Question 1

Use the following to answer questions: Figure: Water and Electricity 
-(Figure: Water and Electricity) Refer to the figure. Using the solid budget constraint in this diagram, how much electricity and water per hour does this individual consume?

Accepted Answer

The individual consumes where the budget constraint line intersects the highest possible indifference curve. The budget constraint line intersects the vertical axis (representing water consumption) at 6 gallons and the horizontal axis (representing electricity consumption) at 4 MJ. Therefore, the individual consumes 4 MJ of electricity and 6 gallons of water per hour.

Question 2

Use the following to answer questions: Figure: Music and Movie Downloads 5 
-(Figure: Music and Movie Downloads 5) Refer to the figure. The consumer in this diagram is initially optimizing consumption at point A than moves to point B. The substitution effect of the price change causes the consumer to:

Accepted Answer

The answer of Use the following to answer questions: Figure:...

Question 3

The ______ is the change in consumption caused by a change in purchasing power from a price change.

Accepted Answer

The income effect refers to the change in consumption caused by a change in purchasing power resulting from a price change. When prices decrease, a person's purchasing power increases, leading to higher consumption. When prices increase, purchasing power decreases, leading to lower consumption. This phenomenon is known as the income effect. The budget constraint refers to the limits of a person's income and the prices of goods and services, while the indifference curve refers to the combination of two goods that offer the same level of satisfaction to a consumer. The substitution effect is the tendency of a consumer to replace a costly product with a cheaper one when the price of the former increases.

Question 4

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming _____ peanut butter and ______ chocolate.

Accepted Answer

The answer of If there are only two goods in...

Question 5

Figure: Music and Movie Downloads 4  Refer to the figure. According to this figure, which of the following statements is FALSE?

Accepted Answer

The answer of Figure: Music and Movie Downloads 4 ...

Question 6

At the consumer's utility maximizing bundle that uses all of her budget, the slope of the budget constraint is ______ the slope of the indifference curve.

Accepted Answer

At the consumer's utility maximizing bundle that uses all of her budget, the slope of the budget constraint is equal to the slope of the indifference curve. This is because the consumer is spending all of her budget, hence every additional unit of the good she buys requires a reduction in the amount of the other good she can buy. At the utility-maximizing bundle, the marginal rate of substitution (MRS) between the two goods equals the price ratio (slope of the budget constraint), which means that the slope of the indifference curve is equal to the slope of the budget constraint.

Question 7

At the consumer's optimal consumption bundle, the MRS_XY is 4, and the marginal utility of good X is 8. What is the marginal utility of good Y?

Accepted Answer

MRS_XY = MRSXY = MUx/MUy = 4 MUx = 8 4 = 8/MUy MUy = 2

Question 8

The consumption bundle that maximizes utility for a consumer is the bundle that:

Accepted Answer

The answer of The consumption bundle that maximizes utility for...

Question 9

Use the following to answer questions: Figure: Income and Substitution Effects 
-(Figure: Income and Substitution Effects) Refer to the figure. What caused this consumer to switch optimal consumption bundles from Bundle A to Bundle B?

Accepted Answer

The consumer switched from Bundle A to Bundle B due to an increase in the price of music downloads, which caused a substitution effect of decreasing the quantity demanded of music downloads and an income effect of decreasing the purchasing power for all goods, including music downloads. This led the consumer to shift towards a new optimal bundle, Bundle B, which has a lower quantity demanded of music downloads but a higher quantity demanded of movie downloads.

Question 10

Use the following to answer questions: Figure: Music and Movie Downloads 5 
-(Figure: Music and Movie Downloads 5) Refer to the figure. What caused the consumer's optimal consumption bundle in this figure to switch from bundle A to bundle B?

Accepted Answer

The switch from bundle A to bundle B shows that the consumer has decreased their consumption of music downloads due to an increase in the price of music downloads, as evidenced by the movement along the budget constraint from point A to point B. This change in the price of music downloads causes the consumer to substitute towards movie downloads, as seen by the increase in consumption of movie downloads from point A to point B.

Question 11

Consider an indifference curve based around video games and pizza. If the price of pizza falls, what would have to be true for the consumer to buy less pizza compared with when the price of pizza was higher?

