Exam 21: The Theory of Consumer Choice

Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs.If the price of a CD is $9,the price of a DVD is $18,and she is currently consuming 10 CDs and 5 DVDs,what is the consumer's income?

A consumer consumes two normal goods,pretzels and Mt.Dew.When the price of Mt.Dew is $0.50 per can,the consumer purchases 40 cans.When the price rises to $0.65 per can,the consumer purchases 30 cans.We can use the information provided by the consumer's optimum choices to derive the

Scenario 21-3 Diane knows that she will ultimately face retirement.Assume that Diane will experience two periods in her life,one in which she works and earns income,and one in which she is retired and earns no income.Diane can earn $250,000 during her working period and nothing in her retirement period.She must both save and consume in her work period with an interest rate of 10 percent on savings. -Refer to Scenario 21-3.If the interest rate on savings increases,

The slope of the budget constraint is determined by the

Indifference curves that cross would suggest that

Consider a consumer who purchases two goods,X and Y.If the price of good Y falls,then the substitution effect by itself will

The consumer's optimum choice is represented by

If we observe that Rae's budget constraint has shifted outward,then we know for certain that

Figure 21-10 -Refer to Figure 21-10.Assume that the consumer depicted in the figure has an income of $20.The price of Skittles is $2 and the price of M&M's is $2.This consumer will choose to optimize by purchasing bundle

Which of the following is an example of a Giffen good?

Which of the following descriptions best depicts the substitution effect?

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

Higher indifference curves are preferred to lower ones as long as the

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

The theory of consumer choice illustrates that people face tradeoffs,which is one of the Ten Principles of Economics.

Assume that consumption when young and consumption when old are both normal goods.The income effect of an increase in the interest rate will result in

Figure 21-11 -Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $80.If the price of chocolate chips is $4 and the price of marshmallows is $4,the optimizing consumer would choose to purchase

If a consumer purchases more of good B when his income rises,good B is an inferior good.

When the price of an inferior good increases,

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X is