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Exam 22: The Theory of Consumer Choice

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Question 41

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Indifference curves can be used to rank all possible bundles of commodities.

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Question 42

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Draw indifference curves that reflect the following preferences.For each one, determine whether it satisfies all of the standard properties of indifference curves. a.pencils with white erasers and pencils with pink erasers b.left shoes and right shoes c.potatoes and rice d.income and polluted water

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Question 43

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Suppose at the current consumption bundle, the marginal rate of substitution of pizza for pepsi is 4 litres of pepsi for every one pizza.If we took four litres of pepsi away from our consumer and gave them one extra pizza, which of the following statements would be correct?

Graph 22-1 -Refer to Graph 22-1.All of the points identified on the graph shown represent possible consumption options with the exception of:

Suppose you win a 'grocery-grab' at your local supermarket.This gives you 10 minutes to take as many groceries off the shelves as you can for free.Have you escaped the problem of scarcity in this situation?

If two goods are perfect substitutes, their indifference curves will be right-angled; if two goods are perfect complements, their indifference curves will be linear.

If an in-kind transfer forces the recipient to consumer more of a good than he would on his own, then the recipient will always prefer a cash transfer.

The substitution effect and income effect always reinforce each other.

The marginal rate of substitution is also known as the slope of the budget constraint.

Economists define utility as a measure of satisfaction that a consumer receives from a bundle of goods.

All Giffen goods are also inferior goods.

If an in-kind transfer forces the recipient to consume more of the good than he would choose with a cash transfer of equal value, then:

The optimal level of consumption occurs where the marginal rate of substitution is greater than the sum of the relative price and the consumer has spent all his or hers income.

For Giffen goods, the income effect dominates the substitution effect.

Unless commodities are perfect complements or perfect substitutes, a price change will always result in an income effect.

When the price of a good rises, consumers are willing to pay for fewer units, so there is a decrease in demand.

Using the graph shown, construct a demand curve for M&Ms, given an income of $10.

The rate at which a consumer is willing to trade one good for the other depends on the amounts of the goods he is already consuming.

The theory of consumer choice provides the foundation for understanding:

Graph 22-4 -Refer to Graph 22-4.Which of the following statements is true for a consumer who moves from point C to point D?