Exam 21: The Theory of Consumer Choice

Figure 21-22 -Refer to Figure 21-22. If the consumer is currently at point A in the figure, a movement to point B as a result of a decrease in the price of potato chips represents the

Figure 21-8 -Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is

Goods x and y are available to Jeff. At Jeff's optimum, the marginal utility per dollar spent on good x equals__________________.

The income 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 $120 in income, she could choose to consume

Suppose the only two goods that Lorenzo consumes are wine and cheese. When wine sells for $10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100. One day the price of wine falls to $5 a bottle, and the price of cheese increases to $20 a pound, while his income does not change. If you illustrate wine on the vertical axis and cheese on the horizontal axis, then

Katie wins $3 million in her state's lottery. If Katie drastically reduces the number of hours she works after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Pepsi and pizza are normal goods. When the price of pizza rises, the substitution effect causes Pepsi to be relatively

A consumer's budget constraint for goods X and Y is determined by how much the consumer likes good X relative to good Y.

Figure 21-21 -Refer to Figure 21-21. Suppose that a consumer is originally at point R. Then the price of good X decreases. Which of the following represents the substitution effect of the price decrease?

A Giffen good is a good for which an increase in the price

Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4. Which of the graphs in the figure could reflect a simultaneous increase in the price of good X and decrease in the price of good Y?

Suppose the price of good X falls. As a result, the quantity demanded for good X increases for a particular consumer. For this consumer, the substitution effect induced the consumer to purchase more X while the income effect induced the consumer to purchase less X. We can infer that X is a(n)

As more units of an item are purchased, everything else equal, marginal satisfaction from consuming additional units will tend to

Jerry consumes two goods, hamburgers and ice cream sandwiches. He has maximized his utility given his income. Ice cream sandwiches costs $2, and he consumes them to the point where the marginal utility he receives is 6. Hamburgers cost $4, and the relationship between the marginal utility that Jerry gets from eating hamburgers and the number he eats per month is as follows: How many hamburgers does Jerry buy each month?

A consumer chooses an optimal consumption point where the

If the price of bread is zero and the price of cheese is positive, then the budget constraint between bread (on the horizontal axis) and cheese (on the vertical axis) would

Scenario 21-1 Suppose the price of hot wings is $10, the price of beer is $1, and the consumer's income is $50. In addition, suppose the consumer's budget constraint illustrates hot wings on the horizontal axis and beer on the vertical axis. -Refer to Scenario 21-1. If the consumer's income rises to $60, then the budget line for hot wings and beer would

Dave consumes two normal goods, X and Y, and is currently at an optimum. If the price of good X falls, we can predict with certainty that

The marginal rate of substitution is the slope of the budget constraint.