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Exam 21: The Theory of Consumer Choice

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Question 21

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Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis. 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 now that the interest rate decreases to 10%. What happens to the slope of your budget constraint relative to when the interest rate was 25%? The slope

A) becomes steeper.
B) becomes flatter.
C) doesn't change because the budget constraint shifts in parallel to the original budget constraint.
D) doesn't change because the budget constraint shifts out parallel to the original budget constraint.

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

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Question 22

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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?

A) $5
B) $10
C) $50
D) $100

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

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Question 23

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Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $2. The consumer's optimal choice is point

Traci consumes two goods, lemonade and pretzels. Lemonade costs $2 per glass, and she consumes it to the point where the marginal utility she receives from her last glass of lemonade is 4. Pretzels cost $3 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 her utility, how many bags of pretzels does she buy each month?

Figure 21-24 The figure shows three indifference curves and a budget constraint for a certain consumer named Steve. -Refer to Figure 21-24. At his optimum, Steve is buying

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 $100 and currently optimizes at bundle A. When the price of marshmallows decreases to $5, which bundle will the optimizing consumer choose?

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.

If the consumer's income and all prices simultaneously double, then the optimum consumption bundle will

The indifference curves for nickels and dimes are straight lines.

Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. -Refer to Figure 21-4. Which of the graphs in the figure could reflect a decrease in income?

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , what is the price of good X relative to the price of good Y (i.e., PX/PY) ?

When two goods are perfect complements, the indifference curves are right angles.

An optimizing consumer will select a consumption bundle in which

A good is an inferior good if the consumer buys more of it when

A consumer's indifference curves are straight lines when, for the consumer, the goods in question are__________________________.

The consumer's optimum is where

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?

Bill consumes two goods: iced tea and spaghetti. The price of iced tea is $2 per bottle, and the price of spaghetti is $8 per serving. His income is $1,000 per month. He spends all of his income each month. He purchases 200 bottles of iced tea. How many servings of spaghetti does he purchase?

Consider a consumer who purchases two goods, X and Y. If the price of good Y falls, then the substitution effect by itself will

When Jamar has an income of $2,000, he consumes 30 units of good A and 50 units of good B. After Jamar's income decreases to $1,500, he consumes 33 units of good A and 45 units of good B. Which of the following statements is correct?