Question 1

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

Accepted Answer

A)  People face trade-offs.
B)  Governments can sometimes improve market outcomes.
C)  Trade can make everyone better off.
D)  Markets are usually a good way to organize economic activity.E) None of the above
F) A) and D)

Question 2

Suppose a consumer has preferences over two goods, X and Y, which are perfect substitutes. In particular, two units of X is equivalent to one unit of Y. If the price of X is $1, the price of Y is $3, and the consumer has $30 of income to allocate to these two goods, how much of each good should the consumer purchase to maximize satisfaction?

Accepted Answer

A)  30 units of X and 0 units of Y
B)  0 units of X and 10 units of Y
C)  15 units of X and 5 units of Y
D)  15 units of X and 0 units of YE) B) and D)
F) B) and C)

Question 3

Figure 21-29
The figure below illustrates the preferences of a representative consumer, Nathaniel. 
-Refer to Figure 21-29. Interest rates increase by 4 percent. Nathaniel's optimal choice point moves from A to B. Nathaniel consumes

Accepted Answer

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) B) and C)
F) C) and D)

Question 4

Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis. Suppose that you have $100 today and expect to receive $100 one year from today. Your money market account pays an annual interest rate of 25%, and you may borrow money at that interest rate. Suppose now that the interest rate increases to 40%. What happens to the slope of your budget constraint relative to when the interest rate was 25%? The slope

Accepted Answer

A)  becomes steeper.
B)  becomes flatter.
C)  doesn't change because the budget constraint shifts in parallel to the original budget constraint.
D)  doesn't change because the budget constraint shifts out parallel to the original budget constraint.E) B) and D)
F) A) and C)

Question 5

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

Accepted Answer

A)  4
B)  2
C)  1
D)  0.5E) B) and C)
F) C) and D)

Question 6

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 7

The indifference curves for perfect substitutes are right angles.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is not​ true?

Accepted Answer

A)  ​When consumers purchase more of one good, they are giving up the ability to buy as much of other goods.
B)  ​When consumers choose to take more leisure time, they are giving up the ability to consume as much as before.
C)  ​Consumers face consumption tradeoffs because they have limited income.
D)  ​Consumers face consumption tradeoffs because they have limited preferences for goods.E) A) and B)
F) All of the above

Question 9

If a consumer purchases more of good A when her income falls, good A is an inferior good.

Accepted Answer

A) True 
 B)False

Question 10

When two goods are perfect complements, the indifference curves will

Accepted Answer

A)  have a positive slope.
B)  be right angles.
C)  have a constant marginal rate of substitution.
D)  Both b and c are correct.E) A) and B)
F) A) and C)

Question 11

Figure 21-30 The graph shows two budget constraints for a consumer. 
-Refer to Figure 21-30. What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

Accepted Answer

A decrease in the pr...

Question 12

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s)  can afford to purchase 5 slices of pizza and 5 paperback novels?

Accepted Answer

A)  Jack only
B)  Diane only
C)  both Jack and Diane
D)  neither Jack nor DianeE) A) and D)
F) A) and C)

Question 13

How are the following three questions related: 1)  Do all demand curves slope downward? 2)  How do wages affect labor supply? 3)  How do interest rates affect household saving?

Accepted Answer

A)  They all relate to macroeconomics.
B)  They all relate to monetary economics.
C)  They all relate to the theory of consumer choice.
D)  They are not related to each other in any way.E) All of the above
F) A) and C)

Question 14

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,

Accepted Answer

A)  her labor supply curve is backward bending.
B)  her labor supply curve is upward sloping.
C)  leisure is an inferior good.
D)  both a and c are correct.E) B) and D)
F) B) and C)

Question 15

Figure 21-5
(a) 
(b)   
-Refer to Figure 21-5. In graph (a) , if income is equal to $200, then the price of good Y is

Accepted Answer

A)  $3.
B)  $5.
C)  $7.
D)  $10.E) B) and C)
F) A) and C)

Question 16

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the

Accepted Answer

A)  prices of the products.
B)  amount of each good the consumer is currently consuming.
C)  consumer's income.
D)  marginal value product.E) None of the above
F) A) and D)

