Chapter 21The Theory of Consumer ChoiceTRUE/FALSE1. The theory of consumer choice illustrates that people face tradeoffs, which is one of the Ten Principles ofEconomics.ANS: T DIF: 1 REF: 21-0 NAT: AnalyticLOC: Utility and consumer choice TOP: Consumer choiceMSC: Definitional2. A consumer’s budget constraint for goods X and Y is determined by how much the consumer likes good Xrelative to good Y.ANS: F DIF: 2 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Definitional3. The slope of the budget constraint reveals the relative price of good X compared to good Y.ANS: T DIF: 2 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Applicative4. A budget constraint illustrates bundles that a consumer prefers equally, while an indifference curve illustratesbundles that are equally affordable to a consumer.ANS: F DIF: 2 REF: 21-1 | 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Applicative5. For a typical consumer, most indifference curves are bowed inward.ANS: T DIF: 1 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Indifference curvesMSC: Interpretive6. For a typical consumer, most indifference curves are downward sloping.ANS: T DIF: 1 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Indifference curvesMSC: Interpretive7. For a typical consumer, indifference curves can intersect if they satisfy the property of transitivity.ANS: F DIF: 2 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Indifference curvesMSC: Interpretive8. When two goods are perfect complements, the indifference curves are right angles.ANS: T DIF: 1 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Perfect complementsMSC: Interpretive9. The indifference curves for left shoes and right shoes are right angles.ANS: T DIF: 1 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Perfect complementsMSC: Applicative10. The indifference curves for perfect substitutes are straight lines.ANS: T DIF: 1 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Perfect substitutesMSC: Applicative1406Chapter 21/The Theory of Consumer Choice 1407 11. The indifference curves for nickels and dimes are straight lines.ANS: T DIF: 1 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Perfect substitutesMSC: Applicative12. When two goods are perfect substitutes, the indifference curves are right angles.ANS: F DIF: 1 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Perfect complements | Perfect substitutesMSC: Interpretive13. If goods A and B are perfect substitutes, then the marginal rate of substitution of good A for good B isconstant.ANS: T DIF: 2 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Marginal rate of substitution | Perfect substitutesMSC: Interpretive14. The slope at any point on an indifference curve equals the absolute price at which a consumer is willing tosubstitute one good for the other.ANS: F DIF: 2 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Marginal rate of substitutionMSC: Interpretive15. The marginal rate of substitution between goods A and B measures the price of A relative to the price of B. ANS: F DIF: 2 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Marginal rate of substitutionMSC: Definitional16. The marginal rate of substitution is the slope of the budget constraint.ANS: F DIF: 1 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Marginal rate of substitutionMSC: Definitional17. The marginal rate of substitution is the slope of the indifference curve.ANS: T DIF: 1 REF: 21-2 NAT: AnalyticLOC: Utility and consumer choice TOP: Marginal rate of substitutionMSC: Definitional18. At a consumer’s optimal choice, the consumer chooses the combinati on of goods that equates the marginalrate of substitution and the price ratio.ANS: T DIF: 2 REF: 21-3 NAT: AnalyticLOC: Utility and consumer choice TOP: OptimizationMSC: Interpretive19. At a consumer’s optimal choice, the consumer chooses the combin ation of goods such that the ratio of themarginal utilities equals the ratio of the prices.ANS: T DIF: 2 REF: 21-3 NAT: AnalyticLOC: Utility and consumer choice TOP: OptimizationMSC: Interpretive20. If consumers purchase more of a good when their income rises, the good is a normal good.ANS: T DIF: 1 REF: 21-3 NAT: AnalyticLOC: Utility and consumer choice TOP: Normal goods | Inferior goodsMSC: Definitional21. If a consumer purchases more of good B when his income rises, good B is an inferior good.ANS: F DIF: 1 REF: 21-3 NAT: AnalyticLOC: Utility and consumer