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Exam 21: The Theory of Consumer Choice

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Question 181

Multiple Choice

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If income decreases and prices are unchanged, the consumer's budget constraint

A) remains the same.
B) shifts outward.
C) shifts inward.
D) rotates outward along the horizontal axis.

E) B) and C)
F) None of the above

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Question 182

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Figure 21-28 The figure below illustrates the preferences for a representative consumer, Christopher. -Refer to Figure 21-28. Interest rates increase by 3 percent. Christopher's optimal choice point moves from A to B Christopher consumes

A) less while he is younger and saves more than he did before interest rates increased.
B) more while he is younger and saves more than he did before interest rates increased.
C) less while he is younger and saves less than he did before interest rates increased.
D) more while he is younger and saves less than he did before interest rates increased.

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

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Question 183

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Figure 21-27 -Refer to Figure 21-27. Anna experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Anna,

In order to represent a consumer's choices on a graph, we draw her budget constraint as well as her curves.

Mark spends his weekly income on gin and cocktail olives. The price of gin has risen from $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and Mark's income has stayed fixed at $46 per week. If you measure gin on the vertical axis and cocktail olives on the horizontal axis, then the budget constraint

A consumer consumes two normal goods, sandwiches and milk. When the price of milk is $0.50 per glass, the consumer purchases 40 glasses. When the price rises to $0.65 per glass, the consumer purchases 30 glasses. We can use the information provided by the consumer's optimum choices to derive the

The rate at which a consumer is willing to trade off one good for another is called the .

If a consumer purchases more of good B when his income rises, good B is an inferior good.

Figure 21-3 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-3. Which of the graphs in the figure reflects a decrease in the price of good X only?

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 less than the slope of the budget constraint. We can conclude that the consumer

Suppose a consumer spends her income on two goods: music CDs and DVDs. The price of a CD is $8, and the price of a DVD is $20. If we graph the budget constraint by measuring the quantity of CDs purchased on the vertical axis and the quantity of DVDs on the horizontal axis, what is the slope of the budget constraint?

Thomas faces prices of $6 for a unit of good X and $30 for a unit of good Y. At his optimum, Thomas is willing to give up 1 unit of good Y for units of good X.

At a consumer's optimal choice, the consumer chooses the combination of goods such that the ratio of the marginal utilities equals the ratio of the prices.

What does the slope of a budget constraint represent?

When Stanley has an income of $1,000, he consumes 30 units of good A and 50 units of good B. After Stanley's income increases to $1,500, he consumes 60 units of good A and 45 units of good B. Which of the following statements is correct?

On a graph we draw a consumer's budget constraint, measuring the number of apples on the horizontal axis and the number of light bulbs on the vertical axis. If the slope of the budget constraint is -2, then

The marginal rate of substitution between two goods always equals the

Scenario 21-2 Lawrence has recently graduated from college with a degree in journalism and economics. He has decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Lawrence is typically awake for 112 hours each week (he sleeps an average of 8 hours each day) . For each hour Lawrence spends writing, he can earn $75. Lawrence is such a good writer that he can get paid for as many hours of writing as he chooses to work. -Refer to Scenario 21-2. If Lawrence decides to spend 80 hours a week playing volleyball on the beach and the rest of his time writing, how much income will he have available to spend on consumption goods?

If the price of a good increases, all else equal, consumers perceive

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?