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Exam 21: The Theory of Consumer Choice.

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Question 121

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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

A) now intersect the horizontal axis at 6 orders of hot wings and the vertical axis at 60 beers.
B) not change.
C) now intersect the horizontal axis at 4 orders of hot wings and the vertical axis at 16 beers.
D) rotate outward along the beer axis.

E) A) and B)
F) C) and D)

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Question 122

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

A) People face trade-offs.
B) Governments can sometimes improve market outcomes.
C) Trade can make everyone better off.
D) Markets are usually a good way to organize economic activity.

E) A) and D)
F) B) and C)

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Question 123

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When Adam's income increases,he purchases more tickets to Broadway musicals than he did before his income increased.For Adam,Broadway musicals are a(n)

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 decrease in income?

A typical consumer consumes both coffee and donuts.After the consumer's income decreases,the consumer consumes more coffee but fewer donuts than before.For this consumer,donuts are a normal good,but coffee is an inferior good.

Figure 21-24 -Refer to Figure 21-24.Anna experiences an increase in her hourly wage.Her optimal choice point moves from A to B.For Anna,

A budget constraint shows

For a typical consumer,most indifference curves are bowed inward.

Good X is a Giffen good.When the price of X increases,the consumer will consume

The slope of the budget constraint is all of the following except

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

All points on a demand curve are optimal consumption points.

Figure 21-2 -Refer to Figure 21-2.Which points are affordable?

Suppose the only two goods that Brett 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

Figure 21-10 -Refer to Figure 21-10.Which of the following comparisons is correct regarding the marginal rate of substitution (MRS) of donuts for cake?

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.

If a consumer purchases more of good A when her income falls,good A is an inferior good.

Figure 21-6 -Refer to Figure 21-6.Suppose the price of popcorn is $2,the price of Mt.Dew is $4,the value of A is 30,and the value of B is 15.How much income does the consumer have?

A consumer's optimal choice is affected by income,prices of goods,and preferences.

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