Question 1

Consumer theory provides the foundation for understanding demand curves because

Accepted Answer

A)   each point on a demand curve represents an optimal choice point.
B)   consumers purchase more inferior goods than normal goods.
C)   increases in income cause the budget constraint to rotate inward along one axis,which changes the consumer's purchases.
D)   increases in income cause the budget constraint to rotate outward along one axis,which changes the consumer's purchases.E) None of the above
F) B) and C)

Question 2

Alicia is a vegetarian,so she does not eat beef.That is,beef provides no additional utility to Alicia.She loves potatoes,however.If we illustrate Alicia's indifference curves by drawing beef on the horizontal axis and potatoes on the vertical axis,her indifference curves will

Accepted Answer

A)   slope downward.
B)   be vertical straight lines.
C)   slope upward.
D)   be horizontal straight lines.E) None of the above
F) A) and B)

Question 3

When the indifference curve is tangent to the budget constraint,

Accepted Answer

A)   a consumer cannot be made better off without an increase in her income or a price decrease in one of the goods she consumes.
B)   the consumer is likely to be at a sub-optimal level of consumption.
C)   income is at its optimum for a consumer.
D)   indifference curves are likely to intersect.E) B) and D)
F) None of the above

Question 4

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

Accepted Answer

A)   $2
B)   $10
C)   $30
D)   $300E) A) and B)
F) B) and C)

Question 5

The goal of the consumer is to

Accepted Answer

A)   maximize utility.
B)   be on the highest indifference curve.
C)   maximize satisfaction.
D)   All of the above are the goals of the consumer.E) C) and D)
F) B) and C)

Question 6

For a typical consumer,indifference curves can intersect if they satisfy the property of transitivity.

Accepted Answer

A) True 
 B)False  False

Question 7

John is planning ahead for retirement in a two-period world.When John is young he will earn $1 million,and when John is old and retired he will be given $50,000 from Social Security.If the interest rate between the two time periods is 7 percent,what is the slope of John's budget constraint when considering the consumption possibilities between the two periods if consumption when young is graphed on the horizontal axis and consumption when old is graphed on the vertical axis?

Accepted Answer

A)   -0.89
B)   -1.05
C)   -1.07
D)   -1.12E) A) and B)
F) A) and C)

Question 8

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) All of the above

Question 9

The theory of consumer choice explains how people choose between

Accepted Answer

A)   textbooks and energy drinks.
B)   labor and leisure.
C)   spending now and spending in the future.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 10

Figure 21-11 
-Refer to Figure 21-11.What is the consumer's marginal rate of substitution as she moves from B to C?

Accepted Answer

A)   12
B)   6
C)   4
D)   1E) A) and D)
F) A) and C)

Question 11

An optimizing consumer will select the consumption bundle in which the

Accepted Answer

A)   ratio of total utilities is equal to the relative price ratio.
B)   ratio of income to price equals the marginal rate of substitution.
C)   marginal rate of substitution is equal to the relative price ratio of the goods.
D)   marginal rate of substitution is equal to marginal utility.E) A) and B)
F) A) and D)

Question 12

An increase 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) All of the above
F) A) and D)

Question 13

A rational consumer maximizes her

Accepted Answer

A)   preferences.
B)   marginal rate of substitution.
C)   utility.
D)   budget constraint.E) C) and D)
F) B) and C)

Question 14

Evaluate the following statement,"Warren Buffet is the second richest person in the world.He doesn't face any constraint on his ability to purchase commodities he wants."

Accepted Answer

All people face scarcity of re...

Question 15

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

Accepted Answer

A)   $20
B)   $6
C)   $3
D)   $0.33E) A) and D)
F) A) and C)

Question 16

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 that you borrow $60 and spend $160 today.After you repay your loan one year from today,how much money will you have available for consumption one year from today?

Accepted Answer

A)   $0
B)   $25
C)   $50
D)   $75E) A) and C)
F) A) and B)

Question 17

Budget constraints exist for consumers because

Accepted Answer

A)   their utility from consuming goods eventually reaches a maximum level.
B)   even with unlimited incomes they have to pay for each good they consume.
C)   they have to pay for goods,and they have limited incomes.
D)   prices and incomes are inversely related.E) B) and D)
F) All of the above

Question 18

Which of the following is not correct?

Accepted Answer

A)   Indifference curves are downward sloping.
B)   Indifference curves that are closer to the origin are preferred to indifference curves that are further from the origin.
C)   Indifference curves are bowed in toward the origin.
D)   Indifference curves do not cross.E) None of the above
F) A) and C)

Question 19

Figure 21-2.The graph shows two budget constraints for a consumer. 
-Refer to Figure 21-2.Suppose Budget Constraint B applies.If the consumer's income is $90 and if he is buying 5 light bulbs,then how much money is he spending on hamburgers?

