Question 1

If the price of hamburgers increases,the substitution effect works to

Accepted Answer

The substitution effect suggests that as the price of hamburgers increases, consumers will be more likely to substitute hamburgers for a cheaper option, such as hot dogs, chicken sandwiches, or vegetarian options. Therefore, the quantity of hamburgers demanded would decrease. The other choices in the question do not accurately reflect the substitution effect.

Question 2

Which effect of a price change moves the consumer along the same indifference curve to a point with a new marginal rate of substitution?

Accepted Answer

The substitution effect occurs when the change in price of a good causes a shift in consumption towards a substitute good that is now relatively cheaper. This shift in consumption moves the consumer along the same indifference curve to a new point with a new marginal rate of substitution. The budget effect occurs when a change in price causes a shift in the budget constraint and changes the consumer's purchasing power. The preference effect and income effect are not relevant in this context.

Question 3

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

Accepted Answer

Since DVDs and trips to the movies are perfect substitutes for Emily, if the price of DVDs doubles, she will completely switch to going to the movies instead. This means that the substitution effect is complete and there is no income effect. Therefore, the answer is C.

Question 4

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

Accepted Answer

An individual's demand curve for a good is derived by changing the price of that good only and observing the resulting quantities demanded of that good. This is because the law of demand states that as the price of a good increases, the quantity demanded of that good decreases, holding all other factors constant. Therefore, by plotting the different quantity-demand combinations at different prices, we can derive an individual's demand curve for that good.

Question 5

Beer and pretzels are normal goods.When the price of beer falls,the substitution effect causes

Accepted Answer

When the price of beer falls, beer becomes relatively cheaper compared to pretzels, leading the consumer to substitute beer for pretzels, thus buying less pretzels.

Question 6

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

Accepted Answer

The consumer's optimum choices at different prices of Mt. Dew can be used to derive the demand curve for Mt. Dew. By connecting the points of quantity demanded at different prices, we can plot a downward-sloping demand curve that shows the inverse relationship between the price of Mt. Dew and the quantity of Mt. Dew that the consumer is willing and able to purchase.

Question 7

Which of the following descriptions best depicts the substitution effect?

Accepted Answer

The substitution effect refers to the change in consumption resulting from a change in the price of one good, holding the consumer's level of satisfaction constant. This means that as the price of a good increases, consumers will likely switch to a substitute good that is now relatively cheaper to maintain their level of satisfaction.

Question 8

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

Accepted Answer

The income effect and the substitution effect can work in the same or in opposite directions depending on the good and the consumer's preferences. Therefore, the demand curve can be derived with both effects taken into account, without requiring that one effect be greater than the other or that they work in a certain direction.

Question 9

Figure 21-12 
-Refer to Figure 21-12.The shift from point B to point C in the figure is due to the

Accepted Answer

The answer of Figure 21-12 
-Refer to Figure 21-12.The shift...

Question 10

Figure 21-12 
-Refer to Figure 21-12.If the consumer was initially at point A in the figure,a movement from point B to point C as a result of a decrease in the price of potato chips represents the

Accepted Answer

The answer of Figure 21-12 
-Refer to Figure 21-12.If the...

Question 11

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

Accepted Answer

The change in consumption that results from a price change and moves the consumer along a given indifference curve to a new point with a different marginal rate of substitution is called the substitution effect. The income effect, on the other hand, is the change in consumption resulting from an income change, while Giffen and inferior good effects are specific types of price change effects.

Question 12

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

Accepted Answer

The demand curve for a good can be derived by moving a consumer's budget constraint as the market price of one good changes, keeping all other factors constant. This means that as the market price of a good changes, the consumer will be willing to purchase different quantities of that good, which can be represented by a new point on the demand curve. The indifference map can help to illustrate the consumer's preferences, but it alone is not sufficient in determining the demand curve.

Question 13

The substitution effect of a price change is depicted by a

Accepted Answer

The answer of The substitution effect of a price change...

Question 14

Pepsi and pizza are normal goods.When the price of pizza falls,the substitution effect causes a

Accepted Answer

When the price of pizza falls, the substitution effect causes the consumer to buy more pizza and less Pepsi, resulting in a movement along the indifference curve. Thus, the correct choice is D.

Question 15

Pepsi and pizza are normal goods.When the price of pizza rises,the substitution effect causes Pepsi to be relatively

Accepted Answer

The answer of Pepsi and pizza are normal goods.When the...

Question 16

Consumer theory provides the foundation for understanding demand curves because

Accepted Answer

Consumer theory explains that consumers make optimal choices based on their preferences and budget constraints. Each point on a demand curve represents a combination of price and quantity that maximizes the consumer's utility, which is the satisfaction they derive from consuming the good. Therefore, consumer theory provides the foundation for understanding demand curves.

Question 17

Figure 21-12 
-Refer to Figure 21-12.If the consumer is currently at point A in the figure,a movement to point B as a result of a decrease in the price of potato chips represents the

Accepted Answer

A movement from point A to B as a result of a decrease in price represents the substitution effect, which is the change in the quantity demanded due to the change in the relative price of a good. The income effect is the change in the quantity demanded due to a change in income, the budget effect refers to the impact of changes in income and prices on a consumer's budget constraint, and the price effect is a combination of both the income and substitution effects. However, in this scenario, only the substitution effect is applicable.

Question 18

Assume that a college student purchases only coffee and Snickers bars.The substitution effect associated with a decrease in the price of a Snickers bar will result in

Accepted Answer

The substitution effect implies that as the price of Snickers bars decreases, they become relatively cheaper compared to coffee, leading the student to substitute Snickers bars for coffee, increasing Snickers consumption and decreasing coffee consumption.

Question 19

Consider a consumer who purchases two goods,X and Y.If the price of good Y falls,then the substitution effect by itself will

Accepted Answer

If the price of good Y falls, it becomes relatively cheaper compared to good X. Therefore, the consumer will substitute good Y for good X, and buy more of good Y and less of good X, leading to an increase in the quantity demanded of good Y and a decrease in the quantity demanded of good X. This is known as the substitution effect.

Question 20

Suppose the price of good X falls and the consumption of good X increases.From this we can infer that X is a(n)

Accepted Answer

The increase in consumption of good X when its price falls is consistent with the law of demand, which applies to both normal and inferior goods. However, it does not provide enough information to classify X specifically as a normal or inferior good, nor does it indicate that X is a Giffen good, which would require consumption to decrease as the price falls.

Quiz 21: The Theory of Consumer Choice