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Exam 21: The Theory of Consumer Choice

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Question 161

Multiple Choice

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Prince is currently consuming some of good X and some of good Y. If good Y is a normal good for Prince, then an increase in his income will definitely cause him to

A) increase his consumption of X.
B) increase his consumption of Y.
C) decrease his consumption of X.
D) decrease his consumption of Y.

E) All of the above
F) C) and D)

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Question 162

Multiple Choice

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The substitution effect of a wage decrease in the work-leisure model results in the worker choosing to

A) work less than before.
B) work more than before.
C) possibly work more or less than before.
D) work more with a higher level of consumption.

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

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Question 163

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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 prices of both goods?

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

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 21 shirts and 28 sweaters, and he is spending $1,680 on sweaters. What is the price of a shirt?

The theory of consumer choice examines how

Giffen goods violate the law of demand.

The following diagram shows a budget constraint for a particular consumer. If the price of X is $12, then what is the price of Y?

Figure 21-16 -Refer to Figure 21-16. The price of X is $20, the price of Y is $5, and the consumer's income is $40. Which point represents the consumer's optimal choice?

Which of the following is most likely an inferior good?

Figure 21-9 -Refer to Figure 21-9. If the price of good Y is $5, what is the price of good X?

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. The four curves that are drawn on the figure are

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 many bags of pretzels does he buy each month?

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. What is the slope of Frank's budget constraint if it is drawn with the quantity of shirts on the horizontal axis and the quantity of hats on the vertical axis?

Which of the following is not correct?

Figure 21-23 -Refer to Figure 21-23. When the price of X is $80, the price of Y is $20, and the consumer's income is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The substitution effect can be illustrated as the movement from

Figure 21-6 -Refer to Figure 21-6. Suppose a consumer has $100 in income, the price of popcorn is $2, and the value of B is 100. What is the price of Mt. Dew?

Economic studies of lottery winners and people who have inherited large amounts of money show that

Figure 21-30 The graph shows two budget constraints for a consumer. -Refer to Figure 21-30. Suppose the price of a hamburger is $10 and Budget Constraint A applies. What is the consumer's income? What is the price of a light bulb?

Preston goes to the movies every Sunday afternoon. The movie theater offers 4 combinations of popcorn and beverages: the "mini­combo" costs $5 and includes a small popcorn and a small drink, the "medium­combo" costs $7 and includes a medium popcorn and a medium drink, the "value­combo" also costs $7 and includes a small popcorn and a large drink, and the "large­combo" costs $9 and includes a large popcorn and a large drink. Preston always purchases the "value­combo." We can conclude that