Question 1

Is it possible for a normal good to be a Giffen good? Briefly explain.

Accepted Answer

No, only i...

Question 2

Figure 21-32
The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. 
-Refer to Figure 21-32. What is the value of the interest rate that Hannah earns on her saving?

Accepted Answer

The interest rate is...

Question 3

Figure 21-19 
-Refer to Figure 21-19. Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B. According to the graph, which of the following would cause the consumer to move to point A?

Accepted Answer

A)   a decrease in the price of Skittles
B)   a decrease in the price of M&M's
C)   an increase in the price of Skittles
D)   an increase in the price of M&M'sE) A) and B)
F) A) and C)

Question 4

If an increase in the interest rate lowers savings, then

Accepted Answer

A)   the substitution effect is greater than the income effect.
B)   the income effect is greater than the substitution effect.
C)   the income effect and the substitution effect move in the same direction.
D)   we are unable to determine the sizes of the income and substitution effects without more information.E) A) and D)
F) None of the above

Question 5

If the income effect counteracts the substitution effect, we know that the good in question is a(n)

Accepted Answer

A)   complementary good.
B)   inferior good.
C)   luxury good.
D)   normal good.E) A) and B)
F) A) and C)

Question 6

The substitution effect of an increase in the interest rate will result in an increase in

Accepted Answer

A)   consumption when young and increase in savings when young.
B)   consumption when old and an increase in savings when young.
C)   consumption when young and an increase in savings when old.
D)   savings when old and an increase in consumption when old.E) A) and B)
F) A) and C)

Question 7

Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: 
-Refer to Figure 21-20. Assume that the consumer has an income of $40. If the price of chocolate chips is $4 and the price of marshmallows is $4, the optimizing consumer would choose to purchase

Accepted Answer

A)   9 marshmallows and 6 chocolate chips.
B)   10 marshmallows and 10 chocolate chips.
C)   5 marshmallows and 5 chocolate chips.
D)   3 marshmallows and 9 chocolate chips.E) C) and D)
F) A) and B)

Question 8

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin. 
-Refer to Figure 21-31. Suppose point A was Kevin's optimum last week, and point B is his optimum this week. What happened between last week and this week?

Accepted Answer

The price ...

Question 9

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

Accepted Answer

A) True 
 B)False

Question 10

Fiona uses all of her income to purchase popcorn and butter. At any two points A and B on Fiona's budget constraint,

Accepted Answer

A)   Fiona is equally happy.
B)   Fiona is spending more money on popcorn than she is spending on butter.
C)   Fiona's income is different.
D)   the price of popcorn relative to the price of butter is the same.E) B) and C)
F) A) and D)

Question 11

Utility measures the

Accepted Answer

A)   income a consumer receives from consuming a bundle of goods.
B)   satisfaction a consumer receives from consuming a bundle of goods.
C)   satisfaction a consumer places on her budget constraint.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 12

The goal of the consumer is to

Accepted Answer

A)   maximize utility.
B)   minimize expenses.
C)   spend more income in the current time period than in the future.
D)   All of the above are the goals of the consumer.E) A) and C)
F) A) and B)

Question 13

The theory of consumer choice examines

Accepted Answer

A)   the determination of output in competitive markets.
B)   the tradeoffs inherent in decisions made by consumers.
C)   how consumers select inputs into manufacturing production processes.
D)   the determination of prices in competitive markets.E) A) and B)
F) A) and C)

Question 14

Figure 21-6 
-Refer to Figure 21-6. Suppose a consumer has $200 in income, the price of popcorn is $1, and the price of Mt. Dew is $2. What is the value of B?

Accepted Answer

A)   200
B)   100
C)   50
D)   25E) C) and D)
F) B) and D)

Question 15

Consider two goods: peanuts and crackers. The slope of the consumer's budget constraint is measured by the

Accepted Answer

A)   consumer's income divided by the price of crackers.
B)   relative price of peanuts and crackers.
C)   consumer's marginal rate of substitution.
D)   number of peanuts purchased divided by the number of crackers purchased.E) A) and D)
F) B) and D)

Question 16

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)

Accepted Answer

A)   normal good.
B)   inferior good that is not a Giffen good.
C)   Giffen good.
D)   optimal good.E) All of the above
F) B) and D)

Question 17

Abby, Bobbi, and Deborah each buy ice cream and paperback novels to enjoy on hot summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Abby has a budget of $80, Bobbi has a budget of $60, and Deborah has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 4 gallons of ice cream and 5 paperback novels?

