Exam 21: The Theory of Consumer Choice

Bundle J contains 10 units of good X and 5 units of good Y.Bundle K contains 5 units of good X and 10 units of good Y.Bundle L contains 10 units of good X and 10 units of good Y.Assume that the consumer's preferences satisfy the four properties of indifference curves.The price of X is $1,the price of Y is $2,and the consumer has an income of $20.Which bundle will the consumer choose?

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

We can use the theory of consumer choice to analyze

Evaluate the following statement,"Warren Buffet is the second richest person in the world.He doesn't face any constraint on his ability to purchase commodities he wants."

Consider two goods,books and hamburgers.The slope of the consumer's budget constraint is measured by the

A consumer consumes two normal goods,pretzels and Mt.Dew.The price of pretzels rises.The income effect,by itself,suggests that the consumer will consume

Diana and Sarah each like jewelry and music by the Rolling Stones.If we were to graph an indifference curve with jewelry on the horizontal axis and cd's by the Rolling Stones on the vertical axis,then

Figure 21-8 -Refer to Figure 21-8.Which of the graphs shown represent indifference curves for perfect substitutes?

Suppose a consumer spends her income on two goods: iTunes music downloads and books.The consumer has $100 to allocate to these two goods,the price of a downloaded song is $1,and the price of a book is $20.What is the maximum number of books the consumer can purchase?

When two goods are perfect substitutes,the indifference curve is

Figure 21-1 -Refer to Figure 21-1.All of the points identified in the figure represent affordable consumption options with the exception of

The substitution effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Assume that a college student spends her income on books and pizza.The price of a pizza is $8,and the price of a book is $15.If she has $100 of income,she could choose to consume

A Giffen good is one in which the quantity demanded rises as the price rises because the income effect

Figure 21-8 -Refer to Figure 21-8.Which of the following statements is correct?

A budget constraint illustrates bundles that a consumer prefers equally,while an indifference curve illustrates bundles that are equally affordable to a consumer.

A consumer chooses an optimal consumption point where the

Consider the indifference curve map for nickels and quarters.Assume nickels are on the vertical axis and quarters are on the horizontal axis.The indifference curves for nickels and quarters are

A Giffen good is a good for which

Suppose a consumer has preferences over two goods,X and Y,which are perfect substitutes.In particular,two units of X is equivalent to one unit of Y.If the price of X is $1,the price of Y is $3,and the consumer has $30 of income to allocate to these two goods,how much of each good should the consumer purchase to maximize satisfaction?