curves and budget constraints,graphically illustrate the substitution and income effect that would result from a change in the price of a normal good.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> The graph above illustrates a...

Question 13

Figure 21-2.The graph shows two budget constraints for a consumer. 
-Refer to Figure 21-2.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 14

Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese.The price of one pound of cheese is $6,and the price of a bottle of wine is $10.The consumer should increase his consumption of

Accepted Answer

A)   cheese,decrease his consumption of wine,and move to a lower indifference curve.
B)   cheese,decrease his consumption of wine,and move to a higher indifference curve.
C)   wine,decrease consumption of cheese,and move to a higher indifference curve.
D)   cheese,decrease consumption of wine,and remain on the same indifference curve.

Question 15

The slope at any point on an indifference curve equals the absolute price at which a consumer is willing to substitute one good for the other.

Accepted Answer

A) True 
 B)False

Question 16

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 decreases to 10%.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.

Question 17

Bundle J contains 10 units of good X and 5 units of good Y.Bundle K contains 5 units of good X and 10 units of good Y.Bundle L contains 10 units of good X and 10 units of good Y.Assume that the consumer's preferences satisfy the four properties of indifference curves.The price of X is $1,the price of Y is $2,and the consumer has an income of $20.Which bundle will the consumer choose?

Accepted Answer

A)   bundle J
B)   bundle K
C)   bundle L
D)   either bundle J or bundle K

Question 18

Figure 21-2 
-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.

Question 19

Is it possible for a normal good to be a Giffen good? Briefly explain.

Accepted Answer

No,only in...

Question 20

A consumer has preferences over consumption and leisure,both of which are normal goods.When the wage decreases,the consumer chooses to consume less leisure.For this consumer the labor supply curve will

Accepted Answer

A)   slope upward.
B)   slope backward.
C)   be horizontal.
D)   be vertical.

Exam 21: The Theory of Consumer Choice

The marginal rate of substitution between two goods always equals the

Correct Answer
verified

The slope at any point on an indifference curve equals the absolute price at which a consumer is willing to substitute one good for the other.

Correct Answer
verified

Correct Answer
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Is it possible for a normal good to be a Giffen good? Briefly explain.

Correct Answer
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No,only in...
View Answer

Figure 21-2.The graph shows two budget constraints for a consumer. -Refer to Figure 21-2.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
verified
The consumer's incom...
View Answer

Pepsi and pizza are normal goods.When the price of pizza falls,the substitution effect by itself will cause a

Correct Answer
verified

Correct Answer
verified

The theory of consumer choice provides the foundation for understanding the

Correct Answer
verified

For a typical consumer,most indifference curves are bowed inward.

Correct Answer
verified

Figure 21-2 -Refer to Figure 21-2.Which of the following statements is correct?

Correct Answer
verified

A consumer has preferences over consumption and leisure,both of which are normal goods.When the wage decreases,the consumer chooses to consume less leisure.For this consumer the labor supply curve will

Correct Answer
verified

When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs

Correct Answer
verified

Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese.The price of one pound of cheese is $6,and the price of a bottle of wine is $10.The consumer should increase his consumption of

Correct Answer
verified

Correct Answer
verified

A budget constraint shows

Correct Answer
verified

When indifference curves are bowed inward,the marginal rate of substitution is

Correct Answer
verified

Using indifference curves and budget constraints,graphically illustrate the substitution and income effect that would result from a change in the price of a normal good.

Correct Answer
verified
The graph above illustrates a...
View Answer

Figure 21-2 -Refer to Figure 21-2.Which of the following statements is not correct?

Correct Answer
verified

A Giffen good is a good for which

Correct Answer
verified

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

The marginal rate of substitution between two goods always equals the

Correct AnswerverifiedShow Answer

The slope at any point on an indifference curve equals the absolute price at which a consumer is willing to substitute one good for the other.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Is it possible for a normal good to be a Giffen good? Briefly explain.

Correct AnswerverifiedNo,only in...View AnswerShow Answer

Figure 21-2.The graph shows two budget constraints for a consumer. -Refer to Figure 21-2.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

Pepsi and pizza are normal goods.When the price of pizza falls,the substitution effect by itself will cause a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The theory of consumer choice provides the foundation for understanding the

Correct AnswerverifiedShow Answer

For a typical consumer,most indifference curves are bowed inward.

Correct AnswerverifiedShow Answer

Figure 21-2 -Refer to Figure 21-2.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

A consumer has preferences over consumption and leisure,both of which are normal goods.When the wage decreases,the consumer chooses to consume less leisure.For this consumer the labor supply curve will

Correct AnswerverifiedShow Answer

When a consumer is purchasing the best combination of two goods,X and Y,subject to a budget constraint,we say that the consumer is at an optimal choice point.A graph of an optimal choice point shows that it occurs

Correct AnswerverifiedShow Answer

Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese.The price of one pound of cheese is $6,and the price of a bottle of wine is $10.The consumer should increase his consumption of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A budget constraint shows

Correct AnswerverifiedShow Answer

When indifference curves are bowed inward,the marginal rate of substitution is

Correct AnswerverifiedShow Answer

Using indifference curves and budget constraints,graphically illustrate the substitution and income effect that would result from a change in the price of a normal good.

Correct Answerverified The graph above illustrates a...View AnswerShow Answer

Figure 21-2 -Refer to Figure 21-2.Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

A Giffen good is a good for which

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow 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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No,only in...
View Answer

Correct Answer
verified
The consumer's incom...
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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Correct Answer
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Correct Answer
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The graph above illustrates a...
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Correct Answer
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Correct Answer
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