Exam 21: The Theory of Consumer Choice

Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of

Figure 21-18 -Refer to Figure 21-18. Bundle B represents a point where

Suppose a consumer spends her income on two goods: music CDs and DVDs. The consumer has $200 to allocate to these two goods, the price of a CD is $10, and the price of a DVD is $20. What is the maximum number of CDs the consumer can purchase?

Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal rate of substitution?

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

The marginal rate of substitution is the slope of the budget constraint.

Samantha is maximizing total utility while consuming food and clothing. Her marginal utility from food is 50, and her marginal utility from clothing is 25. If clothing is priced at $10 per unit, the price of food per unit must be

A consumer who doesn't spend all of her income

The labor supply curve may have a backward-bending portion if, at higher wages, the income effect is

When indifference curves are downward sloping, the marginal rate of substitution is usually constant.

A decrease in the price of DVD players leads consumers to buy more DVD players. From this information we can conclude that DVD players

Figure 21-7 -Refer to Figure 21-7. Suppose a consumer has $200 in income, the price of a book is $5, and the price of a DVD is $10. What is the value of B?

The consumer's optimal choice is the one in which the marginal utility per dollar spent on good X is

Graphically demonstrate the conditions associated with a consumer optimum. Carefully label all curves and axes.

Consider the indifference curve map and budget constraint for two goods, X and Y. Suppose the good on the horizontal axis, X, is normal. When the price of X increases, the substitution effect

Because people are more willing to trade away goods that they have in abundance and less willing to trade away goods of which they have little, indifference curves are ___________.

If a consumer consumes two goods, X and Y, and has indifference curves that are bowed inward, the consumer's optional choice occurs when

If an increase in the interest rate raises savings, then

When a consumer experiences a price decrease for an inferior good, if the income effect is

A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustrates bundles that are equally affordable to a consumer.