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Exam 21: The Theory of Consumer Choice

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Question 41

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The income effect of a price change is depicted by

A) a parallel shift of the budget constraint at the old set of prices.
B) a parallel shift of the budget constraint at the new set of prices.
C) a movement along the budget constraint holding the level of satisfaction constant.
D) not observable and is therefore neither a shift nor a change in the slope of the budget constraint.

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

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Question 42

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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 could reflect a simultaneous decrease in the price of good X and increase in the price of good Y? (i) graph a (ii) graph b (iii) graph c (iv) graph d

A) (ii) only
B) (iii) only
C) (ii) or (iv) only
D) None of the above is correct.

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

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Question 43

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Draw indifference curves that reflect the following preferences. a.pencils with white erasers and pencils with pink erasers b.left shoes and right shoes c.potatoes and rice d.income and polluted water

The following diagram shows a budget constraint for a particular consumer. If the price of X is $20, then what is the price of Y?

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

Figure 21-1 The downward-sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-1. If the consumer's income is $140, then what is the price of a CD?

If we observe that a consumer's budget constraint has shifted outward, we can assume that the consumer will buy

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?

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

Figure 21-32 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. -Refer to Figure 21-32. From the figure we can determine how much income Hannah earns when young and we can determine the interest rate. Could the interest rate rise to a level at which Hannah could afford to be at point D?

Figure 21-25 The figure pertains to a particular consumer. On the axes, X represents the quantity of good X and Y represents the quantity of good Y. -Refer to Figure 21-25. Suppose the price of good X is $10, the price of good Y is $5, and the consumer's income is $210. Then the consumer's optimal choice is to buy

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 8 gallons of ice cream and 5 paperback novels?

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?

The consumer's optimum choice is represented by

What are the two effects of a change in a price that a consumer experiences?

Which of the following is an example of a Giffen good?

A rational person can have a negatively-sloped labor supply curve.

Figure 21-1 The downward-sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-1. A consumer who chooses to spend all of her income could be at which point(s) on the figure?

Scenario 21-4 Frank spends all of his income of $240 per month on shirts and hats. The price of a shirt is $40 and the price of a hat is $30. -Refer to Scenario 21-4. If Frank buys 3 shirts during a certain month, then how many hats does he buy during that month?

Figure 21-20 The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: -Refer to Figure 21-20. Assume that the consumer has an income of $40. If the price of chocolate chips is $4 and the price of marshmallows is $4, the optimizing consumer would choose to purchase