Exam 21: The Theory of Consumer Choice

Suppose the only two goods that Lorenzo consumes are wine and cheese. When wine sells for $10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100. One day the price of wine falls to $5 a bottle, and the price of cheese increases to $20 a pound, while his income does not change. If you illustrate wine on the vertical axis and cheese on the horizontal axis, then

When leisure is a normal good, the income effect from a decrease in wages is evident in

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

The marginal rate of substitution between two goods always equals the

If we observe that Jamie's budget constraint has moved outward, then we know for certain that

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

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?

Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 5 gallons of ice cream and 8 paperback novels?

Consider the indifference curve map for nickels and quarters. Assume nickels are on the horizontal axis and quarters are on the vertical axis. The indifference curves for nickels and quarters are

A field experiment conducted by economists in the Chinese province of Hunan provided evidence that, for poor households in that province, rice is a __________ good.

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 reflects a decrease in the price of good Y only?

If a consumer purchases more of good X and good Y after her income increases, then neither good X nor good Y is an inferior good for her.

What is significant about a point on a graph at which an indifference curve is tangent to a budget constraint?

Indifference curves that cross would suggest that

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $50. The price of Skittles is $5 and the price of M&M's is $5. This consumer will choose a consumption bundle where the marginal rate of substitution is

A consumer spends all of her income on goods x and y. At her optimum,

Draw a budget constraint that is consistent with the following prices and income. Income = 200 P_Y = 50 P_X = 25 a.Demonstrate how your original budget constraint would change if income increases to 500. b.Demonstrate how your original budget constraint would change if P_Y decreases to 20. c.Demonstrate how your original budget constraint would change if P_X increases to 40.

If income decreases and prices are unchanged, the consumer's budget constraint

A Giffen good is a good for which

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?