Exam 21: The Theory of Consumer Choice

Figure 21-7 -Refer to Figure 21-7. Suppose the price of a book is $15, the price of a DVD is $10, the value of A is 5, and the value of B is 7.5. How much income does the consumer have?

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.

On a graph we draw a consumer's budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then

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

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If Kevin's income is $1,260 and point A is his optimum, then what is the price of a shirt?

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

Mark spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Mark's income has stayed fixed at $46 per week. If you measure gin on the vertical axis and cocktail olives on the horizontal axis, then the budget constraint

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (b), if income is equal to $420, then the price of good Y is

Good X is an inferior good but not a Giffen good. When the price of X increases, the consumer will consume

The substitution effect from an increase in wages is evident in a

You can think of an indifference curve as an

Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. About what percentage of his income is Steve spending on apples when he is at his optimum?

Economic studies of lottery winners and people who have inherited large amounts of money show that

When Ryan has an income of $2,000, he consumes 30 units of good A and 50 units of good B. After Ryan's income decreases to $1,500, he consumes 23 units of good A and 55 units of good B. Which of the following statements is correct?

An individual's demand curve for a good is derived by varying the

If we observe that William's budget constraint has moved inward, then we know for certain that

When the price of a normal good decreases,

Which of the following does not represent a tradeoff facing a consumer?

A typical indifference curve is upward sloping.

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