Exam 22: The Theory of Consumer Choice

When the price of a good increases, ceteris paribus, consumers perceive:

What is a Giffen good and does it conform to the law of demand.If not, why do economists still describe the law of demand as a law?

If the consumption of one good is increased, how must a consumer alter his consumption of another good in order to remain indifferent between two bundles?

Graph 22-6 -Refer to Graph 22-6.It will be possible for the consumer to reach I2 if:

A person consumes two goods: Coke and Snickers.Use a graph to demonstrate how the consumer adjusts his optimal consumption bundle when the price of Coke decreases.Carefully label all curves and axes.What will happen to consumption if Coke is a normal good? What will happen to consumption if Coke is an inferior good? (Remember to explain the possible change when the income effect dominates and when the substitution effect dominates).

If indifference curves could cross, it would suggest that:

Amy purchases only coffee and croissants.If both coffee and croissants are normal goods, the income effect associated with a decrease in the price of croissants will result in a(n):

Graph 22-5 -Refer to Graph 22-5.Which of the graphs shown represent(s) indifference curves?

The indifference curves of perfect compliments are:

When goods are not easy to substitute for each other, the indifference curves are less bowed, and when goods are easy to substitute, the indifference curves are very bowed.

A bowed shaped indifference curve reflects a consumer's:

Graph 22-7 -Refer to Graph 22-7.Assume that the consumer depicted in the graph has an income of $20.The price of Skittles is $2 and the price of M&Ms is $2.This consumer will choose to optimise by consuming:

Graph 22-6 -Refer to Graph 22-6.If a consumer is at point D they could:

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

American hotdogs are made by combining one bun with one sausage.American hotdog buns and sausages are a good example of:

A consumer:

The optimum represents the:

When a consumer's consumption of one good is reduced, consumption of the other good must be reduced to keep the consumer equally happy due to opportunity costs.

Draw a budget constraint that is consistent with the following prices and income.Income = 100 PY = 25 PX = 12.5 a.Demonstrate how your original budget constraint would change if income increased to 250. b.Demonstrate how your original budget constraint would change if PY decreased to 10. c.Demonstrate how your original budget constraint would change if PX increased to 20.

Jonathan 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 his savings is likely to: