Question 1

A consumer consumes two normal goods,sandwiches and milk.When the price of milk is $0.50 per glass,the consumer purchases 40 glasses.When the price rises to $0.65 per glass,the consumer purchases 30 glasses.We can use the information provided by the consumer's optimum choices to derive the
A) demand curve for milk.
B) demand curve for sandwiches.
C) supply curve for milk.
D) labor-leisure tradeoff.

Accepted Answer

The information given allows us to derive the demand curve for milk, as we can see how the quantity demanded changes in response to changes in price.

Question 2

Figure 21-22 
-Refer to Figure 21-22.When the price of X is $80,the price of Y is $20,and the consumer's income is $160,the consumer's optimal choice is D.Then the price of X decreases to $20.The substitution effect can be illustrated as the movement from
A) D to E.
B) D to C.
C) C to E.
D) E to D.

Accepted Answer

When the price of X decreases from $80 to $20, the budget line shifts outward and becomes flatter, since the consumer can now afford more of both X and Y. This leads to an increase in the quantity demanded of X, as can be seen by the movement from D to C. This movement represents the substitution effect, as the consumer substitutes X for Y due to the decrease in the price of X. Therefore, the optimal choice after the price decrease is at point C.

Question 3

Figure 21-22 
-Refer to Figure 21-22.When the price of X is $80,the price of Y is $20,and the consumer's income is $160,the consumer's optimal choice is D.Then the price of X decreases to $20.The income effect can be illustrated as the movement from
A) D to E.
B) D to C.
C) C to E.
D) E to D.

Accepted Answer

The answer of Figure 21-22 
-Refer to Figure 21-22.When the...

Question 4

Consumer theory provides the foundation for understanding demand curves because
A) each point on a demand curve represents an optimal choice point.
B) consumers purchase more inferior goods than normal goods.
C) increases in income cause the budget constraint to rotate inward along one axis,which changes the consumer's purchases.
D) increases in income cause the budget constraint to rotate outward along one axis,which changes the consumer's purchases.

Accepted Answer

Consumer theory examines how individuals make rational decisions in a market environment based on their preferences and budget constraints. The demand curve represents the optimal choices of consumers given their budget constraints and preferences for a particular good or service. Each point on the demand curve represents a combination of price and quantity that maximizes the consumer's utility, making choice A the correct answer. Choices B, C, and D all refer to changes in income, but only choice A directly relates to the foundation of demand curves.

Question 5

Suppose that for Emily,DVDs and trips to the movie theater are perfect substitutes.Currently,Emily is spending all of her income on trips to the movie theater.If the price of DVDs doubles,the substitution effect will
A) be two times the income effect.
B) be half the income effect.
C) be zero.
D) always increase the number of trips to the movie theater Emily makes.

Accepted Answer

Since DVDs and trips to the movie theater are perfect substitutes, the doubling of the price of DVDs will make them twice as expensive as going to the movie theater. As Emily is already spending all her income on trips to the movie theater, she won't substitute the more expensive DVD option for the cheaper movie theater option, meaning there won't be any substitution effect. Therefore, the answer is C.

Question 6

A Giffen good is a good for which
A) a decrease in the price decreases the quantity demanded.
B) the income effect outweighs the substitution effect.
C) an increase in the price decreases the quantity demanded.
D) Both a and b are correct.

Accepted Answer

The answer of A Giffen good is a good for...

Question 7

If a good is a Giffen good,then
A) the supply curve is downward sloping.
B) the demand curve is upward sloping.
C) the demand curve is horizontal.
D) there is no optimal level of consumption for the consumer.

Accepted Answer

A Giffen good is a rare type of inferior good where an increase in the price of the good leads to an increase in the quantity demanded. This means that the demand curve is upward sloping, which is the opposite of what is expected for a normal good.

Question 8

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point illustrating the new marginal rate of substitution is called the
A) income effect.
B) substitution effect.
C) Giffen good effect.
D) inferior good effect.

