Exam 21: The Theory of Consumer Choice

Suppose a consumer spends her income on two goods: music CDs and DVDs.The consumer has $200 to allocate to these two goods,the price of a CD is $10,and the price of a DVD is $20.What is the maximum number of CDs the consumer can purchase?

Figure 21-4 -Refer to Figure 21-4.Assume that a consumer faces both budget constraints in graph (a)and graph (b)on two different occasions.If her income has remained constant,what has happened to prices?

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

"Left" gloves and "right" gloves provide a good example of

At the consumer's optimum

Economists represent a consumer's preferences using

Suppose that you have $100 today and expect to receive $100 one year from today.Your money market account pays an annual interest rate of 25%,and you may borrow money at that interest rate.Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis.What is the slope of this budget constraint?

When leisure is a normal good,the income effect from a decrease in wages is evident in

Scenario 21-2 Fred has recently graduated from college with a degree in journalism and economics.He has decided to pursue a career as a freelance journalist writing for business newspapers and magazines.Fred is typically awake for 112 hours each week (he sleeps an average of 8 hours each day).For each hour Fred spends writing,he can earn $75.Fred is such a good writer that he can get paid for as many hours of writing as he chooses to work. -Refer to Scenario 21-2.If Fred's wage increases to $90 per hour of writing,which of the following points would fall on his budget constraint?

Figure 21-6 -Refer to Figure 21-6.Suppose a consumer has $500 in income,the price of a book is $10,and the value of B is 50.What is the price of a DVD?

Figure 21-5 -Refer to Figure 21-5.Suppose a consumer has $200 in income,the price of popcorn is $1,and the price of Mt.Dew is $2.What is the value of A?

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

For a typical consumer,indifference curves can intersect if they satisfy the property of transitivity.

When two goods are perfect complements,the indifference curves are right angles.

Figure 21-9 -Refer to Figure 21-9.It would be possible for the consumer to reach I₂ if

A Giffen good is a good for which

Figure 21-4 -Refer to Figure 21-4.In graph (a),what is the price of good Y relative to good X (i.e. ,P_y/P_x)?

Figure 21-10 -Refer to Figure 21-10.Assume that the consumer depicted in the figure has an income of $50.The price of Skittles is $5 and the price of M&M's is $5.This consumer will choose a consumption bundle where the marginal rate of substitution is

When a consumer experiences a price decrease for an inferior good,it is possible that the income effect is

Suppose a consumer spends his income on CDs and DVDs.If his income decreases,the budget constraint for CDs and DVDs will