Deck 21: The Theory of Consumer Choice

Question 1

If a consumer experiences a decrease in income, the new budget constraint will have the same slope as the old budget constraint.

Answer 1

True

Question 2

The slope of the budget constraint reveals the relative price of good X compared to good Y.

Answer 2

True

Question 3

For a typical consumer, indifference curves can intersect if they satisfy the property of transitivity.

Answer 3

False

Question 4

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

Question 5

The slope at any point on an indifference curve equals the absolute price at which a consumer is willing to substitute one good for the other.

Question 6

For a typical consumer, most indifference curves are bowed inward.

Question 7

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

Question 8

If goods A and B are perfect substitutes, then the marginal rate of substitution of good A for good B is constant.

Question 9

For a typical consumer, most indifference curves are downward sloping.

Question 10

The indifference curves for perfect substitutes are straight lines.

Question 11

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

Question 12

The indifference curves for left gloves and right gloves are straight lines.

Question 13

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

Question 14

When two goods are perfect complements, the indifference curves are right angles.

Question 15

A typical indifference curve is upward sloping.

Question 16

The theory of consumer choice illustrates that people face tradeoffs, which is one of the Ten Principles of Economics.

Question 17

The indifference curves for perfect substitutes are right angles.

Question 18

The indifference curves for nickels and dimes are straight lines.

Question 19

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

Question 20

The slope of a consumer's budget constraint is unaffected by a change in income.

Question 21

If a consumer purchases more of good A when her income falls, good A is an inferior good.

Question 22

A typical consumer consumes both coffee and donuts. After the consumer's income decreases, the consumer consumes more coffee but fewer donuts than before. For this consumer, coffee is a normal good, but donuts are an inferior good.

Question 23

Giffen goods are inferior goods for which the income effect dominates the substitution effect.

Question 24

At a consumer's optimal choice, the consumer chooses the combination of goods that equates the marginal rate of substitution and the price ratio.

Question 25

All points on a demand curve are optimal consumption points.

Question 26

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

Question 27

If consumers purchase more of a good when their income rises, the good is a normal good.

Question 28

The marginal rate of substitution is the slope of the indifference curve.

Question 29

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

Question 30

The income effect of a price change is unaffected by whether the good is a normal or inferior good.

Question 31

A typical consumer consumes both coffee and donuts. After the consumer's income decreases, the consumer consumes more coffee but fewer donuts than before. For this consumer, donuts are a normal good, but coffee is an inferior good.

Question 32

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.

Question 33

Economists have found evidence of a Giffen good when studying the consumption of rice in the Chinese province of Hunan.

Question 34

If a consumer purchases more of good B when his income rises, good B is an inferior good.

Question 35

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

Question 36

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

Question 37

Giffen goods violate the law of demand.

Question 38

At a consumer's optimal choice, the consumer chooses the combination of goods such that the ratio of the marginal utilities equals the ratio of the prices.

Question 39

When indifference curves are bowed inward, the marginal rate of substitution varies at each point on the indifference curve.

Question 40

A consumer's optimal choice is affected by income, prices of goods, and preferences.

Question 41

Figure 21-17
The graph shows two budget constraints for a consumer.
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Refer to Figure 21-17. Suppose the price of a hamburger is $10 and Budget Constraint A applies. What is the consumer's income? What is the price of a light bulb?

Question 42

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

Question 43

Katie wins $3 million in her state's lottery. If Katie drastically reduces the number of hours she works after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Question 44

The theory of consumer choice is representative of how consumers make decisions but is not intended to be a literal account of the process.

Question 45

Consumers face tradeoffs except at the point where the indifference curve is tangent to the budget line.

Question 46

Susie wins $2 million in her state's lottery. If Susie keeps working after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Question 47

Consumer will always consume more of a good if their income increases.

Question 48

Figure 21-17
The graph shows two budget constraints for a consumer.
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Refer to Figure 21-17. Suppose the consumer's income is $90 and Budget Constraint A applies. What is the price of a light bulb?

Question 49

The substitution effect in the work-leisure model induces a person to work less in response to higher wages, which tends to make the labor-supply curve slope upward.