Accepted Answer

The described change in consumption is known as the substitution effect, which occurs when a price change makes one good relatively more expensive than another and consumers switch their consumption towards the cheaper good. The income effect, on the other hand, occurs when a price change affects consumers' purchasing power and alters their overall demand for goods. The Giffen good effect is a rare phenomenon in which an increase in the price of an inferior good leads to an increase in its quantity demanded. The inferior good effect is a type of income effect and refers specifically to the impact of a price change on the demand for inferior goods.

Question 9

Given a consumer's indifference map,the demand curve for a good can
A) be derived by moving a consumer's budget constraint as her income falls.
B) be derived by moving a consumer's budget constraint as her income rises.
C) be derived by moving a consumer's budget constraint as the market price of one good changes.
D) not be derived from consumer theory.

Accepted Answer

The demand curve for a good can be derived by moving a consumer's budget constraint as the market price of that good changes, while holding the prices of other goods and the consumer's income constant. This is because the demand curve shows the various quantities of a good that a consumer will purchase at different prices, given her preferences and budget constraint. By changing the price of the good in question and adjusting the budget constraint accordingly, we can see how the consumer's demand for the good changes at different prices. The other options do not necessarily lead to the derivation of the demand curve.

Question 10

An individual's demand curve for a good is derived by varying the
A) income level and observing the resulting total utility derived from both goods.
B) price of one good and observing the resulting quantities of the other good.
C) budget line to the left and calculating the loss in total utility.
D) price of one good and observing the resulting quantities demanded of that good.

Accepted Answer

An individual's demand curve for a good is derived by varying the price of one good and observing the resulting quantities demanded of that good. This is because the demand for a good is inversely related to its price - as the price of a good goes up, the quantity demanded of it goes down, and vice versa. Therefore, plotting the different quantities demanded at varying prices allows us to derive an individual's demand curve for that good.

Question 11

A Giffen good is a good for which
A) a decrease in the price decreases the quantity demanded.
B) the substitution effect outweighs the income effect.
C) an increase in the price decreases the quantity demanded.
D) Both a and b are correct.

Accepted Answer

The answer of A Giffen good is a good for...

Question 12

A Giffen good is a good for which an increase in the price
A) decreases the quantity supplied.
B) increases the quantity supplied.
C) decreases the quantity demanded.
D) increases the quantity demanded.

Accepted Answer

The answer of A Giffen good is a good for...

Question 13

When we derive the demand curve for a good,we should remember that the
A) income effect must be greater than the substitution effect.
B) substitution effect must be greater than the income effect.
C) substitution effect must be in the same direction as the income effect.
D) income effect and the substitution effect may work in the same or in opposite directions.

Accepted Answer

The income effect and substitution effect can work in the same or opposite directions depending on the good and the consumer. Therefore, neither the income effect nor the substitution effect is always greater than the other or always in the same direction.

Question 14

We can use the theory of consumer choice to analyze
A) why most demand curves slope downward.
B) the tradeoff between work and leisure
C) how interest rates affect household saving.
D) All of the above are correct.

Accepted Answer

The theory of consumer choice can be applied to all three scenarios. In option A, the theory explains that as the price of a good or service decreases, consumers will demand more of it. In option B, the theory can analyze how a consumer makes the choice between working more and having less leisure time, or working less and having more leisure time. In option C, the theory can show how changes in interest rates affect a household's decision to save money or spend money.

Question 15

When a consumer experiences a price decrease for an inferior good,if the income effect is
A) less than the substitution effect,the demand curve will be downward sloping.
B) greater than the substitution effect,the demand curve will be upward sloping.
C) less than the substitution effect,the demand curve will be upward sloping.
D) both a and b are correct.

Accepted Answer

The answer of When a consumer experiences a price decrease...

Question 16

Figure 21-22 
-Refer to Figure 21-22.When the price of X is $80,the price of Y is $20,and the consumer's income is $160,the consumer's optimal choice is D.Then the price of X decreases to $20.The demand curve can be illustrated as the movement from
A) D to E.
B) D to C.
C) C to E.
D) E to D.

Accepted Answer

The answer of Figure 21-22 
-Refer to Figure 21-22.When the...