choice TOP: Normal goods | Inferior goodsMSC: Definitional22. If a consumer purchases more of good A when her income falls, good A is an inferior good.ANS: T DIF: 2 REF: 21-3 NAT: AnalyticLOC: Utility and consumer choice TOP: Inferior goodsMSC: Definitional23. The income effect of a price change is unaffected by whether the good is a normal or inferior good.ANS: F DIF: 2 REF: 21-3 NAT: AnalyticLOC: Utility and consumer choice TOP: Income effectMSC: Interpretive24. The income effect of a price change is the change in consumption that results from the movement to a newindifference curve.ANS: T DIF: 2 REF: 21-3 NAT: AnalyticLOC: Utility and consumer choice TOP: Income effectMSC: Interpretive25. The direction of the substitution effect is not influenced by whether the good is normal or inferior.ANS: T DIF: 3 REF: 21-3 NAT: AnalyticLOC: Utility and consumer choice KEY: Substitution effectMSC: Analytical26. The substitution effect of a price change is the change in consumption that results from the movement to a newindifference curve.ANS: F DIF: 2 REF: 21-3 NAT: AnalyticLOC: Utility and consumer choice TOP: Substitution effectMSC: Interpretive27. All points on a demand curve are optimal consumption points.ANS: T DIF: 3 REF: 21-3 NAT: AnalyticLOC: Utility and consumer choice TOP: Demand MSC: Analytical28. Economists use the term Giffen good to describe a good that violates the law of demand.ANS: T DIF: 2 REF: 21-4 NAT: AnalyticLOC: Utility and consumer choice TOP: Giffen good MSC: Interpretive29. Giffen goods are inferior goods for which the income effect dominates the substitution effect.ANS: T DIF: 2 REF: 21-4 NAT: AnalyticLOC: Utility and consumer choice TOP: Giffen good MSC: Definitional30. Economists have found evidence of a Giffen good when studying the consumption of rice in the Chineseprovince of Hunan.ANS: T DIF: 2 REF: 21-4 NAT: AnalyticLOC: Utility and consumer choice TOP: Giffen good MSC: Applicative31. Katie wins $1 million in her state’s lottery. If Katie drastically reduces the number of hours she works aftershe wins the money, we can infer that the income effect is larger than the substitution effect for her.ANS: T DIF: 2 REF: 21-4 NAT: AnalyticLOC: Utility and consumer choice TOP: Labor supplyMSC: Interpretive32. Susie wins $1 million in her state’s lottery. If Susie keeps working after she wins the money, we can inferthat the income effect is larger than the substitution effect for her.ANS: F DIF: 2 REF: 21-4 NAT: AnalyticLOC: Utility and consumer choice TOP: Labor supplyMSC: Interpretive33. A rational person can have a negatively-sloped labor supply curve.ANS: T DIF: 2 REF: 21-4 NAT: AnalyticLOC: Utility and consumer choice TOP: Labor supplyMSC: ApplicativeChapter 21/The Theory of Consumer Choice 1409 34. The substitution effect in the work-leisure model induces a person to work less in response to higher wages,which tends to make the labor-supply curve slope upward.ANS: F DIF: 2 REF: 21-4 NAT: AnalyticLOC: Utility and consumer choice TOP: Labor supplyMSC: Interpretive35. The income effect in the work-leisure model induces a person to work less in response to higher wages, whichtends to make the labor-supply curve slope backward.ANS: T DIF: 2 REF: 21-4 NAT: AnalyticLOC: Utility and consumer choice TOP: Labor supplyMSC: Interpretive36. Some economists have advocated reducing the taxation of interest and other capital income, arguing that sucha policy change would raise the after-tax interest rate that savers can earn and would thereby encourage peopleto save more.ANS: T DIF: 2 REF: 21-4 NAT: AnalyticLOC: Utility and consumer choice TOP: Consumption-saving decisionMSC: Interpretive37. A rise in the interest rate will generally result in people consuming more when they are old if the substitutioneffect outweighs the income effect.ANS: T DIF: 2 REF: 21-4 NAT: AnalyticLOC: Utility and consumer choice TOP: Consumption-saving decisionMSC: Interpretive38. A rise in the interest rate will generally result in people consuming less when they are old if the substitutioneffect outweighs the income effect.ANS: F DIF: 2 REF: 21-4 NAT: AnalyticLOC: Utility and consumer choice TOP: Consumption-saving decisionMSC: InterpretiveSHORT ANSWER1. Answer the following questions based on the table. A consumer is able to consume the following bundles ofrice and beans when the price of rice is $2 and the price of beans is $3.RICE BEANS1206408a.How much is this consumer's income?b.Draw a budget constraint given this information. Label it B.c.Construct a new budget constraint showing the change if the price of rice falls $1. Label this C.d.Given the original prices for rice ($2) and beans ($3), construct a new budget constraint if thisconsumer's income increased to $48. Label this D.ANS:a.