Exam 5: The Demand Curve and the Behavior of Consumers

Suppose that a consumer has a choice between hotdogs and video games. All of the following can lead to a rotation of the consumer's budget line except a(n)

Which of the following statements is true about the substitution and income effects of an increase in the price of a good?

An individual buys more of a good at lower prices than at higher prices because

Utility is

The area between the demand curve and the price line is called

The marginal benefit of a good increases as its price decreases.

Suppose that a consumer's total benefit is $4 for consuming one cup of ice cream and $7 for consuming two cups of ice cream. The consumer's willingness to pay for the second cup of ice cream is

An indifference curve shows

Suppose you are having a dinner party and you have 15 cans of cola in your refrigerator. Five are diet colas and the others are regular colas. A neighbor comes to you and ask you to trade some diet colas for regular colas. You agree to trade two diet colas for three regular colas. An hour later, the neighbor comes back and asks for two more diet colas. This time you agree to trade two diet colas for four regular colas. What property of indifference curves is illustrated by this example?

A market demand curve

What happens to consumer surplus if the price of a good falls? Why?

The diamond-water paradox

Which of the following statements is true? The substitution effect of an increase in the price of tea refers to the

Indifference curves never intersect.

The diamond-water paradox is based on the assumption of increasing marginal utility.

If the price of video games falls, then the substitution effect will cause a consumer to reduce her consumption of video games.