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Exam 21: The Theory of Consumer Choice

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Question 101

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Table 21-1 The relationship between the marginal utility that George gets from eating a bag of cookies and the number of bags he eats per month is as follows: -Refer to Table 21-1.George consumes two goods,milk and cookies.He has maximized his utility given his income.Milk costs $2 per litre and he consumes it to the point where the marginal utility he receives from milk is 8.Cookies cost $5 per bag.How many bags of cookies does George buy each month

A) 1
B) 2
C) 3
D) 4

E) B) and D)
F) B) and C)

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Question 102

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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

A) $2.50, 4
B) $2.50, 10
C) $5.00, 4
D) $5.00, 10

E) A) and B)
F) A) and C)

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Question 103

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What is the substitution effect from an increase in wages evident in

Explain the difference between inferior and normal goods.As a developing economy experiences increases in income (measured by GDP),what would you predict to happen to demand for inferior goods

Assume that a person consumes two goods,coffee and candy bars.Use a graph to demonstrate how the consumer adjusts his/her optimal consumption bundle when the price of coffee decreases.Carefully label all curves and axes.What will happen to consumption if coffee is a normal good What will happen to consumption if coffee is an inferior good (Remember to explain the possible change when the income effect dominates and when the substitution effect dominates.)

Figure 21-3 -Refer to Figure 21-3.Assume that a consumer faces both budget constraints in graph (a) and graph (b) on two different occasions.If her income has remained constant,what has happened to prices

Figure 21-1 -Refer to Figure 21-1.At what point in the figure is a consumer choosing to spend less than her total income

In which way will an increase in income cause a consumer's budget constraint to change

When leisure is a normal good,what is the income effect from an increase in wages evident in

Draw indifference curves that reflect the following: a.pencils with white erasers and pencils with pink erasers b.left shoes and right shoes c.potatoes and rice d.income and polluted water

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