Question 1

Given a consumer's indifference map,how may the demand curve for a good be derived

Accepted Answer

The demand curve is derived by observing how the quantity demanded changes as the price of the good changes, which is represented by moving the budget constraint as the market price increases or decreases.

Question 2

Figure 21-8
 
-Refer to Figure 21-8.Assume that the consumer depicted has an income of $120.If the price of a bag of chocolate chips is $12 and the price of a bag of marshmallows is $12,what would the optimizing consumer choose to purchase

Accepted Answer

The consumer can afford 10 bags in total (120/12 = 10). Option B, with 5 bags of each, uses the entire budget.

Question 3

The substitution effect of a wage decrease,in the work-leisure model,applies when the worker chooses which option

Accepted Answer

The substitution effect suggests that as wages decrease, leisure becomes relatively cheaper compared to work, leading the worker to substitute work with leisure, thus choosing to work less.

Question 4

Figure 21-8
 
-Refer to Figure 21-8.Assume that the consumer depicted has an income of $50.Which price-quantity combination would be on her demand curve for marshmallows if the price of a bag of chocolate chips is $5

Accepted Answer

The answer of Figure 21-8
 
-Refer to Figure 21-8.Assume that...

Question 5

Figure 21-8
 
-Refer to Figure 21-8.Assume that the consumer depicted has an income of $100.Which price-quantity combination would be on her demand curve for marshmallows if the price of a bag of chocolate chips is $10

Accepted Answer

The answer of Figure 21-8
 
-Refer to Figure 21-8.Assume that...

Question 6

To derive the demand curve for a good,which of the following must be the case

Accepted Answer

To derive the demand curve for a good, both the substitution effect (change in quantity demanded due to change in the relative price of the good) and the income effect (change in quantity demanded due to change in consumer's purchasing power) need to be taken into account. The direction of these effects can be in the same or opposite direction depending on the good and consumer preferences, hence there is no requirement for either effect to be greater than the other or for them to be in the same direction. Therefore, option D is the correct answer.

Question 7

Figure 21-9
 
-Refer to Figure 21-9.If point B is the consumer's optimum and her income is $100,what is the price of a bag of chocolate chips

Accepted Answer

The answer of Figure 21-9
 
-Refer to Figure 21-9.If point...

Question 8

A Giffen good is one for which the quantity demanded rises as the price rises.What does the income effect do to cause this

Accepted Answer

The answer of A Giffen good is one for which...

Question 9

Figure 21-8
 
-Refer to Figure 21-8.Assume that the consumer depicted has an income of $120 and currently optimizes at point A.When the price of marshmallows decreases to $6,how many bags of marshmallows will the optimizing consumer choose to purchase

Accepted Answer

The answer of Figure 21-8
 
-Refer to Figure 21-8.Assume that...

Question 10

In the work-leisure model,the income effect of a wage increase is when the worker chooses which option

Accepted Answer

The income effect of a wage increase suggests that as wages rise, the worker can maintain the same standard of living while working fewer hours, thus choosing to work less to enjoy more leisure time.

Question 11

Figure 21-8
 
-Refer to Figure 21-8.Assume that the consumer depicted has an income of $200.If the price of a bag of chocolate chips is $10 and the price of a bag of marshmallows is $10,what would the optimizing consumer choose to purchase

Accepted Answer

The answer of Figure 21-8
 
-Refer to Figure 21-8.Assume that...

Question 12

Figure 21-9
 
-Refer to Figure 21-9.If point B is the consumer's optimum and her income is $100,what is the price of a bag of marshmallows

Accepted Answer

The answer of Figure 21-9
 
-Refer to Figure 21-9.If point...

Question 13

Refer to Scenario 21-1 in your textbook.If Fred decides to spend 78 hours a week playing volleyball on the beach,and the rest of his time writing,how much income will he have available to spend on consumption goods each week

Accepted Answer

From Scenario 21-1, we know that Fred makes $15 per hour playing volleyball and $25 per hour writing.

If he spends 78 hours a week playing volleyball, his income from volleyball would be:

$15/hour * 78 hours/week = $1,170/week

The rest of his time would be spent writing, and his income from writing would be:

($25/hour * (168 hours/week - 78 hours/week)) = $2,460/week

Therefore, his total income per week would be:

$1,170/week + $2,460/week = $3,630/week

Finally, if Fred spends all of his income on consumption goods, he would have $3,630/week available to spend. However, since the question asks how much income he has available to spend on consumption goods if he spends 78 hours a week playing volleyball (and the rest writing), we can assume he has no other expenses.

Therefore, his available income for consumption goods would be:

$3,630/week - $740/week = $2,890/week

Hence, the best choice is C.

