Question 1

Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes a

Accepted Answer

A)   shift to a lower indifference curve, and the consumer buys fewer granola bars.
B)   shift to a higher indifference curve, and the consumer buys more granola bars.
C)   movement along the indifference curve, and the consumer buys fewer granola bars.
D)   movement along the indifference curve, and the consumer buys more granola bars.E) None of the above
F) B) and C)

Question 2

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

Accepted Answer

A) True 
 B)False

Question 3

On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then

Accepted Answer

A)   a pineapple costs six times as much as a pencil.
B)   the opportunity cost of a pineapple is 6 pencils.
C)   the opportunity cost of a pencil is one-sixth of a pineapple.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 4

Violations of the law of demand are assumed to occur

Accepted Answer

A)   regularly.
B)   only when goods are Giffen goods.
C)   only when the substitution effect dominates the income effect.
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 5

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin. 
-Refer to Figure 21-31. If Kevin's income is $2,520 and point B is his optimum, then what is the price of a shirt?

Accepted Answer

The price ...

Question 6

In the work-leisure model, suppose consumption and leisure are both normal goods. The income effect of a wage increase results in the worker choosing to

Accepted Answer

A)   work less than before.
B)   work more than before.
C)   possibly work more or less than before.
D)   work more with a higher level of consumption.E) A) and B)
F) C) and D)

Question 7

Jordan is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires. When the income effect dominates the substitution effect, an increase in the interest rate on savings will cause him to

Accepted Answer

A)   decrease his savings rate.
B)   increase his savings rate.
C)   continue saving at the current rate.
D)   Any of the above could be correct.E) None of the above
F) A) and B)

Question 8

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

Accepted Answer

A)   the income effect is larger than the substitution effect.
B)   the substitution effect is larger than the income effect.
C)   neither the income effect nor the substitution effect apply to Tom's labor­leisure tradeoff.
D)   Ryan views both labor and leisure as inferior goods.E) C) and D)
F) A) and B)

Question 9

Karen, Tara, and Chelsea 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. Karen has a budget of $80, Tara has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 5 gallons of ice cream and 8 paperback novels?

Accepted Answer

A)   Karen, Tara, and Chelsea
B)   Karen only
C)   Tara and Chelsea but not Karen
D)   none of the womenE) C) and D)
F) B) and D)

Question 10

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin. 
-Refer to Figure 21-31. Suppose Kevin is optimally purchasing 21 shirts and 28 sweaters, and he is spending $1,680 on sweaters. What is the price of a shirt?

Accepted Answer

Given that Kevin is optimally purchasing...

Question 11

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of Ramen noodles, by itself, will result in

Accepted Answer

A)   a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
B)   a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles.
C)   an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles.
D)   an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.E) C) and D)
F) B) and C)

Question 12

Figure 21-8 
-Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is

Accepted Answer

A)   AB.
B)   BC.
C)   CD.
D)   DE.E) A) and C)
F) B) and C)

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

Figure 21-9 
-Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good X?

Accepted Answer

A)   $20
B)   $6
C)   $3
D)   $0.33E) C) and D)
F) None of the above

Question 15

The following diagram shows a budget constraint for a particular consumer.  If the price of X is $5, what is the consumer's income?

Accepted Answer

A)   $10
B)   $30
C)   $150
D)   $300E) C) and D)
F) B) and C)

Question 16

Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer named Kevin. 
-Refer to Figure 21-31. For Kevin, are sweaters and shirts substitutes, complements, or neither?

Accepted Answer

Kevin purchases 28 sweaters at...

Question 17

The theory of consumer choice provides the foundation for understanding the

Accepted Answer

A)   structure of a firm.
B)   profitability of a firm.
C)   demand for a firm's product.
D)   supply of a firm's product.E) B) and C)
F) A) and D)

Question 18

The opportunity cost of current household consumption is the

Accepted Answer

A)   wage rate.
B)   market interest rate.
C)   price of the goods consumed.
D)   explicit cost of consumption.E) B) and C)
F) A) and D)

Question 19

Suppose the only two goods that Lorenzo 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

Accepted Answer

A)   the slope of Lorenzo's budget has not changed.
B)   the slope of Lorenzo's budget constraint is flatter at the new prices.
C)   the slope of Lorenzo's budget constraint is steeper at the new prices.
D)   Lorenzo's budget constraint has shifted in a parallel fashion to the budget constraint with the old prices.E) A) and D)
F) A) and B)

Question 20

Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

Accepted Answer

A)   $10
B)   $5
C)   $4
D)   $2E) None of the above
F) A) and D)

Exam 21: The Theory of Consumer Choice

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.

