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Exam 21: The Theory of Consumer Choice

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Question 71

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The indifference curves for perfect substitutes are straight lines.

A) True
B) False

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Question 72

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Suppose a consumer is currently spending all of her available income on two goods: music CDs and DVDs. If the price of a CD is $9, the price of a DVD is $18, and she is currently consuming 10 CDs and 5 DVDs, what is the consumer's income?

A) $90
B) $180
C) $270
D) $360

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

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Question 73

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Teresa faces prices of $6.00 for a unit of good X and $1.50 for a unit of good Y. At her optimum, Teresa is willing to give up 1 unit of good X for __________ units of good Y.

For a typical consumer, most indifference curves are downward sloping.

If a consumer purchases more of good B when his income rises, good B is an inferior good.

Indifference curves illustrate

For Antonio, the income effect of an interest-rate increase is stronger than the substitution effect. In response to a higher interest rate, will Antonio save more or will he save less?

Suppose Jamie can choose between consuming two goods. If we observe that Jamie's budget constraint has moved outward, then we know for certain that

Figure 21-16 The following figure illustrates the preferences of a representative consumer, Nathaniel. -Refer to Figure 21-16. A change in Nathaniel's optimum from point A to point B results from

A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume

Figure 21-1 -Refer to Figure 21-1. All of the points identified on the figure represent affordable consumption options with the exception of

Figure 21-17 The graph shows two budget constraints for a consumer. ​ ​ -Refer to Figure 21-17. What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

The income effect of a price change is unaffected by whether the good is a normal or inferior good.

The indifference curves for left shoes and right shoes are right angles.

Figure 21-6 -Refer to Figure 21-6. If the price of good X is $15, what is the price of good Y?

Figure 21-17 The graph shows two budget constraints for a consumer. ​ ​ -Refer to Figure 21-17. 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?

Assume that a consumer's indifference curve is bowed inward and negatively sloped. As the consumer moves from left to right along the horizontal axis, the consumer's marginal rate of substitution

The substitution effect of a price change is the change in consumption that results from the movement to a new indifference curve.

Figure 21-1 -Refer to Figure 21-1. If the consumer's income is $285, then what is the price of a book?

Assume that a person consumes two goods, Coke and Snickers. Use a graph to demonstrate how the consumer adjusts his/her optimal consumption bundle when the price of Coke decreases. Carefully label all curves and axes. What will happen to consumption if Coke is a normal good? What will happen to consumption if Coke is an inferior good? (Remember to explain the possible change when the income effect dominates and when the substitution effect dominates.)