Exam 21: The Theory of Consumer Choice

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the income effect associated with an increase in the price of a textbook will result in

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

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. Suppose Kevin is optimally purchasing 12 shirts and 28 sweaters, and he is spending $648 on shirts. What is the price of a sweater?

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

Giffen goods have positively-sloped demand curves because they are

Figure 21-16 -Refer to Figure 21-16. The price of X is $25, the price of Y is $25, and the consumer's income is $100. Which point represents the consumer's optimal choice?

We can use the theory of consumer choice to analyze

A consumer who doesn't spend all of her income

A family on a trip budgets $1,000 for meals and gasoline. If the price of a meal for the family is $50 and if gasoline costs $3.50 per gallon, then how many meals can the family buy if they buy 100 gallons of gasoline?

Figure 21-2 The downward­sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which points are affordable?

A consumer's budget constraint is drawn on a graph with the number of sandwiches measured along the horizontal axis and the number of bowls of soup measured along the vertical axis. Hold the consumer's income and the price of a sandwich fixed, and increase the price of a bowl of soup. Describe the effect on the budget constraint.

The opportunity cost of current household consumption is the

If an increase in the interest rate raises savings, then

Figure 21-1 The downward­sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-1. If the consumer's income is $140, then what is the price of a CD?

Traci consumes two goods, lemonade and pretzels. Lemonade costs $1 per glass, and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 3. Pretzels cost $2 per bag. The relationship between the marginal utility Traci gets from eating a bag of pretzels and the number of bags she eats per month is as follows: If Traci is maximizing his utility, how much does she spend on pretzels each month?

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

A consumer has preferences over two goods, X and Y. Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves) and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis. At the consumer's current consumption bundle, the consumer is spending all available income, and the marginal rate of substitution is greater than the slope of the budget constraint. We can conclude that the consumer

A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals. How many meals could the family afford if they gave up two nights in the hotel?

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

A consumer's optimal choice occurs when the