Exam 21: The Theory of Consumer Choice

Figure 21-29 The figure below illustrates the preferences of a representative consumer, Nathaniel. -Refer to Figure 21-29. Interest rates increase by 4 percent. Nathaniel's optimal choice point moves from A to B. Nathaniel consumes

Suppose a consumer has preferences over two goods, X and Y, which are perfect substitutes. In particular, two units of X is equivalent to one unit of Y. If the price of X is $1, the price of Y is $3, and the consumer has $30 of income to allocate to these two goods, how much of each good should the consumer purchase to maximize satisfaction?

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the

If a consumer purchases more of good A when her income falls, good A is an inferior good.

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 5 slices of pizza and 5 paperback novels?

Calvin is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires. When the substitution effect dominates the income effect, an increase in the interest rate on savings will cause him to

How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving?

When two goods are perfect complements, the indifference curves will

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

The consumer's optimum choice is represented by

Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and the price of a book is $15. If she has $120 in income, she could choose to consume

The indifference curves for perfect substitutes are right angles.

Which of the following statements is not​ true?

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a), if income is equal to $200, then the price of good Y is

Figure 21-27 -Refer to Figure 21-27. Anna experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Anna,

Figure 21-13 -Refer to Figure 21-13. What is the consumer's marginal rate of substitution as she moves from B to C?

An increase in the interest rate today leading to a decrease in consumption today violates the law of demand.​

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 increases to 40%. What happens to the slope of your budget constraint relative to when the interest rate was 25%? The slope

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?