$24b.c.d.DIF: 2 REF: 21-1 NAT: Analytic LOC: Utility and consumer choice TOP: Budget constraint MSC: ApplicativeChapter 21/The Theory of Consumer Choice 1411 2. Draw a budget constraint that is consistent with the following prices and income.Income = 200P Y = 50P X = 25a.Demonstrate how your original budget constraint would change if income increases to 500.b.Demonstrate how your original budget constraint would change if P Y decreases to 20.c.Demonstrate how your original budget constraint would change if P X increases to 40.ANS:DIF: 2 REF: 21-1 NAT: Analytic LOC: Utility and consumer choice TOP: Budget constraint MSC: Applicative3. Assume that a consumer faces the following budget constraints.a.Assuming that income is the same on both occasions, describe the difference in relative pricesbetween Panel A and Panel B.b.If income in Panel B is $126, what is the price of good X?c.If income in Panel A is $84, what is the price of good Y?d.Assuming that the price of good X is the same on both occasions, describe the difference inincome and price of good Y between Panel A and Panel B.ANS:a.The price of good Y is relatively higher in Panel A than Panel B. Said another way, the price ofX is relatively lower in Panel A than Panel B.b.$9c.$12d.Income in Panel A is twice the income in Panel B, and the price of "Y" in Panel B is 1/18 theprice of "Y" in Panel A.DIF: 2 REF: 21-1 NAT: Analytic LOC: Utility and consumer choice TOP: Budget constraint MSC: Applicative4. Evaluate the following statement, "Warren Buffet is the second richest person in the world. He doesn't faceany constraint on his ability to purchase commodities he wants."ANS:Everyone faces scarcity of resources, regardless of how rich they are because wants are assumed to be infinite. DIF: 1 REF: 21-1 NAT: Analytic LOC: Utility and consumer choice TOP: Budget constraint MSC: Interpretive5. List and briefly explain each of the four properties of indifference curves.ANS:1: Higher indifference curves are preferred to lower ones, because consumers usually prefer more of something to less of it. 2: Indifference curves are downward sloping. The slope of an indifference curve reflects the rate at which the consumer is willing to substitute one good for another. If the quantity of one good is reduced, the quantity of the other good must increase in order for the consumer to be equally happy. 3: Indifference curves do not cross. If indifference curves did cross, the same point could be on two different curves, thus contradicting the assumption that consumers prefer more of both goods to less. 4: Indifference curves are bowed inward. This is because people are more willing to trade away goods that they have in abundance and less willing to trade away goods of which they have less.DIF: 1 REF: 21-2 NAT: Analytic LOC: Utility and consumer choice TOP: Indifference curves MSC: InterpretiveChapter 21/The Theory of Consumer Choice 14136. Draw indifference curves that reflect the following preferences.a.pencils with white erasers and pencils with pink erasersb.left shoes and right shoesc.potatoes and riced.income and polluted waterANS:DIF: 2 REF: 21-2 NAT: Analytic LOC: Utility and consumer choice TOP: Indifference curves MSC: Applicative7. Graphically demonstrate the conditions associated with a consumer optimum. Carefully label all curves andaxes.ANS:Where M=IncomeDIF: 1 REF: 21-3 NAT: Analytic LOC: Utility and consumer choice TOP: Optimization MSC: Applicative8. Explain the relationship between the budget const raint and indifference curve at a consumer’s optimum. ANS:Since the budget constraint is tangent to the indifference curve at a consumer’s optimum, the slope of the budget constraint (relative market prices) and the slope of the indifference curve (the marginal rate of substitution) are equal at the optimal consumption point.DIF: 1 REF: 21-3 NAT: Analytic LOC: Utility and consumer choice TOP: Consumer choice MSC: InterpretiveChapter 21/The Theory of Consumer Choice 1415 9. Assume that a person consumes two goods, Coke and Snickers. Use a graph to demonstrate how the consumeradjusts his/her optimal