If the marginal rate of substitution is 3 (in absolute terms), then we know tha The household is willing to give up 3 units of consumption to get the next unit of leisure. The household prefers to get 3 units of consumption together with every unit of leisure. The household is willing to give up 3 units of leisure to get the next unit of consumption. 3 units of consumption are identical to 3 units of leisure.

If the marginal rate of substitution is 3 (in absolute terms), then we know tha The household is willing to give up 3 units of consumption to get the next unit of leisure. The household prefers to get 3 units of consumption together with every unit of leisure. The household is willing to give up 3 units of leisure to get the next unit of consumption. 3 units of consumption are identical to 3 units of leisure.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter6: Consumer Choice Theory

Section6.A: Indifference Curve Analysis

Problem 2SQ

See similar textbooks

Similar questions

Draw the indifference curve for someone decidinghow to allocate time between work and leisure.Suppose the wage increases. Is it possible that theperson’s consumption would fall? Is this plausible?Discuss. (Hint: Think about income and substitutioneffects.)
A typical consumer's "leisure basket" in the base year 2019 is as follows: 20 movie tickets $15.00 each 4 theme park tickets $80.00 each 30 swimming passes $10.00 each 2 interstate holidays $400 each 1 international holiday $2000 each The closure of international borders decreases demand for international holidays in 2020. This causes interstate holidays to rise in price to $800 each. The price of other items in the leisure basket are unchanged. a. Calculate the change (as a percentage) in the "leisure index" between 2019 and 2020. b. Suppose consumer preferences change in 2020 and they are completely indifferent between two interstate holidays and one international holiday. In this situation, how large is the substitution bias in the "leisure index"? c. Explain how biases in the "leisure index" create a difference between the price changes consumers experience and the price changes described by the "leisure index".
The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is: a. the product is now relatively more expensive than it was before. b. other products are now relatively more expensive than they were before. c. the real income of the consumer has been increased. d. the real income of the consumer has been decreased
Eren’s two main hobbies are taking vacations overseas (V) and eating expensive meals (M). His utility function is given as: U(V,M) = V^2MLast year, the average price of taking a vacation overseas was US$200 and the average price of an expensive meal is $50. However, due to supply problems in Onions, the average price of an expensive meal rose to $75. The average price of a vacation did not change. His income, which is $1500, did not change. Suppose that the Department of Welfare wants to know how much should be given to Eren to offset his change un utility due to the price increase of an expensive meal. Calculate the compensative variation (CV).
Consumption when young and consumption whenold are both normal goods for Seymour, a workersaving for retirement. When the interest rate falls,what happens to Seymour’s consumption when old?a. It definitely increases.b. It definitely decreases.c. It increases only if the substitution effect exceedsthe income effect.d. It decreases only if the substitution effectexceeds the income effect.
Asap The marginal rate of substitution is the slope of an indifference curve. True False.
Q2. Amanda receives satisfaction from consumption C and leisure L. Her utility function is given by U(C, L) = L x C. a. Define indifference curve. [5 points] b. Name 2 properties of indifference curves. [5 points]
Suppose you are choosing between hours of work (a bad measured on the horizontal axis) and money (a good measured on the vertical axis). a. Explain the meaning of MRS in words. b. Should your MRS be positive or negative in this case? c. Is your MRS increasing, constant or decreasing as you increase the hours of work along an indifference curve? Explain and draw some indifference curves for this example.
Explain why indifference curvesa. are downward sloping.b. are convex to the origin.c. do not cross.
For this question, assume that indifference curves are strictly convex, consumption andleisure are normal goods, and the optimal amounts of consumption, leisure, and labor arealways positive. A wage increase ______. (SE = substitution effect; IE = income effect)(a) increases labor supply via the SE and decreases labor supply via the IE(b) decreases labor supply via the SE and decreases labor supply via the IE(c) increases labor supply via the SE and increases labor supply via the IE(d) decreases labor supply via the SE and increases labor supply via the IE(e) Can’t tell without knowing the utility function
Moe and Curly both face the same budget line for consumption and leisure. At every possible consumption-leisure bundle on the budget line, Curly always requires marginally more leisure than does Moe in order to be equally happy when asked to forego a dollar of consumption. Using a standard budget line, graph the indifference curves for Moe and Curly that shows the optimal consumption-leisure bundle for both people. Which person optimally chooses more consumption? Which feature of indifference curves guarantees this result?
Graph and explain indifference curves for the following situations:(i) An individual has constant marginal utility toconsumption in both periods.(ii) An individual does not derive utility from this period’sconsumption, but does from the next period’sconsumption.(iii) An individual’s utility decreases with consumption inboth periods.