Accepted Answer

When the price of pizza falls, the consumer will experience both a substitution effect (where they buy more pizza because it is relatively cheaper than video games) and an income effect (where they can afford to buy more of both pizza and video games because pizza is cheaper). If the income effect is greater than the substitution effect, the consumer may choose to buy less pizza because they are now able to afford more of both pizza and video games, and they may prefer to consume more video games instead of pizza.

Question 12

Use the following to answer questions: Figure: Water and Electricity 
-(Figure: Water and Electricity) Refer to the figure. Using the solid budget constraint in this diagram, if electricity costs $6 per MJ, how much does a gallon of water cost?

Accepted Answer

The answer of Use the following to answer questions: Figure:...

Question 13

In consumer choice, one maximizes ______ subject to a budget constraint.

Accepted Answer

Consumer choice is the process of maximizing utility, which refers to the satisfaction or happiness obtained from consuming goods and services. However, consumers are limited by a budget constraint, which means they can only afford to purchase a certain amount of goods and services based on their income and the prices of the goods. Therefore, the objective of consumer choice is to maximize utility subject to the budget constraint. Option A is incorrect because consumers do not maximize quantity, they maximize utility. Option B is incorrect because consumers do not necessarily seek price savings; they seek to maximize utility subject to the budget constraint. Option D is too broad and includes options that are not directly related to consumer choice.

Question 14

Use the following to answer questions: Figure: Optimal Choice 2 
-(Figure: Optimal Choice 2) Refer to the figure. This figure represents indifference curves of a consumer who purchases flip-flops and sneakers. If the dotted line represents this consumer's budget constraint, then bundle D on the graph:

Accepted Answer

Bundle D is preferred to point E because it lies on a higher indifference curve, indicating higher utility. However, it is unattainable given the budget constraint represented by the dotted line. Therefore, the best choice would be bundle E which lies on the highest attainable indifference curve and is also within the budget constraint.

Question 15

The ______ is the change in consumption caused by a change in relative prices holding the consumer's utility level constant.

Accepted Answer

The substitution effect is the change in consumption caused by a change in relative prices holding the consumer's utility level constant. The budget constraint shows the different combinations of goods a consumer can purchase with a given level of income while the indifference curve shows the combinations of goods that provide the same level of utility to the consumer. The income effect is the change in consumption caused by a change in income holding relative prices constant.

Question 16

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming ______ peanut butter and ______ chocolate.

Accepted Answer

The answer of If there are only two goods in...

Question 17

When you lose a concert ticket, this occurrence causes ______ effect.

Accepted Answer

The answer of When you lose a concert ticket, this...

Question 18

When the price of a good changes, ______ influence(s) the change in consumption.

Accepted Answer

Both the income effect and the substitution effect influence the change in consumption when the price of a good changes. The substitution effect occurs when the price of a good changes and consumers switch to a substitute good. The income effect occurs when the price of a good changes and consumers' purchasing power changes, resulting in a change in the quantity of the good demanded. Both of these effects work together to determine the change in consumption of a good when the price changes.

Question 19

Use the following to answer questions: Figure: Music and Movie Downloads 5 
-(Figure: Music and Movie Downloads 5) Refer to the figure. The consumer in this diagram is initially optimizing consumption at point A than moves to point B. The income effect of the price change causes the consumer to:

Accepted Answer

The answer of Use the following to answer questions: Figure:...

Question 20

Use the following to answer question 70:
Figure: Water and Electricity 2 
-(Figure: Water and Electricity 2) Refer to the figure. If the price of electricity changed and the price of water stayed the same, causing the change in the budget constraint as indicated by the dashed line, did an income effect play a role in the change in this person's consumption bundle?

Accepted Answer

The fact that the person still buys more electricity after the change in prices, while keeping their utility constant, suggests that the person experienced an income effect, as they are able to afford more electricity at the new price. This is evidenced by the fact that the new consumption point is not on the same indifference curve as the initial consumption point, indicating that the person's utility has changed due to the price change.

Quiz 25: Consumer Choice

Use the following to answer questions: Figure: Water and Electricity -(Figure: Water and Electricity) Refer to the figure. Using the solid budget constraint in this diagram, how much electricity and water per hour does this individual consume?

The ______ is the change in consumption caused by a change in purchasing power from a price change.