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. For Kevin, are sweaters and shirts substitutes, complements, or neither?

Correct Answer
verified
Kevin purchases 28 sweaters at...
View Answer

Figure 21-8 -Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is

Correct Answer
verified

In the work-leisure model, suppose consumption and leisure are both normal goods. The income effect of a wage increase results in the worker choosing to

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 Kevin is optimally purchasing 21 shirts and 28 sweaters, and he is spending $1,680 on sweaters. What is the price of a shirt?

Correct Answer
verified
Given that Kevin is optimally purchasing...
View Answer

The opportunity cost of current household consumption is the

Correct Answer
verified

Correct Answer
verified

The theory of consumer choice provides the foundation for understanding the

Correct Answer
verified

Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

Correct Answer
verified

Correct Answer
verified

Violations of the law of demand are assumed to occur

Correct Answer
verified

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

Correct Answer
verified

Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes a

Correct Answer
verified

The following diagram shows a budget constraint for a particular consumer. If the price of X is $5, what is the consumer's income?

Correct Answer
verified

Figure 21-9 -Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good X?

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. If Kevin's income is $2,520 and point B is his optimum, then what is the price of a shirt?

Correct Answer
verified
The price ...
View Answer

On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then

Correct Answer
verified

Jordan is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires. When the income effect dominates the substitution effect, an increase in the interest rate on savings will cause him to

Correct Answer
verified

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of Ramen noodles, by itself, will result in

Correct Answer
verified

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

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

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.

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. For Kevin, are sweaters and shirts substitutes, complements, or neither?

Correct AnswerverifiedKevin purchases 28 sweaters at...View AnswerShow Answer

Figure 21-8 -Refer to Figure 21-8. You have $36 to spend on good X and good Y. If good X costs $6 and good Y costs $12, your budget constraint is

Correct AnswerverifiedShow Answer

In the work-leisure model, suppose consumption and leisure are both normal goods. The income effect of a wage increase results in the worker choosing to

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 Kevin is optimally purchasing 21 shirts and 28 sweaters, and he is spending $1,680 on sweaters. What is the price of a shirt?

Correct AnswerverifiedGiven that Kevin is optimally purchasing...View AnswerShow Answer

The opportunity cost of current household consumption is the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The theory of consumer choice provides the foundation for understanding the

Correct AnswerverifiedShow Answer

Grace consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle. Her income is $500 per month. Grace spends all her income each month. She purchases 50 bottles of iced tea and 100 servings of spaghetti. What is the price of a serving of spaghetti?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Violations of the law of demand are assumed to occur

Correct AnswerverifiedShow Answer

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

Correct AnswerverifiedShow Answer

Energy drinks and granola bars are normal goods. When the price of energy drinks decreases, the income effect causes a

Correct AnswerverifiedShow Answer

The following diagram shows a budget constraint for a particular consumer. If the price of X is $5, what is the consumer's income?

Correct AnswerverifiedShow Answer

Figure 21-9 -Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good X?

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 Kevin's income is $2,520 and point B is his optimum, then what is the price of a shirt?

Correct AnswerverifiedThe price ...View AnswerShow Answer

On a graph we draw a consumer's budget constraint, measuring the number of pineapples on the horizontal axis and the number of pencils on the vertical axis. If the slope of the budget constraint is -6, then

Correct AnswerverifiedShow Answer

Jordan is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires. When the income effect dominates the substitution effect, an increase in the interest rate on savings will cause him to

Correct AnswerverifiedShow Answer

Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the substitution effect associated with a decrease in the price of Ramen noodles, by itself, will result in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Kevin purchases 28 sweaters at...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Given that Kevin is optimally purchasing...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The price ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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