Question 1

The two "goods" used when economists analyze labor supply are

Accepted Answer

A)   work and leisure.
B)   work and consumption.
C)   saving and consumption.
D)   leisure and consumption.E) A) and B)
F) B) and D)

Question 2

When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point shows that it occurs

Accepted Answer

A)   along the highest attainable indifference curve.
B)   where the indifference curve is tangent to the budget constraint.
C)   where the marginal utility per dollar spent is the same for both X and Y.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 3

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 $8, the price of good Y is $10, and the consumer's income is $360. Then the consumer's optimal choice is represented by a point on which curve?

Accepted Answer

A)   I1
B)   I2
C)   I3
D)   I4E) A) and B)
F) A) and C)

Question 4

Figure 21-2
The downward­sloping line on the figure represents a consumer's budget constraint. 
-Refer to Figure 21-2. Which of the following statements is not correct?

Accepted Answer

A)   Points W, X, and Y all cost the consumer the same amount of money.
B)   Point Z is unaffordable for the consumer given his budget constraint.
C)   Point V costs less than point Z.
D)   Points W, X, and Y give the consumer the same level of satisfaction.E) A) and D)
F) C) and D)

Question 5

A field experiment conducted by economists in the Chinese province of Hunan provided evidence that, for poor households in that province, rice is a good.

Accepted Answer

The answer of A field experiment conducted by economists in...

Question 6

At the consumer's optimum the

Accepted Answer

A)   budget constraint will have a slope of MUx/Px.
B)   slope of the indifference curve is equal to the slope of the budget constraint.
C)   indifference curve will intersect the budget constraint at the midpoint of the budget constraint.
D)   Both b and c are correct.E) A) and C)
F) All of the above

Question 7

Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save

Accepted Answer

A)   less in the current period if the substitution effect is greater than the income effect.
B)   less in the current period if the income effect is greater than the substitution effect.
C)   more in the current period if the substitution effect is greater than the income effect.
D)   more in the current period, regardless of the sizes of the income and substitution effects.E) A) and D)
F) A) and B)

Question 8

Budget constraints exist for consumers because

Accepted Answer

A)   their utility from consuming goods eventually reaches a maximum level.
B)   even with unlimited incomes they have to pay for each good they consume.
C)   they have to pay for goods, and they have limited incomes.
D)   prices and incomes are inversely related.E) A) and D)
F) A) and C)

Question 9

For Brent, the income effect of a wage increase is stronger than the substitution effect. In response to a wage increase, will Brent work more hours or will he work fewer hours?

Accepted Answer

In response to a wag...

Question 10

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.

Accepted Answer

The horizontal intercept is un...

Question 11

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

Accepted Answer

A)   is equal to the price of the least-expensive good.
B)   exceeds the marginal utility of each good by the greatest amount.
C)   is less than the slope of the budget constraint.
D)   None of the above is correct.E) A) and C)
F) A) and B)

Question 12

The marginal rate of substitution is the slope of the indifference curve.

Accepted Answer

A) True 
 B)False

Question 13

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?

Accepted Answer

A)   I1
B)   I2
C)   I3
D)   I4E) B) and D)
F) A) and D)

Question 14

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin. 
-Refer to Figure 21-31. If point B is Kevin's optimum, then at that optimum, what is his opportunity cost of a sweater in terms of shirts?

Accepted Answer

Kevin's opportunity ...

Question 15

Figure 21-19 
-Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $50. The price of Skittles is $5 and the price of M&M's is $5. This consumer will choose a consumption bundle where the marginal rate of substitution is

Accepted Answer

A)   10.
B)   5.
C)   1.
D)   1/5.E) B) and C)
F) A) and D)

Question 16

Figure 21-19 
-Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer will choose a consumption bundle where the marginal rate of substitution is

Accepted Answer

A)   2.
B)   2/3.
C)   1/2.
D)   1/3.E) A) and B)
F) B) and C)

Question 17

Scenario 21-4 Frank spends all of his income of $240 per month on shirts and hats. The price of a shirt is $40 and the price of a hat is $30.
-Refer to Scenario 21-4. If Frank buys 3 shirts during a certain month, then how many hats does he buy during that month?

Accepted Answer

Frank buys...

Question 18

When we draw Katie's indifference curves to represent her preferences for books and movies, we find that her indifference curves are upward-sloping. What does this tell us about Katie's preferences?

Accepted Answer

Either Katie dislike...

Question 19

Figure 21-17 
-Refer to Figure 21-17. When the price of X is $40, the price of Y is $40, and income is $160, Paul's optimal choice is point B. Then Paul's income increases to $320, and his optimal choice is point E. For Paul,

Accepted Answer

A)   good X is a normal good, and good Y is an inferior good.
B)   good X is an inferior good, and good Y is a normal good.
C)   both good X and good Y are normal goods.
D)   good Y is a normal good; good X is neither a normal nor an inferior good.E) All of the above
F) None of the above

Question 20

Giffen goods violate the law of demand.