Question 50

Figure 21-17
The graph shows two budget constraints for a consumer.
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Refer to Figure 21-17. Suppose Budget Constraint B applies. If the consumer's income is $90 and if he is buying 5 light bulbs, then how much money is he spending on hamburgers?

Question 51

An increase in the interest rate today leading to a decrease in consumption today violates the law of demand.​

Question 52

​A decrease in the price of the good on the horizontal axis rotates the budget constraint counterclockwise.

Question 53

The income effect in the work-leisure model induces a person to work less in response to higher wages, which tends to make the labor-supply curve slope backward.

Question 54

A rise in the interest rate will generally result in people consuming less when they are old if the substitution effect outweighs the income effect.

Question 55

Figure 21-17
The graph shows two budget constraints for a consumer.
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Refer to Figure 21-17. What particular change would result in a rotation of the budget constraint from Budget Constraint A to Budget Constraint B?

Question 56

A worker with a backward-bending labor supply curve responds to an increase in wages by working more hours.

Question 57

A consumer maximizes utility at a point where multiple indifference curves intersect the budget line.

Question 58

A rise in the interest rate will generally result in people consuming more when they are old if the substitution effect outweighs the income effect.

Question 59

Figure 21-17
The graph shows two budget constraints for a consumer.
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Refer to Figure 21-17. Suppose the price of a light bulb is $3 and Budget Constraint B applies. What is the consumer's income? What is the price of a hamburger?

Question 60

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.

Question 61

What does the slope of a consumer's indifference curve represent?

Question 62

Figure 21-18
The figure shows two indifference curves and two budget constraints for a consumer named Kevin.
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Refer to Figure 21-18. If Kevin's income is $1,260, then what is the price of a sweater?

Question 63

A consumer's budget constraint is drawn on a graph with the number of sandwiches measured along the horizontal axis and the number of bowls of soup measured along the vertical axis. Hold the consumer's income and the price of a sandwich fixed, and increase the price of a bowl of soup. Describe the effect on the budget constraint.

Question 64

Teresa faces prices of $6.00 for a unit of good X and $1.50 for a unit of good Y. At her optimum, Teresa is willing to give up 1 unit of good X for __________ units of good Y.

Question 65

A consumer's budget constraint is drawn with the quantity of pizza measured along the horizontal axis and the price of Pepsi measured along the vertical axis. If the market is offering the consumer the trade-off of 3 pints of Pepsi for 1 pizza, then what is the slope of the consumer's budget constraint?

Question 66

Goods x and y are available to Jeff. At Jeff's optimum, the marginal utility per dollar spent on good x equals __________________.

Question 67

When we draw Katie's indifference curves to represent her preferences for books and movies, we find that her indifference curves are upward-sloping. What does this tell us about Katie's preferences?

Question 68

Using our model of consumer choice, is it possible for a consumer to buy less of a particular good when his income rises? Briefly explain.

Question 69

What does the slope of a budget constraint represent?

Question 70

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

Question 71

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

Question 72

A consumer's indifference curves are straight lines when, for the consumer, the goods in question are __________.

Question 73

In order to represent a consumer's choices on a graph, we draw her budget constraint as well as her __________ curves.

Question 74

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 ___________.

Question 75

The rate at which a consumer is willing to trade off one good for another is called the __________.

Question 76

Thomas faces prices of $6 for a unit of good X and $30 for a unit of good Y. At his optimum, Thomas is willing to give up 1 unit of good Y for __________ units of good X.

Question 77

If the market is offering consumers the trade-off of 3 pints of Pepsi for 1 pizza, and if the price of a pizza is $9, then what is the price of a pint of Pepsi?

Question 78

Figure 21-18
The figure shows two indifference curves and two budget constraints for a consumer named Kevin.
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Refer to Figure 21-18. Suppose point A was Kevin's optimum last week, and point B is his optimum this week. What happened between last week and this week?

Question 79

If goods X and Y are both normal goods for Brenda, then an increase in Brenda's income will lead her to __________.

Question 80

Figure 21-18
The figure shows two indifference curves and two budget constraints for a consumer named Kevin.
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Refer to Figure 21-18. If point A is Kevin's optimum, then at that optimum, what is his opportunity cost of a shirt in terms of sweaters?