Exam 21: The Theory of Consumer Choice

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the income effect associated with an increase in the price of a textbook will result in

As more units of an item are purchased, everything else equal, marginal satisfaction from consuming additional units will tend to

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of Ramen noodles, by itself, will result in

If two bundles of goods give a consumer the same satisfaction, the consumer must be

A normal good is one

If consumers purchase more of a good when their income rises, the good is a normal good.

Suppose that Milton likes to consume one glass of milk with every three chocolate chip cookies. For Milton, an additional cookie has no value unless he can consume it with the appropriate proportion of milk. Milton's indifference curves for milk and cookies are

Figure 21-23 -Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The demand curve can be illustrated as the movement from

Figure 21-9 -Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good X?

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

A consumer's budget constraint for goods X and Y is determined by how much the consumer likes good X relative to good Y.

Suppose that Elmer's hourly wage increases, and he decides to work fewer hours. For Elmer, the substitution effect of the wage change is

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (b), what is the price of good Y relative to the price of good X (i.e., P_Y/P_X)?

Figure 21-16 -Refer to Figure 21-16. The price of X is $20, the price of Y is $5, and the consumer's income is $40. Which point represents the consumer's optimal choice?

List and briefly explain each of the four properties of indifference curves.

Which of the following does not represent a tradeoff facing a consumer?

Figure 21-32 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. -Refer to Figure 21-32. What is the value of the interest rate that Hannah earns on her saving?

Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. If Steve's income is $12.60, then the price of a pound of apples is

Traci consumes two goods, lemonade and pretzels. Lemonade costs $1 per glass, and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 3. Pretzels cost $2 per bag. The relationship between the marginal utility Traci gets from eating a bag of pretzels and the number of bags she eats per month is as follows: If Traci is maximizing his utility, how much does she spend on pretzels each month?

Which of the following is an example of a Giffen good?