Question 14

Why could a labour supply curve be backward bending

Accepted Answer

The answer of Why could a labour supply curve be...

Question 15

Refer to Scenario 21-1 in your textbook.What is the implicit price that Fred pays for the satisfaction derived from playing an hour of volleyball

Accepted Answer

The implicit price is the opportunity cost of Fred's time, which is the wage he could earn if he worked instead of playing volleyball. If Fred's wage is $85.00 per hour, then that is the implicit price he pays for an hour of volleyball.

Question 16

What does the backward-bending portion of an individual labour supply curve indicate

Accepted Answer

The backward-bending portion of an individual labor supply curve indicates that at higher levels of income, the income effect dominates the substitution effect, leading individuals to work fewer hours as wages increase.

Question 17

What does economic theory predict will be the result of an increase in wages

Accepted Answer

An increase in wages can lead to a dominant income effect, where the wage earner feels wealthier and chooses to enjoy more leisure time, thus working less.

Question 18

For a Giffen good,what effect does an increase in its price have

Accepted Answer

For a Giffen good, an increase in price leads to an increase in quantity demanded due to the strong income effect outweighing the substitution effect.

Question 19

When are violations of the law of demand assumed to occur

Accepted Answer

Violations of the law of demand are assumed to occur only when goods are Giffen goods, which are rare and unique kinds of goods that defy the usual inverse relationship between price and quantity demanded. Essentially, Giffen goods are goods for which an increase in price actually leads to an increase in quantity demanded, due to unique circumstances such as a lack of substitutes or social status considerations. In all other cases, the law of demand holds true, with increases in price leading to decreases in quantity demanded, and vice versa.

Question 20

Figure 21-9
 
-Refer to Figure 21-9.If point B is the consumer's optimum and the price of marshmallows is $2 per bag,what is the price of a bag of chocolate chips

Accepted Answer

At the consumer's optimum, the marginal rate of substitution (MRS) equals the price ratio of the two goods. If the price of marshmallows is $2, and point B is the optimum, the price of chocolate chips must be $4 to maintain the MRS and price ratio balance.

Quiz 21: The Theory of Consumer Choice

Given a consumer's indifference map,how may the demand curve for a good be derived

Figure 21-8 -Refer to Figure 21-8.Assume that the consumer depicted has an income of $120.If the price of a bag of chocolate chips is $12 and the price of a bag of marshmallows is $12,what would the optimizing consumer choose to purchase

The substitution effect of a wage decrease,in the work-leisure model,applies when the worker chooses which option

Figure 21-8 -Refer to Figure 21-8.Assume that the consumer depicted has an income of $50.Which price-quantity combination would be on her demand curve for marshmallows if the price of a bag of chocolate chips is $5

Figure 21-8 -Refer to Figure 21-8.Assume that the consumer depicted has an income of $100.Which price-quantity combination would be on her demand curve for marshmallows if the price of a bag of chocolate chips is $10

To derive the demand curve for a good,which of the following must be the case

Figure 21-9 -Refer to Figure 21-9.If point B is the consumer's optimum and her income is $100,what is the price of a bag of chocolate chips

A Giffen good is one for which the quantity demanded rises as the price rises.What does the income effect do to cause this

Figure 21-8 -Refer to Figure 21-8.Assume that the consumer depicted has an income of $120 and currently optimizes at point A.When the price of marshmallows decreases to $6,how many bags of marshmallows will the optimizing consumer choose to purchase

In the work-leisure model,the income effect of a wage increase is when the worker chooses which option

Figure 21-8 -Refer to Figure 21-8.Assume that the consumer depicted has an income of $200.If the price of a bag of chocolate chips is $10 and the price of a bag of marshmallows is $10,what would the optimizing consumer choose to purchase

Figure 21-9 -Refer to Figure 21-9.If point B is the consumer's optimum and her income is $100,what is the price of a bag of marshmallows

Refer to Scenario 21-1 in your textbook.If Fred decides to spend 78 hours a week playing volleyball on the beach,and the rest of his time writing,how much income will he have available to spend on consumption goods each week

Why could a labour supply curve be backward bending

Refer to Scenario 21-1 in your textbook.What is the implicit price that Fred pays for the satisfaction derived from playing an hour of volleyball

What does the backward-bending portion of an individual labour supply curve indicate

What does economic theory predict will be the result of an increase in wages

For a Giffen good,what effect does an increase in its price have

When are violations of the law of demand assumed to occur

Figure 21-9 -Refer to Figure 21-9.If point B is the consumer's optimum and the price of marshmallows is $2 per bag,what is the price of a bag of chocolate chips