Accepted Answer

A)   Abby, Bobbi, and Deborah
B)   Abby only
C)   Abby and Bobbi, but not Deborah
D)   None of the women can afford to purchase 4 gallons of ice cream and 5 paperback novels.E) C) and D)
F) B) and C)

Question 18

A decrease in the price of DVD players leads consumers to buy more DVD players. From this information we can conclude that DVD players

Accepted Answer

A)   are normal goods.
B)   are inferior goods.
C)   are luxury goods.
D)   could be any of the above.E) A) and B)
F) A) and C)

Question 19

A decrease in income will cause a consumer's budget constraint to

Accepted Answer

A)   shift outward, parallel to its initial position.
B)   shift inward, parallel to its initial position.
C)   pivot along the horizontal axis.
D)   pivot along the vertical axis.E) B) and C)
F) A) and D)

Question 20

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's optimal choice is point

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.E) All of the above
F) B) and C)

Exam 21: The Theory of Consumer Choice

Figure 21-32 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. -Refer to Figure 21-32. What is the value of the interest rate that Hannah earns on her saving?

Correct Answer
verified
The interest rate is...
View Answer

Correct Answer
verified

Fiona uses all of her income to purchase popcorn and butter. At any two points A and B on Fiona's budget constraint,

Correct Answer
verified

Is it possible for a normal good to be a Giffen good? Briefly explain.

Correct Answer
verified
No, only i...
View Answer

If the income effect counteracts the substitution effect, we know that the good in question is a(n)

Correct Answer
verified

A decrease in income will cause a consumer's budget constraint to

Correct Answer
verified

Correct Answer
verified

If an increase in the interest rate lowers savings, then

Correct Answer
verified

Figure 21-6 -Refer to Figure 21-6. Suppose a consumer has $200 in income, the price of popcorn is $1, and the price of Mt. Dew is $2. What is the value of B?

Correct Answer
verified

The substitution effect of an increase in the interest rate will result in an increase in

Correct Answer
verified

The goal of the consumer is to

Correct Answer
verified

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

Correct Answer
verified

Figure 21-31 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. -Refer to Figure 21-31. Suppose point A was Kevin's optimum last week, and point B is his optimum this week. What happened between last week and this week?

Correct Answer
verified
The price ...
View Answer

The theory of consumer choice examines

Correct Answer
verified

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B. According to the graph, which of the following would cause the consumer to move to point A?

Correct Answer
verified

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's optimal choice is point

Correct Answer
verified

Utility measures the

Correct Answer
verified

Consider two goods: peanuts and crackers. The slope of the consumer's budget constraint is measured by the

Correct Answer
verified

A decrease in the price of DVD players leads consumers to buy more DVD players. From this information we can conclude that DVD players

Correct Answer
verified

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)

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

Figure 21-32 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. -Refer to Figure 21-32. What is the value of the interest rate that Hannah earns on her saving?

Correct AnswerverifiedThe interest rate is...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Fiona uses all of her income to purchase popcorn and butter. At any two points A and B on Fiona's budget constraint,

Correct AnswerverifiedShow Answer

Is it possible for a normal good to be a Giffen good? Briefly explain.

Correct AnswerverifiedNo, only i...View AnswerShow Answer

If the income effect counteracts the substitution effect, we know that the good in question is a(n)

Correct AnswerverifiedShow Answer

A decrease in income will cause a consumer's budget constraint to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If an increase in the interest rate lowers savings, then

Correct AnswerverifiedShow Answer

Figure 21-6 -Refer to Figure 21-6. Suppose a consumer has $200 in income, the price of popcorn is $1, and the price of Mt. Dew is $2. What is the value of B?

Correct AnswerverifiedShow Answer

The substitution effect of an increase in the interest rate will result in an increase in

Correct AnswerverifiedShow Answer

The goal of the consumer is to

Correct AnswerverifiedShow Answer

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.

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. Suppose point A was Kevin's optimum last week, and point B is his optimum this week. What happened between last week and this week?

Correct AnswerverifiedThe price ...View AnswerShow Answer

The theory of consumer choice examines

Correct AnswerverifiedShow Answer

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B. According to the graph, which of the following would cause the consumer to move to point A?

Correct AnswerverifiedShow Answer

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's optimal choice is point

Correct AnswerverifiedShow Answer

Utility measures the

Correct AnswerverifiedShow Answer

Consider two goods: peanuts and crackers. The slope of the consumer's budget constraint is measured by the

Correct AnswerverifiedShow Answer

A decrease in the price of DVD players leads consumers to buy more DVD players. From this information we can conclude that DVD players

Correct AnswerverifiedShow Answer

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)

Correct AnswerverifiedShow Answer

Correct Answer
verified
The interest rate is...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
No, only i...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The price ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified