Exam 21: The Theory of Consumer Choice

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

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.Suppose that you borrow $60 and spend $160 today.After you repay your loan one year from today,how much money will you have available for consumption one year from today?

Suppose Rich always uses two packets of sugar with his coffee.Rich's indifference curves for sugar and coffee are

When indifference curves are bowed in toward the origin,

Economists use the term Giffen good to describe a good that violates the law of demand.

Which of the following is not correct?

When considering her budget,the highest indifference curve that a consumer can reach is the

The goal of the consumer is to

Using the graph shown,construct a demand curve for M&M's given an income of $10.

A set of indifference curves that are only slightly bowed inward represent goods that could best be described as

Figure 21-10 -Refer to Figure 21-10.Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B.According to the graph,which of the following would cause the consumer to move to point A?

What are the two effects of a change in a price that a consumer experiences?

An optimizing consumer will select the consumption bundle in which the

All points on a demand curve are optimal consumption points.

If two bundles of goods give a consumer the same satisfaction,the consumer must be

Suppose the price of good X falls and the consumption of good X increases.From this we can infer that X is a(n)

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 increase his consumption of

Budget constraints exist for consumers because

If the price of a good increases,all else equal,consumers perceive

Draw indifference curves that reflect the following preferences. a. pencils with white erasers and pencils with pink erasers b. left shoes and right shoes c. potatoes and rice d. income and polluted water