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Exam 21: The Theory of Consumer Choice

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Question 21

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Both Diana and Sarah like jazz music and music by the Beatles. Diana likes music by the Beatles much better than jazz music, whereas Sarah prefers jazz music to music by the Beatles. If we were to graph an indifference curve with CDs by the Beatles on the horizontal axis and jazz CDs on the vertical axis, then

A) Diana and Sarah would have identical indifference curves.
B) Diana's indifference curve would be steeper than Sarah's indifference curve.
C) Sarah's indifference curve would be steeper than Diana's indifference curve.
D) We do not have enough information to compare their indifference curves.

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

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Question 22

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If goods X and Y are both normal goods for Brenda, then an increase in Brenda's income will lead her to __________.

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Question 23

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Figure 21-7 -Refer to Figure 21-7. Suppose a consumer has $500 in income, the price of a book is $10, and the value of B is 50. What is the price of a DVD?

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

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

Economists have found evidence of a Giffen good when studying the consumption of rice in the Chinese province of Hunan.

If the price of bread is zero and the price of cheese is positive, then the budget constraint between bread (on the horizontal axis) and cheese (on the vertical axis) would

A consumer maximizes utility at a point where multiple indifference curves intersect the budget line.

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.

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

A typical consumer consumes both coffee and donuts. After the consumer's income decreases, the consumer consumes more coffee but fewer donuts than before. For this consumer, donuts are a normal good, but coffee is an inferior good.

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.

Frannie spends her income on rice and beans. At her optimum, Frannie's

Which of the following descriptions best depicts the substitution effect?

At the consumer's optimum

Good X is a Giffen good. When the price of X increases, the consumer will consume

Shelley wins $1 million in her state's lottery. If Shelley keeps working after she wins the money, we can infer that the substitution effect must exactly offset the income effect for her.

Figure 21-15 On the graph, Q_x represents the quantity of good x and Q_y represents the quantity of good y. The lines drawn on the graph represent three of Barbara's indifference curves. -Refer to Figure 21-15. For Barbara, goods x and y are

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 $1,260, then what is the price of a sweater?

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. If you save all your money, how much money will you have one year from today?