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A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?


A) $4
B) $8
C) $12
D) $20

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

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A consumer's indifference curves are right angles when, for the consumer, the goods in question are .

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The theory of consumer choice


A) underlies the concept of the demand for a particular good.
B) underlies the concept of the supply of a particular good.
C) ignores, for the sake of simplicity, the trade-offs that consumers face.
D) can be applied to many questions about household decisions, but it cannot be applied to questions concerning wages and labor supply.

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

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Suppose that for Emily, DVDs and trips to the movie theater are perfect substitutes. Currently, Emily is spending all of her income on trips to the movie theater. If the price of DVDs doubles, the substitution effect will


A) be two times the income effect.
B) be half the income effect.
C) be zero.
D) always increase the number of trips to the movie theater Emily makes.

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

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In the upward-sloping portion of the individual labor-supply curve, the substitution effect is


A) greater than the income effect.
B) less than the income effect.
C) equal to the income effect.
D) exactly offset by the income effect.

E) None of the above
F) All of the above

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Explain the relationship between the budget constraint and indifference curve at a consumer's optimum.

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Because the budget constraint is tangent...

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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 that you borrow $60 and spend $160 today. After you repay your loan one year from today, how much money will you have available for consumption one year from today?


A) $0
B) $25
C) $50
D) $75

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

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A consumer chooses an optimal consumption point where the


A) marginal rate of substitution is maximized.
B) slope of the indifference curve exceeds the slope of the budget constraint by the greatest amount.
C) ratio of the marginal utilities equals the ratio of the prices.
D) All of the above are correct.

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

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Figure 21-4 In each case, the budget constraint moves from BC-1 to BC-2. 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 an increase in income? A) graph a B) graph b C) graph d D) None of the above is correct. -Refer to Figure 21-4. Which of the graphs in the figure could reflect an increase in income?


A) graph a
B) graph b
C) graph d
D) None of the above is correct.

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

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

A) True
B) False

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Bundle J contains 10 units of good X and 5 units of good Y. Bundle K contains 5 units of good X and 10 units of good Y. Bundle L contains 10 units of good X and 10 units of good Y. Assume that the consumer's preferences satisfy the four properties of indifference curves. The price of X is $1, the price of Y is $2, and the consumer has an income of $20. Which bundle will the consumer choose?


A) bundle J
B) bundle K
C) bundle L
D) either bundle J or bundle K

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

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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?


A) 125
B) 75
C) 50
D) 10

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

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Figure 21-20 The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: 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 $40, the price of a bag of marshmallows is $2, and the price of a bag of chocolate chips is $2. The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips? A) A B) B C) C D) D -Refer to Figure 21-20. Assume that the consumer has an income of $40, the price of a bag of marshmallows is $2, and the price of a bag of chocolate chips is $2. The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?


A) A
B) B
C) C
D) D

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

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The following diagram shows a budget constraint for a particular consumer. The following diagram shows a budget constraint for a particular consumer. If the price of X is $20, then what is the price of Y? A) $15 B) $25 C) $35 D) $70 If the price of X is $20, then what is the price of Y?


A) $15
B) $25
C) $35
D) $70

E) None of the above
F) All of the above

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

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In response to a hig...

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Jerry consumes two goods, hamburgers and ice cream sandwiches. He has maximized his utility given his income. Ice cream sandwiches costs $2, and he consumes them to the point where the marginal utility he receives is 6. Hamburgers cost $4, and the relationship between the marginal utility that Jerry gets from eating hamburgers and the number he eats per month is as follows: Jerry consumes two goods, hamburgers and ice cream sandwiches. He has maximized his utility given his income. Ice cream sandwiches costs $2, and he consumes them to the point where the marginal utility he receives is 6. Hamburgers cost $4, and the relationship between the marginal utility that Jerry gets from eating hamburgers and the number he eats per month is as follows: How many hamburgers does Jerry buy each month? A) 1 B) 2 C) 3 D) 4 How many hamburgers does Jerry buy each month?


A) 1
B) 2
C) 3
D) 4

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

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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: 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 much does she spend on pretzels each month? A) $2 B) $6 C) $8 D) $12 If Traci is maximizing his utility, how much does she spend on pretzels each month?


A) $2
B) $6
C) $8
D) $12

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

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Figure 21-5 (a) (b) Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , if income is equal to $200, then the price of good X is A) $12. B) $16. C) $20. D) $24. Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (a) , if income is equal to $200, then the price of good X is A) $12. B) $16. C) $20. D) $24. -Refer to Figure 21-5. In graph (a) , if income is equal to $200, then the price of good X is


A) $12.
B) $16.
C) $20.
D) $24.

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

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Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is ½ bottle of wine per pound of cheese. The price of one pound of cheese is $6, and the price of a bottle of wine is $10. The consumer should increase his consumption of


A) cheese, decrease his consumption of wine, and move to a lower indifference curve.
B) cheese, decrease his consumption of wine, and move to a higher indifference curve.
C) wine, decrease consumption of cheese, and move to a higher indifference curve.
D) cheese, decrease consumption of wine, and remain on the same indifference curve.

E) None of the above
F) All of the above

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The indifference curves for perfect substitutes are right angles.

A) True
B) False

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