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming _ peanut butter and __ chocolate.

Figure: Music and Movie Downloads 4 Refer to the figure. According to this figure, which of the following statements is FALSE?

At the consumer's utility maximizing bundle that uses all of her budget, the slope of the budget constraint is ______ the slope of the indifference curve.

At the consumer's optimal consumption bundle, the MRS_XY is 4, and the marginal utility of good X is 8. What is the marginal utility of good Y?

The consumption bundle that maximizes utility for a consumer is the bundle that:

Use the following to answer questions: Figure: Income and Substitution Effects -(Figure: Income and Substitution Effects) Refer to the figure. What caused this consumer to switch optimal consumption bundles from Bundle A to Bundle B?

Use the following to answer questions: Figure: Music and Movie Downloads 5 -(Figure: Music and Movie Downloads 5) Refer to the figure. What caused the consumer's optimal consumption bundle in this figure to switch from bundle A to bundle B?

Consider an indifference curve based around video games and pizza. If the price of pizza falls, what would have to be true for the consumer to buy less pizza compared with when the price of pizza was higher?

Use the following to answer questions: Figure: Water and Electricity -(Figure: Water and Electricity) Refer to the figure. Using the solid budget constraint in this diagram, if electricity costs $6 per MJ, how much does a gallon of water cost?

In consumer choice, one maximizes ______ subject to a budget constraint.

The ______ is the change in consumption caused by a change in relative prices holding the consumer's utility level constant.

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming peanut butter and chocolate.

When you lose a concert ticket, this occurrence causes ______ effect.

When the price of a good changes, ______ influence(s) the change in consumption.

Use the following to answer questions: Figure: Music and Movie Downloads 5 -(Figure: Music and Movie Downloads 5) Refer to the figure. The consumer in this diagram is initially optimizing consumption at point A than moves to point B. The income effect of the price change causes the consumer to:

Quiz 25: Consumer Choice

Use the following to answer questions: Figure: Water and Electricity -(Figure: Water and Electricity) Refer to the figure. Using the solid budget constraint in this diagram, how much electricity and water per hour does this individual consume?

The ______ is the change in consumption caused by a change in purchasing power from a price change.

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming _____ peanut butter and ______ chocolate.

Figure: Music and Movie Downloads 4 Refer to the figure. According to this figure, which of the following statements is FALSE?

At the consumer's utility maximizing bundle that uses all of her budget, the slope of the budget constraint is ______ the slope of the indifference curve.

At the consumer's optimal consumption bundle, the MRSXY is 4, and the marginal utility of good X is 8. What is the marginal utility of good Y?

The consumption bundle that maximizes utility for a consumer is the bundle that:

Use the following to answer questions: Figure: Income and Substitution Effects -(Figure: Income and Substitution Effects) Refer to the figure. What caused this consumer to switch optimal consumption bundles from Bundle A to Bundle B?

Use the following to answer questions: Figure: Music and Movie Downloads 5 -(Figure: Music and Movie Downloads 5) Refer to the figure. What caused the consumer's optimal consumption bundle in this figure to switch from bundle A to bundle B?

Consider an indifference curve based around video games and pizza. If the price of pizza falls, what would have to be true for the consumer to buy less pizza compared with when the price of pizza was higher?

Use the following to answer questions: Figure: Water and Electricity -(Figure: Water and Electricity) Refer to the figure. Using the solid budget constraint in this diagram, if electricity costs $6 per MJ, how much does a gallon of water cost?

In consumer choice, one maximizes ______ subject to a budget constraint.

The ______ is the change in consumption caused by a change in relative prices holding the consumer's utility level constant.

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming ______ peanut butter and ______ chocolate.

When you lose a concert ticket, this occurrence causes ______ effect.

When the price of a good changes, ______ influence(s) the change in consumption.

Use the following to answer questions: Figure: Music and Movie Downloads 5 -(Figure: Music and Movie Downloads 5) Refer to the figure. The consumer in this diagram is initially optimizing consumption at point A than moves to point B. The income effect of the price change causes the consumer to:

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming _ peanut butter and __ chocolate.

At the consumer's optimal consumption bundle, the MRS_XY is 4, and the marginal utility of good X is 8. What is the marginal utility of good Y?

If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming peanut butter and chocolate.