consumption bundle when the price of Coke decreases. Carefully label all curves and axes. What will happen to consumption if Coke is a normal good? What will happen to consumption if Coke is an inferior good? (Remember to explain the possible change when the income effect dominates and when the substitution effect dominates.)ANS:If Coke is a normal good, the consumption of Coke will increase when the price decreases. If Coke is an inferior good and the substitution effect dominates, the consumption of Coke will increase when the price decreases. If Coke is an inferior good and the income effect dominates, the consumption of Coke will decrease when the price decreases. If consumption decreases, the demand curve is upward sloping, and Coke would be a Giffen good. Giffen goods are very rare in the real world, and Coke is not likely to be one.DIF: 2 REF: 21-3 NAT: Analytic LOC: Utility and consumer choice TOP: Consumer choice MSC: Applicative10. Using the graph shown, construct a demand curve for M&M's given an income of $10.ANS:DIF: 3 REF: 21-3 NAT: Analytic LOC: Utility and consumer choice TOP: Demand MSC: AnalyticalChapter 21/The Theory of Consumer Choice 1417 11. Using indifference curves and budget constraints, graphically illustrate the substitution and income effect thatwould result from a change in the price of a normal good.ANS:The graph above illustrates a price decrease for potato chips. Moving from point A to point B illustrates the substitution effect, while moving from point B to point C illustrates the income effect.DIF: 3 REF: 21-3 NAT: Analytic LOC: Utility and consumer choice TOP: Income effect | Substitution effect MSC: Applicative12. Explain the difference between inferior and normal goods. As a developing economy experiences increases inincome (measured by GDP), what would you predict to happen to demand for inferior goods?ANS:Normal goods are those for which consumption increases as income rises. Inferior goods are those for which consumption decreases as income rises. We would expect the demand for inferior goods to decrease as developing countries experience increases in income.DIF: 2 REF: 21-3 NAT: Analytic LOC: Utility and consumer choice TOP: Inferior goods | Normal goods MSC: Interpretive13. Janet knows that she will ultimately face retirement. Assume that Janet will experience two periods in her life,one in which she works and earns income, and one in which she is retired and earns no income. Janet can earn$250,000 during her working period and nothing in her retirement period. She must both save and consume inher work period and can earn 10 percent interest on her savings.e a graph to demonstrate Janet's budget constraint.b.On your graph, show Janet at an optimal level of consumption in the work period equal to$150,000. What is the implied optimal level of consumption in her retirement period?c.Now, using your graph from part b above, demonstrate how Janet will be affected by an increasein the interest rate on savings to 14 percent. Discuss the role of income and substitution effects indetermining whether Janet will increase, or decrease her savings in the work period.ANS:a.see graph belowb.see graph belowc.see graph belowSubstitution effect: Retirement spending becomes less costly, so she should increase saving.Income effect: As income increases she should increase consumption in both periods (thus reducing her saving in the work period.)DIF: 3 REF: 21-4 NAT: Analytic LOC: Utility and consumer choiceTOP: Consumption-saving decision MSC: ApplicativeSec 00 - The Theory of Consumer ChoiceMULTIPLE CHOICE1. Which of the following does not represent a tradeoff facing a consumer?a.choosing to purchase more of all goodsb.choosing to spend more leisure time and less working timec.choosing to spend more now and consume less in the futured.choosing to purchase less of one good in order to purchase more of another goodANS: A DIF: 1 REF: 21-0 NAT: AnalyticLOC: Utility and consumer choice TOP: Consumer choiceMSC: ApplicativeChapter 21/The Theory of Consumer Choice 1419 2. How are the following three questions related: 1) Do all demand curves slope downward? 2) How dowages affect labor supply? 3) How do interest rates affect household saving?a.They all relate to macroeconomics.b.They all relate to monetary economics.c.They all relate to the theory of consumer choice.d.They are not related to each other in any way.ANS: C DIF: 1 REF: 21-0 NAT: AnalyticLOC: Utility and consumer choice TOP: Consumer choiceMSC: Applicative3. Just as the theory of the competitive firm provides a more complete understanding of supply, the theory ofconsumer choice provides a more complete understanding ofa.demand.b.profits.c.production possibility frontiers.d.wages.ANS: A DIF: 1 REF: 21-0 NAT: AnalyticLOC: Utility and consumer choice TOP: Consumer choiceMSC: Interpretive4. Which of the following statements is correct?a.The theory of consumer choice provides a more complete understanding of supply, just as thetheory of the competitive firm provides a more complete understanding of demand.b.The theory of consumer choice provides a more complete understanding of demand, just as thetheory of the competitive firm provides a more complete understanding of supply.c.Monetary theory provides a more complete understanding of demand, just as the theory of thecompetitive firm provides a more complete understanding of supply.d.The theory of public choice provides a more complete understanding of supply, just as the theory ofthe competitive firm provides a more complete understanding of demand.ANS: B DIF: 1 REF: 21-0 NAT: AnalyticLOC: Utility and consumer choice TOP: Consumer choiceMSC: Interpretive5. When a consumer spends less time enjoying leisure and more time working, she hasa.lower income and therefore cannot afford more consumption.b.lower income and therefore can afford more consumption.c.higher income and therefore cannot afford more consumption.d.higher income and therefore can afford more consumption.ANS: D DIF: 1 REF: 21-0 NAT: AnalyticLOC: Utility and consumer choice TOP: Consumer choiceMSC: Interpretive6. The theory of consumer choice provides the foundation for understanding thea.structure of a firm.b.profitability of a firm.c.demand for a firm's product.d.supply of a firm's product.ANS: C DIF: 1 REF: 21-0 NAT: AnalyticLOC: Utility and consumer choice TOP: Consumer choiceMSC: Definitional7. The theory of consumer choice examinesa.the determination of output in competitive markets.b.the tradeoffs inherent in decisions made by consumers.c.how consumers select inputs into manufacturing production processes.d.the determination of prices in competitive markets.ANS: B DIF: 1 REF: 21-0 NAT: AnalyticLOC: Utility and consumer choice TOP: Consumer choiceMSC: Definitional8. The theory of consumer choice most closely examines which of the following Ten Principles of Economics?a.People face trade-offs.b.The cost of something is what you give up to get it.c.Trade can make everyone better off.d.Markets are usually a good way to organize economic activity.ANS: A DIF: 1 REF: 21-0 NAT: AnalyticLOC: Utility and consumer choice TOP: Consumer choiceMSC: InterpretiveSec 01- The Theory of Consumer Choice - The Budget Constraint: What the Consumer Can AffordMULTIPLE CHOICE1. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice creamcosts $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60,and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 8gallons of ice cream and 5 paperback novels?a.Karen, Tara, and Chelseab.Karen onlyc.Tara and Chelsea but not Karend.none of the womenANS: B DIF: 1 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Applicative2. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice creamcosts $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60,and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 5gallons of ice cream and 8 paperback novels?a.Karen, Tara, and Chelseab.Karen onlyc.Tara and Chelsea but not Karend.none of the womenANS: D DIF: 1 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Applicative3. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice creamcosts $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60,and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Who can afford to purchase 4gallons of ice cream and 5 paperback novels?a.Karen, Tara, and Chelseab.Karen onlyc.Karen and Tara but not Chelsead.none of the womenANS: C DIF: 1 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: ApplicativeChapter 21/The Theory of Consumer Choice 1421 4. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot summer days. Ice creamcosts $5 per gallon, and paperback novels cost $8 each. Karen has a budget of $80, Tara has a budget of $60, and Chelsea has a budget of $40 to spend on ice cream and paperback novels. Which of the followingstatements is correct?a.Each woman faces the same budget constraint.b.The slope of the budget constraint is the same for each woman.c.The area underneath the budget constraint is larger for Chelsea than for Karen.d.All of the above are correct.ANS: B DIF: 2 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Applicative5. Suppose a consumer has an income of $800 per month and that she spends her entire income each month onbeer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4. Which of thefollowing combinations of beers and bratwursts represents a point that would lie to the interior of theconsumer’s budget constraint?a.160 beers and 200 bratwurstsb.40 beers and 50 bratwurstsc.80 beers and 100 bratwurstsd.160 beers and 0 bratwurstsANS: B DIF: 2 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Analytical6. Suppose a consumer has an income of $800 per month and that she spends her entire income each month onbeer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4. Which of thefollowing combinations of beers and bratwursts represents a point that would lie to the exterior of theconsumer’s budget constraint?a.160 beers and 200 bratwurstsb.40 beers and 50 bratwurstsc.80 beers and 100 bratwurstsd.160 beers and 0 bratwurstsANS: A DIF: 2 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Analytical7. Suppose a consumer has an income of $800 per month and that she spends her entire income each month onbeer and bratwurst. The price of a pint of beer is $5, and the price of a bratwurst is $4. Which of thefollowing combinations of beers and bratwursts represents a point that would lie directly on the consumer’s budget constraint?a.160 beers and 200 bratwurstsb.40 beers and 50 bratwurstsc.80 beers and 100 bratwurstsd.80 beers and 0 bratwurstsANS: C DIF: 2 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Analytical8. Consider two goods, books and hamburgers. The slope of the consumer's budget constraint is measured by thea.consumer's income divided by the price of hamburgers.b.relative price of books and hamburgers.c.consumer's marginal rate of substitution.d.number of books purchased divided by the number of hamburgers purchased.ANS: B DIF: 2 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Interpretive9. Suppose a consumer spends his income on CDs and DVDs. If his income decreases, the budget constraintfor CDs and DVDs willa.shift outward, parallel to the original budget constraint.b.shift inward, parallel to the original budget constraint.c.rotate outward along the CD axis because he can afford more CDs.d.rotate outward along the DVD axis because he can afford more DVDs.ANS: B DIF: 2 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Analytical10. When the price of a shirt falls, thea.quantity of shirts demanded falls.b.quantity of shirts demanded rises.c.quantity of shirts supplied rises.d.demand for shirts falls.ANS: B DIF: 1 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Demand MSC: Analytical11. A budget constraint illustrates thea.prices that a consumer chooses to pay for products he consumes.b.purchases made by consumers.c.consumption bundles that a consumer can afford.d.consumption bundles that give a consumer equal satisfaction.ANS: C DIF: 1 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Definitional12. Assume that a college student spends her income on books and pizza. The price of a pizza is $8, and the priceof a book is $15. If she has $100 of income, she could choose to consumea.8 pizzas and 4 books.b. 4 pizzas and 5 books.c.9 pizzas and 3 books.d. 4 pizzas and 3 books.ANS: D DIF: 2 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Applicative13. Assume that a college student spends her income on mac-n-cheese and CDs. The price of one box ofmac-n-cheese is $1, and the price of one CD is $12. If she has $100 of income, she could choose to consumea.15 boxes of mac-n-cheese and 6 CDs.b.20 boxes of mac-n-cheese and 7 CDs.c.10 boxes of mac-n-cheese and 8 CDs.d.30 boxes of mac-n-cheese and 6 CDs.ANS: A DIF: 2 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Applicative14. A consumer who doesn't spend all of her incomea.would be at a point outside of her budget constraint.b.would be at a point inside her budget constraint.c.must not be consuming positive quantities of all goods.d.must be consuming at a point where her budget constraint touches one of the axes.ANS: B DIF: 2 REF: 21-1 NAT: AnalyticLOC: Utility and consumer choice TOP: Budget constraintMSC: Interpretive。