Accepted Answer

A) True 
 B)False

Exam 21: The Theory of Consumer Choice

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For Brent, the income effect of a wage increase is stronger than the substitution effect. In response to a wage increase, will Brent work more hours or will he work fewer hours?

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In response to a wag...
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Budget constraints exist for consumers because

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Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer will choose a consumption bundle where the marginal rate of substitution is

Correct Answer
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Figure 21-2 The downwardsloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which of the following statements is not correct?

Correct Answer
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The marginal rate of substitution is the slope of the indifference curve.

Correct Answer
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Correct Answer
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When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point shows that it occurs

Correct Answer
verified

A field experiment conducted by economists in the Chinese province of Hunan provided evidence that, for poor households in that province, rice is a good.

Correct Answer
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Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save

Correct Answer
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Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If point B is Kevin's optimum, then at that optimum, what is his opportunity cost of a sweater in terms of shirts?

Correct Answer
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Kevin's opportunity ...
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Giffen goods violate the law of demand.

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The two "goods" used when economists analyze labor supply are

Correct Answer
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Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $50. The price of Skittles is $5 and the price of M&M's is $5. This consumer will choose a consumption bundle where the marginal rate of substitution is

Correct Answer
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Scenario 21-4 Frank spends all of his income of $240 per month on shirts and hats. The price of a shirt is $40 and the price of a hat is $30. -Refer to Scenario 21-4. If Frank buys 3 shirts during a certain month, then how many hats does he buy during that month?

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Frank buys...
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At the consumer's optimum the

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When we draw Katie's indifference curves to represent her preferences for books and movies, we find that her indifference curves are upward-sloping. What does this tell us about Katie's preferences?

Correct Answer
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Either Katie dislike...
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An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

Correct Answer
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The horizontal intercept is un...
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Figure 21-17 -Refer to Figure 21-17. When the price of X is $40, the price of Y is $40, and income is $160, Paul's optimal choice is point B. Then Paul's income increases to $320, and his optimal choice is point E. For Paul,

Correct Answer
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Exam 21: The Theory of Consumer Choice

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For Brent, the income effect of a wage increase is stronger than the substitution effect. In response to a wage increase, will Brent work more hours or will he work fewer hours?

Correct AnswerverifiedIn response to a wag...View AnswerShow Answer

Budget constraints exist for consumers because

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Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer will choose a consumption bundle where the marginal rate of substitution is

Correct AnswerverifiedShow Answer

Figure 21-2 The downward­sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which of the following statements is not correct?

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The marginal rate of substitution is the slope of the indifference curve.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point shows that it occurs

Correct AnswerverifiedShow Answer

A field experiment conducted by economists in the Chinese province of Hunan provided evidence that, for poor households in that province, rice is a good.

Correct AnswerverifiedShow Answer

Michael faces tradeoffs between consuming in the current period when he is young and consuming in a future period when he is old. Michael experiences a decrease in the current interest rate he earns on his savings. Michael will save

Correct AnswerverifiedShow Answer

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. If point B is Kevin's optimum, then at that optimum, what is his opportunity cost of a sweater in terms of shirts?

Correct AnswerverifiedKevin's opportunity ...View AnswerShow Answer

Giffen goods violate the law of demand.

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The two "goods" used when economists analyze labor supply are

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Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $50. The price of Skittles is $5 and the price of M&M's is $5. This consumer will choose a consumption bundle where the marginal rate of substitution is

Correct AnswerverifiedShow Answer

Scenario 21-4 Frank spends all of his income of $240 per month on shirts and hats. The price of a shirt is $40 and the price of a hat is $30. -Refer to Scenario 21-4. If Frank buys 3 shirts during a certain month, then how many hats does he buy during that month?

Correct AnswerverifiedFrank buys...View AnswerShow Answer

At the consumer's optimum the

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When we draw Katie's indifference curves to represent her preferences for books and movies, we find that her indifference curves are upward-sloping. What does this tell us about Katie's preferences?

Correct AnswerverifiedEither Katie dislike...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe horizontal intercept is un...View AnswerShow Answer

Figure 21-17 -Refer to Figure 21-17. When the price of X is $40, the price of Y is $40, and income is $160, Paul's optimal choice is point B. Then Paul's income increases to $320, and his optimal choice is point E. For Paul,

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In response to a wag...
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Figure 21-2 The downwardsloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which of the following statements is not correct?

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Kevin's opportunity ...
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Frank buys...
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Either Katie dislike...
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The horizontal intercept is un...
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