Question 17

An increase in the interest rate today leading to a decrease in consumption today violates the law of demand.​

Accepted Answer

A) True 
 B)False

Question 18

Calvin 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 substitution effect dominates the income effect, an increase in the interest rate on savings will cause him to

Accepted Answer

A)  increase his savings rate.
B)  decrease his savings rate.
C)  continue saving at the same rate.
D)  Any of the above are possible.E) A) and B)
F) None of the above

Question 19

Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and the price of a book is $15. If she has $120 in income, she could choose to consume

Accepted Answer

A)  8 pizzas and 4 books.
B)  4 pizzas and 6 books.
C)  5 pizzas and 5 books.
D)  2 pizzas and 7 books.E) None of the above
F) A) and B)

Question 20

The consumer's optimum choice is represented by

Accepted Answer

A)  MUx/MUy = Px/Py.
B)  MUx/Px = MUy/Py.
C)  MRSxy = Px/Py.
D)  All of the above are correct.E) B) and D)
F) B) and C)

Exam 21: The Theory of Consumer Choice

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the

Correct Answer
verified

Calvin 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 substitution effect dominates the income effect, an increase in the interest rate on savings will cause him to

Correct Answer
verified

Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

Correct Answer
verified
A decrease in the pr...
View Answer

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,

Correct Answer
verified

If a consumer purchases more of good A when her income falls, good A is an inferior good.

Correct Answer
verified

Which of the following statements is not true?

Correct Answer
verified

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , if income is equal to $200, then the price of good Y is

Correct Answer
verified

An increase in the interest rate today leading to a decrease in consumption today violates the law of demand.

Correct Answer
verified

The consumer's optimum choice is represented by

Correct Answer
verified

Figure 21-29 The figure below illustrates the preferences of a representative consumer, Nathaniel. -Refer to Figure 21-29. Interest rates increase by 4 percent. Nathaniel's optimal choice point moves from A to B. Nathaniel consumes

Correct Answer
verified

The indifference curves for perfect substitutes are right angles.

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

When two goods are perfect complements, the indifference curves will

Correct Answer
verified

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

Correct Answer
verified

Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and the price of a book is $15. If she has $120 in income, she could choose to consume

Correct Answer
verified

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

Correct Answer
verified

How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving?

Correct Answer
verified

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 5 slices of pizza and 5 paperback novels?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the

Correct AnswerverifiedShow Answer

Calvin 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 substitution effect dominates the income effect, an increase in the interest rate on savings will cause him to

Correct AnswerverifiedShow Answer

Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

Correct AnswerverifiedA decrease in the pr...View AnswerShow Answer

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,

Correct AnswerverifiedShow Answer

If a consumer purchases more of good A when her income falls, good A is an inferior good.

Correct AnswerverifiedShow Answer

Which of the following statements is not​ true?

Correct AnswerverifiedShow Answer

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , if income is equal to $200, then the price of good Y is

Correct AnswerverifiedShow Answer

An increase in the interest rate today leading to a decrease in consumption today violates the law of demand.​

Correct AnswerverifiedShow Answer

The consumer's optimum choice is represented by

Correct AnswerverifiedShow Answer

Figure 21-29 The figure below illustrates the preferences of a representative consumer, Nathaniel. -Refer to Figure 21-29. Interest rates increase by 4 percent. Nathaniel's optimal choice point moves from A to B. Nathaniel consumes

Correct AnswerverifiedShow Answer

The indifference curves for perfect substitutes are right angles.

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

When two goods are perfect complements, the indifference curves will

Correct AnswerverifiedShow Answer

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

Correct AnswerverifiedShow Answer

Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and the price of a book is $15. If she has $120 in income, she could choose to consume

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving?

Correct AnswerverifiedShow Answer

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 5 slices of pizza and 5 paperback novels?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A decrease in the pr...
View Answer

Correct Answer
verified

Correct Answer
verified

Which of the following statements is not true?

Correct Answer
verified

Correct Answer
verified

An increase in the interest rate today leading to a decrease in consumption today violates the law of demand.

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified