Exam 21: The Theory of Consumer Choice.

Suppose Reta is planning for retirement in a two-period world.In the first period Reta is young and earns $1 million,and in the second period Reta is old and retired and earns nothing.The interest rate is initially 10 percent,but then it falls to 7 percent.After the interest rate falls,the

Figure 21-5 -Refer to Figure 21-5.In graph (b),if income is equal to $420,the price of good X is

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 DVD?

If leisure were an inferior good,then labor supply curves

Evaluate the following statement,"Warren Buffet is the second richest person in the world.He doesn't face any constraint on his ability to purchase commodities he wants."

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 an increase in the price of good Y only?

An indifference curve illustrates

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?

Jake experiences an increase in his wages.The hours of labor that he supplies to the market would decrease if

Figure 21-11 -Refer to Figure 21-11.As the consumer moves from point A to B to C to D,the consumer's total utility

Which of the following is an example of a Giffen good?

Suppose a consumer consumes two goods,X and Y.The relative price of the two goods equals the

Figure 21-16 -Refer to Figure 21-16.When the price of X is $40,the price of Y is $40,and income is $160,Steve's optimal choice is point B.Then Steve's income increases to $320,and his optimal choice is point E.For Steve,

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 substitution effect associated with a decrease in the price of a textbook,by itself,will result in

Violations of the law of demand are assumed to occur

Figure 21-13 -Refer to Figure 21-13.What is the consumer's marginal rate of substitution as she moves from B to C?

Shelley wins $1 million in her state's lottery.If Shelley keeps working after she wins the money,we can infer that the substitution effect must exactly offset the income effect for her.

The marginal rate of substitution between goods A and B measures the price of A relative to the price of B.

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

The direction of the substitution effect is not influenced by whether the good is normal or inferior.