Exam 21: The Theory of Consumer Choice

Assume that a college student spends her income on mac-n-cheese and CDs.The price of one box of mac-n-cheese is $1.00,and the price of one CD is $12.00.If she has $100 of income,she could choose to consume

An optimizing consumer will select the consumption bundle in which the

Figure 21-8 -Refer to Figure 21-8.If the consumer is currently at point A in the figure,a movement to point B as a result of a decrease in the price of potato chips represents the

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

If an indifference curve is bowed in toward the origin,the marginal rate of substitution is

Figure 21-2 -Refer to Figure 21-2.Which of the graphs in the figure reflects a decrease in the price of good X only?

Figure 21-4 -Refer to Figure 21-4.A person that chooses to consume bundle C is likely to

Good x is an inferior good,but not a Giffen good.When the price of x increases,the consumer will consume

At the optimum,the consumer chooses consumption of the two goods so that the marginal rate of substitution equals the relative price ratio.

The relationship between the marginal utility that Wendy gets from eating hamburgers and the number of hamburgers she eats per month is as follows: Wendy receives 3 units of utility from the last dollar spent on each of the other goods she consumes.If hamburgers cost $4 each,how many hamburgers will she consume per month if she maximizes utility?

Giffen goods have positively sloped demand curves because they are

In the upward-sloping portion of the individual labor supply curve,the substitution effect is

If a good is a Giffen good,then

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?

If a consumer wants less of a good when her income rises,economists call it an inferior good.

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?

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

Pepsi and pizza are normal goods.When the price of pizza rises,the substitution effect causes Pepsi to be relatively