Question 1

Figure 21-10  
-Refer to Figure 21-10. Given the budget constraint depicted in the graph, the consumer's optimal choice will be point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
A) A. 
B) B. 
C) C. 
D) D.

Question 2

If a consumer experiences a decrease in income, the new budget constraint will have the same slope as the old budget constraint.

Accepted Answer

A) True 
 B)False

Question 3

The theory of consumer choice illustrates that people face tradeoffs, which is one of the Ten Principles of Economics.

Accepted Answer

A) True 
 B)False

Question 4

For Molly, the substitution effect of a wage increase is stronger than the income effect. In response to a wage increase, will Sally work more hours or will she work fewer hours?

Accepted Answer

In response to a wag

Question 5

Because people are more willing to trade away goods that they have in abundance and less willing to trade away goods of which they have little, indifference curves are ___________.

Accepted Answer

bowed inwa

Question 6

Figure 21-18
The figure shows two indifference curves and two budget constraints for a consumer named Kevin.
   ​
-Refer to Figure 21-18. If point B is Kevin's optimum, then at that optimum, what is his opportunity cost of a sweater in terms of shirts?

Accepted Answer

Kevin's opportunity

Question 7

Table 21-3
​
Ethan consumes two goods, milk and pretzels. Milk costs $2 per glass, and he consumes it to the point where the marginal utility he receives from his last glass of milk is 6. Pretzels cost $4 per bag. The relationship between the marginal utility Ethan gets from eating a bag of pretzels and the number of bags he eats per month is as follows:
​
 $$\begin{array} { | c | c | } 
\hline \text { Bags of Pretzels } & \text { Marginal Utility } \
\hline 1 & 30 \
\hline 2 & 20 \
\hline 3 & 12 \
\hline 4 & 6 \
\hline 5 & 2 \
\hline 6 & 0 \
\hline
\end{array}$$ ​
​
-Samantha is maximizing total utility while consuming food and clothing. Her marginal utility from food is 50, and her marginal utility from clothing is 25. If clothing is priced at $10 per unit, the price of food per unit must be

Accepted Answer

A) $2. 
B) $2.50. 
C) $5. 
D) $20. 
A) $2. 
B) $2.50. 
C) $5. 
D) $20.

Question 8

A field experiment conducted by economists in the Chinese province of Hunan provided evidence that, for poor households in that province, rice is a __________ good.

Accepted Answer

The answer of A field experiment conducted by economists in...

Question 9

Figure 21-4  
-Refer to Figure 21-4. Suppose a consumer has $104 in income, the price of lemonade is $3, and the value of A is 52. What is the price of pretzels?

Accepted Answer

A) $2 
B) $3 
C) $5 
D) $104 
A) $2 
B) $3 
C) $5 
D) $104

Question 10

Suppose Reta is planning for retirement in a two-period world. In the first period, Reta is young and earns $1 million and in the second period, Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

Accepted Answer

A) substitution effect will induce Reta to consume more when she is young. 
B) substitution effect will induce Reta to consume less when she is young. 
C) income effect will induce Reta to consume more when she is young. 
D) change in interest rates generate a substitution effect but not an income effect. 
A) substitution effect will induce Reta to consume more when she is young. 
B) substitution effect will induce Reta to consume less when she is young. 
C) income effect will induce Reta to consume more when she is young. 
D) change in interest rates generate a substitution effect but not an income effect.

Question 11

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. If the interest rate on savings increases,

Accepted Answer

A) Scott will decrease his savings in the work period if the substitution effect is greater than the income effect for him. 
B) Scott will increase his savings in the work period if the income effect is greater than the substitution effect for him. 
C) Scott will always increase his savings in the work period. 
D) Scott will decrease his savings in the work period if the income effect is greater than the substitution effect for him. 
A) Scott will decrease his savings in the work period if the substitution effect is greater than the income effect for him. 
B) Scott will increase his savings in the work period if the income effect is greater than the substitution effect for him. 
C) Scott will always increase his savings in the work period. 
D) Scott will decrease his savings in the work period if the income effect is greater than the substitution effect for him.

Question 12

Figure 21-13  
-Refer to Figure 21-13. When the price of X is $40, the price of Y is $10, and the consumer's income is $80, the consumer's optimal choice is C. Then the price of X decreases to $10. We can derive the demand curve by determining the change in the quantity demanded illustrated by the movement from

Accepted Answer

A) C to E. 
B) C to D. 
C) D to E. 
D) E to C. 
A) C to E. 
B) C to D. 
C) D to E. 
D) E to C.

