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Exam 21: The Theory of Consumer Choice

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Question 61

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Draw a budget constraint that is consistent with the following prices and income. Income = 200 P_Y = 50 P_X = 25 a.Demonstrate how your original budget constraint would change if income increases to 500. b.Demonstrate how your original budget constraint would change if P_Y decreases to 20. c.Demonstrate how your original budget constraint would change if P_X increases to 40.

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Question 62

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A Giffen good is a good for which

A) a decrease in the price decreases the quantity demanded.
B) the income effect outweighs the substitution effect.
C) an increase in the price decreases the quantity demanded.
D) Both a and b are correct.

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

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Question 63

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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.The bundle of wine and cheese that he purchased at the old prices now costs

A consumer likes two goods: CDs and novels.The five bundles shown in the table below lie on the same indifference curve for the consumer. Which of the following statements regarding these bundles is correct?

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 simultaneous increase in the price of good X and decrease in the price of good Y?

Figure 21-13 -Refer to Figure 21-13.What is the consumer's marginal rate of substitution as she moves from B to C?

Jake experiences an increase in his wages.The hours of labor that he supplies to the market would decrease if

If we observe that William's budget constraint has moved inward,then we know for certain that

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.

Two economists found empirical evidence that when the price of rice decreased in the Hunan province of China,local residents consumed less rice than before the price decrease.The study provides a real-world example of a(n)

A consumer's indifference curves are right angles when,for the consumer,the goods in question are __________.

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

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

Susie wins $2 million in her state's lottery.If Susie keeps working after she wins the money,we can infer that the income effect is larger than the substitution effect for her.

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 A?

Figure 21-9 -Refer to Figure 21-9.If the price of good X is $15,what is the price of good Y?

Suppose a consumer has an income of $800 per month and that she spends her entire income each month on beer and bratwurst.The price of a pint of beer is $5,and the price of a bratwurst is $4.Which of the following combinations of beers and bratwursts represents a point that would lie to the exterior of the consumer's budget constraint?

An optimizing consumer will select a consumption bundle in which

Figure 21-19 The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: -Refer to Figure 21-19.Assume that the consumer has an income of $100 and currently optimizes at bundle A.When the price of marshmallows decreases to $5,which bundle will the optimizing consumer choose?

The marginal rate of substitution is equal to the