Exam 21: The Theory of Consumer Choice

Scenario 21-3 Scott knows that he will ultimately face retirement. Assume that Scott will experience two periods in his life, one in which he works and earns income, and one in which he is retired and earns no income. Scott can earn $250,000 during his working period and nothing in his retirement period. He must both save and consume in his work period with an interest rate of 10 percent on savings. -Refer to Scenario 21-3. Assume that Scott decides to consume $100,000 in the work period. How much money will he have available for consumption in his retirement period?

Figure 21-14 -Refer to Figure 21-14. Which of the following statements is correct?

Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4. Which of the graphs in the figure could reflect an increase in income?

The marginal rate of substitution is

Figure 21-25 The figure pertains to a particular consumer. On the axes, X represents the quantity of good X and Y represents the quantity of good Y. -Refer to Figure 21-25. Suppose the price of good X is $10, the price of good Y is $5, and the consumer's income is $210. Then the consumer's optimal choice is represented by a point on which curve?

Figure 21-14 -Refer to Figure 21-14. Which of the graphs illustrates indifference curves for which the marginal rate of substitution is constant?

Figure 21-8 -Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is

Figure 21-11 -Refer to Figure 21-11. As the consumer moves from point A to B to C to D, the consumer's total utility

Consider the indifference curve map and budget constraint for two goods, X and Y. Suppose the good on the horizontal axis, X, is normal. When the price of X increases, the substitution effect

Suppose a consumer spends her income on two goods: music CDs and DVDs. The price of a CD is $8, and the price of a DVD is $20. If we graph the budget constraint by measuring the quantity of CDs purchased on the vertical axis and the quantity of DVDs on the horizontal axis, what is the slope of the budget constraint?

Preston goes to the movies every Sunday afternoon. The movie theater offers 4 combinations of popcorn and beverages: the "mini-combo" costs $5 and includes a small popcorn and a small drink, the "medium-combo" costs $7 and includes a medium popcorn and a medium drink, the "value-combo" also costs $7 and includes a small popcorn and a large drink, and the "large-combo" costs $9 and includes a large popcorn and a large drink. Preston always purchases the "value-combo." We can conclude that

The following diagram shows one indifference curve representing the preferences for goods X and Y for one consumer. What is the marginal rate of substitution between points A and B?

Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 8 gallons of ice cream and 5 paperback novels?

Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal rate of substitution?

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

Which of the following examples would illustrate a backward-sloping labor supply-curve?

The slope of the budget constraint is all of the following except

Explain the relationship between the budget constraint and indifference curve at a consumer's optimum.

Giffen goods are

The indifference curves for left gloves and right gloves are straight lines.