Exam 21: The Theory of Consumer Choice

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. Assume that Scott decides to consume $100,000 in the work period. How much money will he have available for consumption in his retirement period?

A Giffen good is a good for which

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

The direction of the substitution effect is not influenced by whether the good is normal or inferior.

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of DVDs the consumer can purchase?

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a), if income is equal to $200, then the price of good Y is

At a consumer's optimal choice, the consumer chooses the combination of goods that equates the marginal rate of substitution and the price ratio.

Figure 21-25 The figure pertains to a particular consumer. On the axes, X represents the quantity of good X and Y represents the quantity of good Y. -Refer to Figure 21-25. Suppose the price of good X is $15, the price of good Y is $10, and the consumer's income is $450. Then the consumer's optimal choice is represented by a point on which curve?

Budget constraints exist for consumers because

The consumer's optimum choice is represented by

A worker with a backward-bending labor supply curve responds to an increase in wages by working more hours.

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 $2,520 and point B is his optimum, then what is the price of a shirt?

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?

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

At the consumer's optimum the

Which of the following equations corresponds to an optimal choice point?

Consider the indifference curve map and budget constraint for two goods, beef and potatoes. Suppose the good measured on the horizontal axis, potatoes, is a Giffen good. Beef is measured on the vertical axis and is a normal good. When the price of potatoes increases, the substitution effect causes

For Antonio, the income effect of an interest-rate increase is stronger than the substitution effect. In response to a higher interest rate, will Antonio save more or will he save less?

When the price of an inferior good decreases,

A Giffen good is a good for which