Exam 21: The Theory of Consumer Choice

When Sam has an income of $1,000,he consumes 30 units of good A and 50 units of good B.After Sam's income increases to $1,500,he consumes 60 units of good A and 45 units of good B.Which of the following statements is correct?

Assume that a college student purchases only coffee and Snickers bars.If coffee is an inferior good and Snickers bars are a normal good,then the income effect associated with an increase in the price of a Snickers bar will result in

Figure 21-5 -Refer to Figure 21-5.Suppose the price of popcorn is $2,the price of Mt.Dew is $4,the value of A is 30,and the value of B is 15.How much income does the consumer have?

The substitution effect in the work-leisure model induces a person to work less in response to higher wages,which tends to make the labor-supply curve slope upward.

Harry experiences an increase in his wages.The hours of labor that he supplies to the market would decrease if

Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal rate of substitution?

Figure 21-6 -Refer to Figure 21-6.Suppose a consumer has $200 in income,the price of a book is $5,and the price of a DVD is $10.What is the value of A?

The slope of the budget constraint reveals the relative price of good X compared to good Y.

The income effect of a price change is unaffected by whether the good is a normal or inferior good.

Indifference curves graphically represent

Figure 21-3 In each case,the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3.Which of the graphs in the figure reflects a decrease in the price of good X only?

Bob enjoys fishing and hunting.He divides his leisure hours between the two outdoor activities.Suppose we were to draw Bob's indifference curves for the two activities,placing fishing on the horizontal axis and hunting on the vertical axis.If Bob's indifference curves are bowed inward,then

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 decides to spend 80 hours a week playing volleyball on the beach,and the rest of his time writing,how much income will he have available to spend on consumption goods?

Amy spends all of her income on jewelry and jeans,and the price of a pair of jeans is three times the price of jewelry.In order to maximize total utility,Amy should

Figure 21-5 -Refer to Figure 21-5.Suppose a consumer has $100 in income,the price of popcorn is $2,and the value of B is 100.What is the price of Mt.Dew?

Figure 21-9 -Refer to Figure 21-9.Bundle D represents a point where

Economists have found evidence of a Giffen good when studying the consumption of rice in the Chinese province of Hunan.

Karen,Tara,and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days.Ice cream costs $5 per gallon,and paperback novels cost $8 each.Karen has a budget of $80,Tara has a budget of $60,and Chelsea has a budget of $40 to spend on ice cream and paperback novels.Who can afford to purchase 8 gallons of ice cream and 5 paperback novels?

A consumer's preferences provide a

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?