Accepted Answer

If income is $90,then the price of a light bulb is $90/15 = $6.He is then spending ($6)(5)= $30 on light bulbs,so he is spending $90 - $30 = $60 on hamburgers.(The price of a hamburger is $90/9 = $10 and he is buying 6 hamburgers. )

Question 20

The indifference curves for perfect substitutes are straight lines.

Accepted Answer

A) True 
 B)False  True

Exam 21: The Theory of Consumer Choice

Consumer theory provides the foundation for understanding demand curves because

Correct Answer
verified

Alicia is a vegetarian,so she does not eat beef.That is,beef provides no additional utility to Alicia.She loves potatoes,however.If we illustrate Alicia's indifference curves by drawing beef on the horizontal axis and potatoes on the vertical axis,her indifference curves will

Correct Answer
verified

When the indifference curve is tangent to the budget constraint,

Correct Answer
verified

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

Correct Answer
verified

The goal of the consumer is to

Correct Answer
verified

For a typical consumer,indifference curves can intersect if they satisfy the property of transitivity.

Correct Answer
verified
False

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

The theory of consumer choice explains how people choose between

Correct Answer
verified

Figure 21-11 -Refer to Figure 21-11.What is the consumer's marginal rate of substitution as she moves from B to C?

Correct Answer
verified

An optimizing consumer will select the consumption bundle in which the

Correct Answer
verified

An increase in income will cause a consumer's budget constraint to

Correct Answer
verified

A rational consumer maximizes her

Correct Answer
verified

Evaluate the following statement,"Warren Buffet is the second richest person in the world.He doesn't face any constraint on his ability to purchase commodities he wants."

Correct Answer
verified
All people face scarcity of re...
View Answer

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

Correct Answer
verified

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Budget constraints exist for consumers because

Correct Answer
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Which of the following is not correct?

Correct Answer
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Figure 21-2.The graph shows two budget constraints for a consumer. -Refer to Figure 21-2.Suppose Budget Constraint B applies.If the consumer's income is $90 and if he is buying 5 light bulbs,then how much money is he spending on hamburgers?

Correct Answer
verified
If income is $90,then the price of a light bulb is $90/15 = $6.He is then spending ($6)(5)= $30 on light bulbs,so he is spending $90 - $30 = $60 on hamburgers.(The price of a hamburger is $90/9 = $10 and he is buying 6 hamburgers. )

The indifference curves for perfect substitutes are straight lines.

Correct Answer
verified
True

Exam 21: The Theory of Consumer Choice

Consumer theory provides the foundation for understanding demand curves because

Correct AnswerverifiedShow Answer

Alicia is a vegetarian,so she does not eat beef.That is,beef provides no additional utility to Alicia.She loves potatoes,however.If we illustrate Alicia's indifference curves by drawing beef on the horizontal axis and potatoes on the vertical axis,her indifference curves will

Correct AnswerverifiedShow Answer

When the indifference curve is tangent to the budget constraint,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The goal of the consumer is to

Correct AnswerverifiedShow Answer

For a typical consumer,indifference curves can intersect if they satisfy the property of transitivity.

Correct AnswerverifiedFalse

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

The theory of consumer choice explains how people choose between

Correct AnswerverifiedShow Answer

Figure 21-11 -Refer to Figure 21-11.What is the consumer's marginal rate of substitution as she moves from B to C?

Correct AnswerverifiedShow Answer

An optimizing consumer will select the consumption bundle in which the

Correct AnswerverifiedShow Answer

An increase in income will cause a consumer's budget constraint to

Correct AnswerverifiedShow Answer

A rational consumer maximizes her

Correct AnswerverifiedShow Answer

Evaluate the following statement,"Warren Buffet is the second richest person in the world.He doesn't face any constraint on his ability to purchase commodities he wants."

Correct AnswerverifiedAll people face scarcity of re...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Budget constraints exist for consumers because

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Figure 21-2.The graph shows two budget constraints for a consumer. -Refer to Figure 21-2.Suppose Budget Constraint B applies.If the consumer's income is $90 and if he is buying 5 light bulbs,then how much money is he spending on hamburgers?

Correct AnswerverifiedIf income is $90,then the price of a light bulb is $90/15 = $6.He is then spending ($6)(5)= $30 on light bulbs,so he is spending $90 - $30 = $60 on hamburgers.(The price of a hamburger is $90/9 = $10 and he is buying 6 hamburgers. )

The indifference curves for perfect substitutes are straight lines.

Correct AnswerverifiedTrue

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False

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Correct Answer
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Correct Answer
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Correct Answer
verified
All people face scarcity of re...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
If income is $90,then the price of a light bulb is $90/15 = $6.He is then spending ($6)(5)= $30 on light bulbs,so he is spending $90 - $30 = $60 on hamburgers.(The price of a hamburger is $90/9 = $10 and he is buying 6 hamburgers. )

Correct Answer
verified
True