Question 1

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

Question 2

Giffen goods have positively-sloped demand curves because they are

Accepted Answer

A)   normal goods for which the income effect outweighs the substitution effect.
B)   normal goods for which the substitution effect outweighs the income effect.
C)   inferior goods for which the income effect outweighs the substitution effect.
D)   inferior goods for which the substitution effect outweighs the income effect.E) B) and C)
F) A) and C)

Question 3

A consumer has preferences over two goods, X and Y. Suppose we graph this consumer's preferences (which satisfy the usual properties of indifference curves)  and budget constraint on a diagram with X on the horizontal axis and Y on the vertical axis. At the consumer's current consumption bundle, the consumer is spending all available income, and the marginal rate of substitution is greater than the slope of the budget constraint. We can conclude that the consumer

Accepted Answer

A)   is currently maximizing satisfaction subject to the budget constraint.
B)   could increase satisfaction by consuming more X and less Y.
C)   could increase satisfaction by consuming less X and more Y.
D)   could purchase more X and more Y and increase total satisfaction.E) A) and B)
F) B) and C)

Question 4

A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals. How many meals could the family afford if they gave up two nights in the hotel?

Accepted Answer

A)   1
B)   2
C)   5
D)   8E) A) and C)
F) A) and B)

Question 5

If an increase in the interest rate raises savings, then

Accepted Answer

A)   the substitution effect is greater than the income effect.
B)   the income effect is greater than the substitution effect.
C)   the income effect and the substitution effect move in the same direction.
D)   we are unable to determine the sizes of the income and substitution effects without more information.E) C) and D)
F) A) and C)

Question 6

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 income effect associated with an increase in the price of a textbook 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) All of the above
F) A) and B)

Question 7

A consumer's budget constraint is drawn on a graph with the number of sandwiches measured along the horizontal axis and the number of bowls of soup measured along the vertical axis. Hold the consumer's income and the price of a sandwich fixed, and increase the price of a bowl of soup. Describe the effect on the budget constraint.

Accepted Answer

The horizontal intercept is un...

Question 8

A family on a trip budgets $1,000 for meals and gasoline. If the price of a meal for the family is $50 and if gasoline costs $3.50 per gallon, then how many meals can the family buy if they buy 100 gallons of gasoline?

Accepted Answer

A)   13
B)   16
C)   19
D)   21E) A) and D)
F) None of the above

Question 9

Traci consumes two goods, lemonade and pretzels. Lemonade costs $1 per glass, and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 3. Pretzels cost $2 per bag. The relationship between the marginal utility Traci gets from eating a bag of pretzels and the number of bags she eats per month is as follows:  If Traci is maximizing his utility, how much does she spend on pretzels each month?

Accepted Answer

A)   $2
B)   $6
C)   $8
D)   $12E) B) and D)
F) A) and D)

Question 10

Figure 21-2
The downward­sloping line on the figure represents a consumer's budget constraint. 
-Refer to Figure 21-2. Which points are affordable?

Accepted Answer

A)   W, X, and Y only
B)   Z only
C)   V, W, X, and Y only
D)   V, W, X, Y, and ZE) B) and C)
F) A) and D)

Question 11

Figure 21-1
The downward­sloping 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?

Accepted Answer

A)   $3
B)   $5
C)   $7
D)   $9E) B) and C)
F) All of the above

Question 12

Figure 21-16 
-Refer to Figure 21-16. The price of X is $25, the price of Y is $25, and the consumer's income is $100. Which point represents the consumer's optimal choice?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) A) and D)
F) B) and D)

Question 13

We can use the theory of consumer choice to analyze

Accepted Answer

A)   why most demand curves slope downward.
B)   the tradeoff between work and leisure
C)   how interest rates affect household saving.
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 14

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?

