Exam 21: The Theory of Consumer Choice

A family on a trip budgets $800 for meals and gasoline. If the price of a meal for the family is $50, how many meals can the family buy if they do not buy any gasoline?

Bundle J contains 10 units of good X and 5 units of good Y. Bundle K contains 5 units of good X and 10 units of good Y. Bundle L contains 10 units of good X and 10 units of good Y. Assume that the consumer's preferences satisfy the four properties of indifference curves. The price of X is $1, the price of Y is $2, and the consumer has an income of $20. Which bundle will the consumer choose?

Figure 21-1 -Refer to Figure 21-1. A consumer who chooses to spend all of her income could be at which point(s) on the figure?

Figure 21-7 The following graph shows three possible indifference curves (I) for a consumer. ​ -Refer to Figure 21-7. A person who chooses to consume bundle D is likely to

Joseph 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

When indifference curves are downward sloping, the marginal rate of substitution is usually constant.

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

Figure 21-16 The following figure illustrates the preferences of a representative consumer, Nathaniel. -Refer to Figure 21-16. Interest rates increase by 4 percent. Nathaniel's optimal choice point moves from A to B. Nathaniel consumes

Consumers face tradeoffs except at the point where the indifference curve is tangent to the budget line.