Question 13

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?

Accepted Answer

A) −5.0 
B) −2.5 
C) −0.4 
D) The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods. 
A) −5.0 
B) −2.5 
C) −0.4 
D) The slope of the budget constraint cannot be determined without knowing the income the consumer has available to spend on the two goods.

Question 14

Figure 21-19
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 21-19. From the figure we can determine how much income Hannah earns when young and we can determine the interest rate. Could the interest rate rise to a level at which Hannah could afford to be at point A?

Accepted Answer

Yes. The point (0, 40000) is the horizon

Question 15

When indifference curves are bowed inward, the marginal rate of substitution varies at each point on the indifference curve.

Accepted Answer

A) True 
 B)False

Question 16

Figure 21-8   ​
​
-Refer to Figure 21-8. What is the consumer's marginal rate of substitution as she moves from A to B?

Accepted Answer

A) 4 
B) 2 
C) 1 
D) 0.5 
A) 4 
B) 2 
C) 1 
D) 0.5

Question 17

What does the slope of a budget constraint represent?

Accepted Answer

The slope of a budget constrai

Question 18

Figure 21-13  
-Refer to Figure 21-13. When the price of X is $40, the price of Y is $10, and the consumer's income is $80, the consumer's optimal choice is C. Then the price of X decreases to $10. The substitution effect can be illustrated as the movement from

Accepted Answer

A) C to E. 
B) C to D. 
C) D to E. 
D) E to C. 
A) C to E. 
B) C to D. 
C) D to E. 
D) E to C.

Question 19

Figure 21-18
The figure shows two indifference curves and two budget constraints for a consumer named Kevin.
   ​
-Refer to Figure 21-18. For Kevin, are sweaters and shirts substitutes, complements, or neither?

Accepted Answer

Kevin purchases 28 sweaters at

Question 20

Evaluate the following statement, "Warren Buffet is the second richest person in the world. He doesn't face any constraint on his ability to purchase commodities he wants."

Accepted Answer

All people face scarcity of re

Exam 21: The Theory of Consumer Choice

Figure 21-10 -Refer to Figure 21-10. Given the budget constraint depicted in the graph, the consumer's optimal choice will be point

If a consumer experiences a decrease in income, the new budget constraint will have the same slope as the old budget constraint.

The theory of consumer choice illustrates that people face tradeoffs, which is one of the Ten Principles of Economics.

For Molly, the substitution effect of a wage increase is stronger than the income effect. In response to a wage increase, will Sally work more hours or will she work fewer hours?

Because people are more willing to trade away goods that they have in abundance and less willing to trade away goods of which they have little, indifference curves are ___________.

Figure 21-18 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. ​ -Refer to Figure 21-18. If point B is Kevin's optimum, then at that optimum, what is his opportunity cost of a sweater in terms of shirts?

A field experiment conducted by economists in the Chinese province of Hunan provided evidence that, for poor households in that province, rice is a __________ good.

Figure 21-4 -Refer to Figure 21-4. Suppose a consumer has $104 in income, the price of lemonade is $3, and the value of A is 52. What is the price of pretzels?

Suppose Reta is planning for retirement in a two-period world. In the first period, Reta is young and earns $1 million and in the second period, Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

When indifference curves are bowed inward, the marginal rate of substitution varies at each point on the indifference curve.

Figure 21-8 ​ ​ -Refer to Figure 21-8. What is the consumer's marginal rate of substitution as she moves from A to B?

What does the slope of a budget constraint represent?

Figure 21-13 -Refer to Figure 21-13. When the price of X is $40, the price of Y is $10, and the consumer's income is $80, the consumer's optimal choice is C. Then the price of X decreases to $10. The substitution effect can be illustrated as the movement from

Figure 21-18 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. ​ -Refer to Figure 21-18. For Kevin, are sweaters and shirts substitutes, complements, or neither?

Evaluate the following statement, "Warren Buffet is the second richest person in the world. He doesn't face any constraint on his ability to purchase commodities he wants."

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

Frontiers in Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Figure 21-18 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-18. If point B is Kevin's optimum, then at that optimum, what is his opportunity cost of a sweater in terms of shirts?

Figure 21-8 -Refer to Figure 21-8. What is the consumer's marginal rate of substitution as she moves from A to B?

Figure 21-18 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-18. For Kevin, are sweaters and shirts substitutes, complements, or neither?