Question 1

The goal of the consumer is to

Accepted Answer

Maximizing utility, or satisfaction, is the primary goal of a consumer. While minimizing expenses and planning for future income and expenses may be secondary goals, the ultimate aim is to maximize the overall satisfaction or happiness that the consumer derives from their purchases.

Question 2

Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: 
-Refer to Figure 21-20. Assume that the consumer has an income of $40. If the price of chocolate chips is $4 and the price of marshmallows is $4, the optimizing consumer would choose to purchase

Accepted Answer

At $4 per unit for marshmallows and chocolate chips, the budget constraint line intersects the indifference curve at point C, where the consumer purchases 5 marshmallows and 5 chocolate chips. This point maximizes the consumer's utility given their budget constraint.

Question 3

Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: 
-Refer to Figure 21-20. Assume that the consumer has an income of $40. Based on the information available in the graph, which of the following price-quantity combinations would be on her demand curve for marshmallows if the price of chocolate chips were $4?

Accepted Answer

The consumer's budget constraint is $40, and with chocolate chips priced at $4, the remaining budget for marshmallows allows for the combination of P=$2 and Q=9 to be on the demand curve.

Question 4

The goal of the consumer is to

Accepted Answer

The consumer's ultimate goal is to maximize their satisfaction or utility, which can be achieved by being on the highest possible indifference curve. Therefore, all of the options given (A, B, and C) are correct and related to the main goal of the consumer.

Question 5

Figure 21-19 
-Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $2. The consumer's optimal choice is point

Accepted Answer

To determine the optimal choice, we need to find the point where the budget line (the line connecting the two points on the horizontal and vertical axis corresponding to the amount of Skittles and M&M's that can be purchased with the given income) is tangent to the highest possible indifference curve (the curve representing all the combinations of Skittles and M&M's that give the consumer the same level of satisfaction). Point B is the only point that satisfies this condition. At point A, the consumer can still increase their satisfaction by consuming more M&M's. At point C, the consumer can still increase their satisfaction by consuming more Skittles. At point D, the budget line intersects with a lower indifference curve, meaning that the consumer can achieve the same level of satisfaction while spending less money (by purchasing fewer Skittles and M&M's). Therefore, the optimal choice is B.

Question 6

Figure 21-19 
-Refer to Figure 21-19. Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B. According to the graph, which of the following would cause the consumer to move to point A?

Accepted Answer

An increase in the price of M&M's would cause the consumer to move from point B to point A, as it would make M&M's relatively more expensive, leading the consumer to purchase fewer M&M's and more of the other good, Skittles.

Question 7

Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: 
-Refer to Figure 21-20. Assume that the consumer has an income of $100 and currently optimizes at bundle A. When the price of marshmallows decreases to $5, which bundle will the optimizing consumer choose?

Accepted Answer

When the price of marshmallows decreases to $5, the budget line shifts outward (to the right), becoming flatter. The new optimal bundle will be at the tangency point between the new budget line and the highest indifference curve. This point is bundle B, which has more marshmallows and fewer cookies than bundle A, but still lies on the same indifference curve as A. Therefore, the consumer will choose bundle B as the new optimal bundle.

Question 8

Figure 21-19 
-Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer will choose a consumption bundle where the marginal rate of substitution is

Accepted Answer

The consumer will choose the consumption bundle where the ratio of the marginal utility of Skittles to the marginal utility of M&M's equals the price ratio (MU S/MU M = P S/P M).

In this case, the marginal utility of Skittles is 5 and the marginal utility of M&M's is 10. So, MU S/MU M = 5/10 = 1/2.

The price ratio is 2/4 = 1/2.

So, the marginal rate of substitution is 1/2.

To maximize utility subject to the budget constraint, the consumer should choose a consumption bundle where the marginal rate of substitution equals the price ratio. This occurs at point W in the figure, where the consumer purchases 4 units of Skittles and 2 units of M&M's. This consumption bundle costs $16, which is within the consumer's budget, so it is the best choice.

Question 9

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

Accepted Answer

The answer of Figure 21-18 
-Refer to Figure 21-18. Bundle...

Question 10

Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: 
-Refer to Figure 21-20. Assume that the consumer has an income of $80. If the price of chocolate chips is $4 and the price of marshmallows is $4, the optimizing consumer would choose to purchase

Accepted Answer

The consumer can buy a total of 20 items (since $80/$4 = 20). Option B, 10 marshmallows and 10 chocolate chips, uses the entire budget ($40 on each), optimizing the purchase.

Question 11

A consumer chooses an optimal consumption point where the

Accepted Answer

The optimal consumption point is where the consumer reaches the highest level of satisfaction within their budget constraint. This means that the slope of the indifference curve (the rate at which the consumer is willing to trade one good for the other) and the slope of the budget constraint (the relative price ratio) are equal. Therefore, B is the correct choice. A is incorrect because the marginal rate of substitution may or may not exceed the relative price ratio at the optimal point, depending on the consumer's preferences. C is also incorrect because the ratio of the prices being one is not a necessary condition for an optimal consumption point.