Question 17

When a consumer experiences a price increase for an inferior good,if the income effect is
A) greater than the substitution effect,the demand curve will be downward sloping.
B) greater than the substitution effect,the demand curve will be upward sloping.
C) less than the substitution effect,the demand curve will be upward sloping.
D) less than the substitution effect but the substitution effect is positive,the demand curve will be upward sloping.

Accepted Answer

The answer of When a consumer experiences a price increase...

Question 18

Consider the indifference curve map and budget constraint for two goods,beef and potatoes.Suppose the good measured on the horizontal axis,potatoes,is a Giffen good.Beef is measured on the vertical axis and is a normal good.When the price of potatoes increases,the substitution effect causes
A) an increase in the consumption of potatoes,and the income effect causes a decrease in the consumption of potatoes.The substitution effect is less than the income effect.
B) a decrease in the consumption of potatoes,and the income effect causes an increase in the consumption of potatoes.The substitution effect is greater than the income effect.
C) an increase in the consumption of potatoes,and the income effect causes a decrease in the consumption of potatoes.The substitution effect is greater than the income effect.
D) a decrease in the consumption of potatoes,and the income effect causes an increase in the consumption of potatoes.The substitution effect is less than the income effect.

Accepted Answer

The answer of Consider the indifference curve map and budget...

Question 19

All Giffen goods are
A) inferior goods,and all inferior goods are Giffen goods.
B) inferior goods,but not all inferior goods are Giffen goods.
C) normal goods,but not all normal goods are Giffen goods.
D) normal goods,and all normal goods are Giffen goods.

Accepted Answer

Giffen goods are a type of inferior goods, but not all inferior goods are Giffen goods. Giffen goods have a unique demand curve where an increase in price leads to an increase in quantity demanded, which contradicts the usual law of demand. This behavior is typically observed in goods that are considered essential but have no substitutes or alternative options, such as rice in some developing countries. However, not all inferior goods exhibit this behavior, making option B the correct choice.

Question 20

A Giffen good is a good for which
A) an increase in the price raises the quantity demanded.
B) the income effect outweighs the substitution effect.
C) an increase in the price decreases the quantity demanded.
D) Both a and b are correct.

Accepted Answer

The answer of A Giffen good is a good for...

Quiz 21: The Theory of Consumer Choice

A consumer consumes two normal goods,sandwiches and milk.When the price of milk is $0.50 per glass,the consumer purchases 40 glasses.When the price rises to $0.65 per glass,the consumer purchases 30 glasses.We can use the information provided by the consumer's optimum choices to derive the

Figure 21-22 -Refer to Figure 21-22.When the price of X is $80,the price of Y is $20,and the consumer's income is $160,the consumer's optimal choice is D.Then the price of X decreases to $20.The substitution effect can be illustrated as the movement from

Figure 21-22 -Refer to Figure 21-22.When the price of X is $80,the price of Y is $20,and the consumer's income is $160,the consumer's optimal choice is D.Then the price of X decreases to $20.The income effect can be illustrated as the movement from

Consumer theory provides the foundation for understanding demand curves because

Suppose that for Emily,DVDs and trips to the movie theater are perfect substitutes.Currently,Emily is spending all of her income on trips to the movie theater.If the price of DVDs doubles,the substitution effect will

A Giffen good is a good for which

If a good is a Giffen good,then

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point illustrating the new marginal rate of substitution is called the

Given a consumer's indifference map,the demand curve for a good can

An individual's demand curve for a good is derived by varying the

A Giffen good is a good for which

A Giffen good is a good for which an increase in the price

When we derive the demand curve for a good,we should remember that the

We can use the theory of consumer choice to analyze

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

Figure 21-22 -Refer to Figure 21-22.When the price of X is $80,the price of Y is $20,and the consumer's income is $160,the consumer's optimal choice is D.Then the price of X decreases to $20.The demand curve can be illustrated as the movement from

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

Consider the indifference curve map and budget constraint for two goods,beef and potatoes.Suppose the good measured on the horizontal axis,potatoes,is a Giffen good.Beef is measured on the vertical axis and is a normal good.When the price of potatoes increases,the substitution effect causes

All Giffen goods are

A Giffen good is a good for which