Accepted Answer

A)   a decrease in the price of X
B)   an increase in the price of Y
C)   a decrease in the price of Y
D)   More than one of the above could explain this change.E) None of the above
F) B) and D)

Question 15

A consumer who doesn't spend all of her income

Accepted Answer

A)   would be at a point outside of her budget constraint.
B)   would be at a point inside her budget constraint.
C)   must not be consuming positive quantities of all goods.
D)   must be consuming at a point where her budget constraint touches one of the axes.E) A) and B)
F) C) and D)

Question 16

A consumer's optimal choice occurs when the

Accepted Answer

A)   consumer's valuation of the two goods equals the market's valuation of the two goods.
B)   consumer minimizes her expenditures.
C)   consumer attains the highest indifference curve.
D)   consumer's valuation of the two goods exceeds the market's valuation of the two goods.E) A) and B)
F) A) and C)

Question 17

The theory of consumer choice illustrates that people face tradeoffs, which is one of the Ten Principles of Economics.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

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

Accepted Answer

A)   his income must have decreased.
B)   he will be indifferent between goods X and Y.
C)   the price of one or both of the goods must have increased.
D)   his utility will decrease.E) None of the above
F) All of the above

Question 20

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 12 shirts and 28 sweaters, and he is spending $648 on shirts. What is the price of a sweater?

Accepted Answer

Given that Kevin is optimally purchasing...

Exam 21: The Theory of Consumer Choice

The theory of consumer choice illustrates that people face tradeoffs, which is one of the Ten Principles of Economics.

Correct Answer
verified

Correct Answer
verified
The horizontal intercept is un...
View Answer

We can use the theory of consumer choice to analyze

Correct Answer
verified

A consumer who doesn't spend all of her income

Correct Answer
verified

Correct Answer
verified

The opportunity cost of current household consumption is the

Correct Answer
verified

Giffen goods have positively-sloped demand curves because they are

Correct Answer
verified

Figure 21-1 The downwardsloping 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?

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 income effect associated with an increase in the price of a textbook will result in

Correct Answer
verified

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

Correct Answer
verified

Figure 21-16 -Refer to Figure 21-16. The price of X is $25, the price of Y is $25, and the consumer's income is $100. Which point represents the consumer's optimal choice?

Correct Answer
verified

A consumer's optimal choice occurs when the

Correct Answer
verified

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

Correct Answer
verified

If an increase in the interest rate raises savings, then

Correct Answer
verified

A family on a trip budgets $1,000 for meals and gasoline. If the price of a meal for the family is $50 and if gasoline costs $3.50 per gallon, then how many meals can the family buy if they buy 100 gallons of gasoline?

Correct Answer
verified

Figure 21-2 The downwardsloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which points are affordable?

Correct Answer
verified

A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals. How many meals could the family afford if they gave up two nights in the hotel?

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 12 shirts and 28 sweaters, and he is spending $648 on shirts. What is the price of a sweater?

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

Correct Answer
verified

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?

Correct Answer
verified

Exam 21: The Theory of Consumer Choice

The theory of consumer choice illustrates that people face tradeoffs, which is one of the Ten Principles of Economics.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe horizontal intercept is un...View AnswerShow Answer

We can use the theory of consumer choice to analyze

Correct AnswerverifiedShow Answer

A consumer who doesn't spend all of her income

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The opportunity cost of current household consumption is the

Correct AnswerverifiedShow Answer

Giffen goods have positively-sloped demand curves because they are

Correct AnswerverifiedShow Answer

Figure 21-1 The downward­sloping 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?

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 income effect associated with an increase in the price of a textbook will result in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 21-16 -Refer to Figure 21-16. The price of X is $25, the price of Y is $25, and the consumer's income is $100. Which point represents the consumer's optimal choice?

Correct AnswerverifiedShow Answer

A consumer's optimal choice occurs when the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If an increase in the interest rate raises savings, then

Correct AnswerverifiedShow Answer

A family on a trip budgets $1,000 for meals and gasoline. If the price of a meal for the family is $50 and if gasoline costs $3.50 per gallon, then how many meals can the family buy if they buy 100 gallons of gasoline?

Correct AnswerverifiedShow Answer

Figure 21-2 The downward­sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which points are affordable?

Correct AnswerverifiedShow Answer

A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals. How many meals could the family afford if they gave up two nights in the hotel?

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 12 shirts and 28 sweaters, and he is spending $648 on shirts. What is the price of a sweater?

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
The horizontal intercept is un...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 21-1 The downwardsloping 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?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 21-2 The downwardsloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which points are affordable?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified