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Exam 21: The Theory of Consumer Choice

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Question 21

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Figure 21-10 -Refer to Figure 21-10. Bundle B represents a point where

A) MRS_xy > P_y/P_x.
B) MRS_xy = P_x/P_y.
C) MRS_xy < P_x/P_y.
D) MRS_xy > P_x/P_y.

E) None of the above
F) B) and D)

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Question 22

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When a consumer spends less time enjoying leisure and more time working, she has

A) lower income and therefore cannot afford more consumption.
B) lower income and therefore can afford more consumption.
C) higher income and therefore cannot afford more consumption.
D) higher income and therefore can afford more consumption.

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

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Question 23

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Figure 21-17 The graph shows two budget constraints for a consumer. ​ ​ -Refer to Figure 21-17. Suppose the price of a light bulb is $3 and Budget Constraint B applies. What is the consumer's income? What is the price of a hamburger?

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

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

When we draw Katie's indifference curves to represent her preferences for books and movies, we find that her indifference curves are upward-sloping. What does this tell us about Katie's preferences?

Figure 21-19 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. ​ -Refer to Figure 21-19. At two of the four labeled points, Hannah is equally happy. Identify those two points.

Figure 21-18 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. ​ -Refer to Figure 21-18. If the price of a shirt is $36 and point A is Kevin's optimum, then what is Kevin's income?

The slope of a consumer's budget constraint is unaffected by a change in income.

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

Amira prefers apples to oranges. She prefers bananas to grapes, but she is indifferent between oranges and grapes. Which of the following statements can we say for sure?

Goods x and y are available to Jeff. At Jeff's optimum, the marginal utility per dollar spent on good x equals __________________.

The rate at which a consumer is willing to trade off one good for another is called the __________.

Assume that a consumer faces the following budget constraints. a.Assuming that income is the same on both occasions, describe the difference in relative prices between Panel A and Panel B. b.If income in Panel B is $126, what is the price of good X? c.If income in Panel A is $84, what is the price of good Y? d.Assuming that the price of good X is the same on both occasions, describe the difference in income and price of good Y between Panel A and Panel B.

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. Consider the budget constraint between "spending today" on the horizontal axis and "spending a year from today" on the vertical axis. What is the slope of this budget constraint?

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

Scenario 21-2 Aliyah has recently graduated from college with a degree in journalism and economics. She has decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Aliyah is typically awake for 119 hours each week (she sleeps an average of seven hours each day) . For each hour Aliyah spends writing, she can earn $75. Aliyah is such a good writer that she can get paid for as many hours of writing as she chooses to work. -Refer to Scenario 21-2. If Aliyah's wage increases to $85 per hour of writing, which of the following points would fall on her budget constraint?

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

Figure 21-18 The figure shows two indifference curves and two budget constraints for a consumer named Kevin. ​ -Refer to Figure 21-18. If Kevin's income is $2,520 and point B is his optimum, then what is the price of a shirt?

Figure 21-19 The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns income. When old, she is retired and earns no income. ​ -Refer to Figure 21-19. What is the value of the interest rate that Hannah earns on her saving?