Question 12

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

Accepted Answer

Bundle D is located where the slope of the MR curve (MRSS1U1B1xy) is less than the slope of the price ratio (PS1U1B1x/PS1U1B1y). Therefore, MRSS1U1B1xyS1U1B0 < PS1U1B1xS1U1B0/PS1U1B1yS1U1B0, which corresponds to choice C.

Question 13

Figure 21-19 
-Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer's optimal choice is point

Accepted Answer

The consumer's optimal choice is point A because it is the point on the budget line where the consumer's indifference curve is tangent to the budget line. At this point, the consumer is maximizing their utility given their budget constraint.

Question 14

Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: 
-Refer to Figure 21-20. Assume that the consumer has an income of $40, the price of a bag of marshmallows is $2, and the price of a bag of chocolate chips is $2. The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?

Accepted Answer

The optimizing consumer will choose the bundle that maximizes their utility, subject to their budget constraint. In this case, bundle C provides the highest level of utility (13 utils) within the consumer's budget constraint, since it lies on the highest possible indifference curve that is still within the budget line. Bundles A and B are either on a lower indifference curve or outside of the budget constraint. Bundle D is on a higher indifference curve, but is not affordable with the given prices and income. Therefore, the best choice is bundle C.

Question 15

A consumer chooses an optimal consumption point where the

Accepted Answer

The consumer chooses the optimal consumption point where the marginal rate of substitution (MRS) equals the relative price ratio (Px/Py). At this point, the consumer is getting the most satisfaction possible given the prices of the goods. The slope of the indifference curve and the budget constraint do play a role in determining the optimal consumption point, but only when they are equal to each other (i.e., when the MRS equals the price ratio). The ratios of marginal utilities being equal is not necessary for determining the optimal consumption point.

Question 16

When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point shows that it occurs

Accepted Answer

An optimal choice point occurs where the highest attainable indifference curve is tangent to the budget constraint, and where the marginal utility per dollar spent is equal for both goods, satisfying all the conditions mentioned.

Question 17

When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point shows that it occurs

Accepted Answer

The optimal choice point occurs where the indifference curve representing the consumer's preferences is tangent to the budget constraint. This is because any other point on the budget constraint would either have a lower level of utility (if below the indifference curve) or be unaffordable (if above the indifference curve). Therefore, the consumer chooses the combination of X and Y that maximizes their utility given their budget constraint at the point of tangency.

Question 18

Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: 
-Refer to Figure 21-20. Assume that the consumer depicted the figure has an income of $50. Based on the information available in the graph, which of the following price-quantity combinations would be on her demand curve for chocolate chips if the price of marshmallows is $2.50?

Accepted Answer

According to the graph, at a price of $2.50 for marshmallows, the consumer would be willing to purchase 10 chocolate chip cookies. This combination (P=$2.50, Q=10) would be on her demand curve for chocolate chips. The other options listed either have a different price for marshmallows or a quantity of chocolate chips that is not on her demand curve at the given price for marshmallows.

Question 19

Figure 21-19 
-Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $50. The price of Skittles is $5 and the price of M&M's is $5. This consumer will choose a consumption bundle where the marginal rate of substitution is

Accepted Answer

The consumer will choose a consumption bundle where the marginal rate of substitution (MRS) equals the ratio of the prices of the two goods. Since both Skittles and M&M's are priced at $5, the MRS will be 1, indicating the consumer is willing to trade one Skittle for one M&M.

Question 20

A consumer chooses an optimal consumption point where the

Accepted Answer

All of the options are correct statements about the optimal consumption point. The consumer chooses such a point where the marginal rate of substitution (MRS) equals the relative price ratio, i.e., where the consumer is willing to substitute one good for the other as much as the price ratio permits. The slope of the indifference curve (IC) represents the MRS, and the slope of the budget constraint (BC) represents the relative price ratio. At the optimal consumption point, the consumer's preferences are such that the ratio of the marginal utilities (MU) of the two goods consumed is equal to their prices. If any of these conditions were not satisfied, the consumer could improve their welfare by adjusting their consumption bundle. Therefore, all three conditions must be met to reach the optimal consumption point.

Quiz 21: The Theory of Consumer Choice

The goal of the consumer is to

The goal of the consumer is to

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $2. The consumer's optimal choice is point

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B. According to the graph, which of the following would cause the consumer to move to point A?

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer will choose a consumption bundle where the marginal rate of substitution is

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

A consumer chooses an optimal consumption point where the

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

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. The consumer's optimal choice is point

A consumer chooses an optimal consumption point where the

When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point shows that it occurs

When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point shows that it occurs

Figure 21-19 -Refer to Figure 21-19. Assume that the consumer depicted in the figure has an income of $50. The price of Skittles is $5 and the price of M&M's is $5. This consumer will choose a consumption bundle where the marginal rate of substitution is

A consumer chooses an optimal consumption point where the