Exam 21: The Theory of Consumer Choice

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 5 slices of pizza and 3 paperback novels?

The following diagram shows two budget lines: A and B. Which of the following could explain the change in the budget line from A to B?

A rational person can have a negatively-sloped labor supply curve.

Figure 21-2 The downward­sloping line on the figure represents a consumer's budget constraint. -Refer to Figure 21-2. Which points are affordable?

A consumer's budget constraint for goods X and Y is determined by how much the consumer likes good X relative to good Y.

Utility measures the

Calvin is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires. When the substitution effect dominates the income effect, an increase in the interest rate on savings will cause him to

The slope of the budget constraint is all of the following except

When Adam's income increases, he purchases more tickets to Broadway musicals than he did before his income increased. For Adam, Broadway musicals are a(n)

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 DVDs the consumer can purchase?

Figure 21-5 (a) (b) -Refer to Figure 21-5. In graph (b), what is the price of good Y relative to the price of good X (i.e., PY/PX)?

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

As more units of an item are purchased, everything else equal, marginal satisfaction from consuming additional units will tend to

How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving?

Which of the following descriptions best depicts the substitution effect?

A consumer chooses an optimal consumption point where the

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

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 21-3 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 X only?

If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50, then