Exam 21: The Theory of Consumer Choice

Some economists have advocated reducing the taxation of interest and other capital income,arguing that such a policy change would raise the after-tax interest rate that savers can earn and would thereby encourage people to save more.

Suppose that for Edwin,DVDs and trips to the movie theater are perfect substitutes.Currently,Edwin is spending all of his income on trips to the movie theater.If the price of DVDs doubles,the substitution effect will

The marginal rate of substitution is

When two goods are perfect complements,the indifference curves are

Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese.The price of one pound of cheese is $6 and the price of a bottle of wine is $10.The consumer should

Jeffrey spends all of his income on warm-up suits and running shoes,and the price of a warm-up suit is four times the price of a pair of shoes.In order to maximize total utility,Jeffrey should

When the price of a shirt falls,the

Figure 21-6 -Refer to Figure 21-6.Point D represents a point where the

An individual's demand curve for a good is derived by

Figure 21-9 -Refer to Figure 21-9.Assume that the consumer depicted the figure has an income of $50.Which of the following price-quantity combinations would be on her demand curve for marshmallows if the price of chocolate chips is $2.50?

Figure 21-9 -Refer to Figure 21-9.Assume that the consumer depicted in the figure has an income of $80.If the price of chocolate chips is $4.00 and the price of marshmallows is $4.00,the optimizing consumer would choose to purchase

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

The price of gin has risen from $7 to $9 per bottle,the price of cocktail onions has fallen from $6 to $5 per jar,and Elizabeth's income has stayed fixed at $46 per week.If you put gin on the vertical axis and cocktail onions on the horizontal axis,then the budget constraint

When two goods are strong complements,such as nickels and dimes,the indifference curves are straight lines.

Figure 21-6 -Refer to Figure 21-6.Point B represents a point where the

When the price of a good increases,all else equal,the higher price

Beer and pretzels are normal goods.When the price of beer falls,the income effect causes a

If the substitution effect is partly or fully offset by the income effect,we know that the good in question is a(n)

As long as a consumer remains on the same indifference curve

A budget constraint