Multiple choice: Choose only one correct answere a) A curve that represents all combinations of market baskets that provide the same vel of utility to a consumer is called:“ an indifference curvee a budget constrainte the opportunity curve the marginal rate of substitutione b) The economic interpretation of the slope of the budget constraint ise the rate at which a consumer can exchange good 1 for more of good 2e the rate at which a consumer can exchange good 2 for more of good 14 the amount of income needed to afford more of good 2ª the amount of income needed to afford more of good 1ª c) The marginal rate of substitution ise the marginal utilities of each goode the curvature (second derivative) of the indifference curvee the slope of the budget constrainte the slope of the indifference curvee

Multiple choice: Choose only one correct answere a) A curve that represents all combinations of market baskets that provide the same vel of utility to a consumer is called:“ an indifference curvee a budget constrainte the opportunity curve the marginal rate of substitutione b) The economic interpretation of the slope of the budget constraint ise the rate at which a consumer can exchange good 1 for more of good 2e the rate at which a consumer can exchange good 2 for more of good 14 the amount of income needed to afford more of good 2ª the amount of income needed to afford more of good 1ª c) The marginal rate of substitution ise the marginal utilities of each goode the curvature (second derivative) of the indifference curvee the slope of the budget constrainte the slope of the indifference curvee

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section: Chapter Questions

Problem 1PA

See similar textbooks

Similar questions

please only do: if you can teach explain each partc: what does it mean? can you show graphs: For these to be optimal choices with such preferences, the indifference curve through a must lie entirely on or above the budget line associated with (p, w), and simi- larly for r' for the budget line associated with (p', w'). how do you know this:Because each of these bundles lies below the other budget line, this implies that the indifference curves must cross, which is impossible. can you show graphs: note that (3,1) is a conver combination of x and x', so for conver preferences must be weakly preferred to x (the less preferred bundle between a and a'). But then the bundle (3,5/3) must be strictly preferred z, contradicting that is optimal given the initial budget set
Pareto eliminated psychology from economics:a. by defining utility as ordinal, not cardinal utilityb. searching for secondary qualities of thingsc. defined rationality as consumer behavior only after they have bought something several timesd. by accepting revealed preference.
Lexicographic preferences describe preferences where an economic agent prefers any amount of one good (X) to any amount of another (Y). SpeciÖcally, if o§ered several bundles of goods, the agent will choose the bundle that o§ers the most X, no matter how much Y there is. Only when there is a tie between bundles with regard to the number of units of X will the agent start comparing the number of units of Y across bundles. Show that Lexicographic preferences are transitive
Total utility is maximized in the consumption oftwo goods by equating thea. prices of both goods for the last dollar spenton each good.b. marginal utilities of both goods for the lastdollar spent on each good.c. ratios of marginal utility to the price of bothgoods for the last dollar spent on each good.d. marginal utility of one good to the price ofthe other good.
Question 3Draw indifference curves for the following sets of preferences and indicate the direction inwhich the individuals’ satisfaction (or utility) is increasing. Be specific about slopes when itis necessary. Assume for both parts (a) & (b) that soft drinks are measured on x-axis andhamburgers on the y-axis. (a) Mary always gets twice as much satisfaction from an extra hamburger as she does froman extra soft drink. (b) Bob loves soft drinks but dislikes hamburgers.
A consumer has GH¢600 to spend on two commodities, A and B. Commodity A costs GH¢20 per unit and Commodity B costs GH¢30 per unit. Suppose that the utility derived by the consumer from x units of Commodity A, and y Commodity B is given by the Cobb-Douglas utility functionU (x, y) = 10x0.6y0.4a. How many units of each commodity should the consumer buy tomaximize utility?b. Is the budget constraint binding?
a good is normal, then an increase in the price of the good will lead to which of the following to be true for this good? (Assume that there are only two goods, the individual's preferences lead to well-behaved preferences with strictly convex indifference curves and an interior solution for all budgets). Let SE = substitution effect, IE = income effect) (a) The magnitude of the IE for this good must be larger than the magnitude of the SE (b) The magnitude of the SE for this good must be larger than the magnitude of the IE (c) The good could be a Giffen good d) The good must be an ordinary good ( (e) None of the above
Suppose a consumer has utility function U(X, Y) = X2/3Y1/3. Suppose the consumer has M =$90 to spend and the prices of goods X and Y are PX = $15 and PY = $6 . a. Carefully express the consumer’s choice problem, using the given information (this is whereyou write out the max operator, the choice variables, the objective function, and the budget constraint). b. Compute the absolute value of the consumer’s marginal rate of substitution, and inspect it todetermine the shape of the consumer’s indifference curves: C-shaped, linear, )-shaped, or some other shape.To show your work, neatly use the arrow argument, increasing X (↑) and decreasing Y (↓) to see whether|MRS(X, Y)| is diminishing along an indifference curve. c. If the indifference curves are C-shaped write out the budget line and the equal slopes conditionthat characterize an interior solution to the consumer’s choice problem. Use the particulars for the givenconsumer. Solve these conditions to find the interior solution. On the…
Consider a consumer with M = $120 to spend (income) and faces prices PX = $15 and PY =$5 for goods X and Y. Her utility function is U(X, Y) = X1/2 + Y1/2.a Carefully. express the consumer’s choice problem, using the given information (this is whereyou write out the max operator, the choice variables, the objective function, and the budget constraint). b. Compute the absolute value of the consumer’s marginal rate of substitution, and inspect it todetermine the shape of the consumer’s indifference curves: C-shaped, linear, )-shaped, or some other shape.To show your work, neatly use the arrow argument, increasing X (↑) and decreasing Y (↓) to see whether|MRS(X, Y)| is diminishing along an indifference curve. c. If the indifference curves are C-shaped write out the budget line and the equal slopes conditionthat characterize an interior solution to the consumer’s choice problem. Use the particulars for the givenconsumer. Solve these conditions to find the interior solution. On the other…
Utility maximization under constraint Lucas gets utility (satisfaction) from two goods, A and B, according to the utility functionU(C, D) = 25[C−3 +4D−3]−4 +25. While Lucas would like to consume as much as possiblehe is limited by his income. Maximize Lucas’ utility subject to the budget constraint usingthe Lagrangean method.
Suppose that a consumer has a choicebetween two goods, X and Y. If the price of X is $2 and the priceof Y is $3, how much of X and Y does the consumer purchaseper period, given an income of $17 per period? Use the followinginformation about marginal utility:Units MUX MUY1 10 52 8 43 2 34 2 25 1 2
Mrs. Rochester earns $4500 a week and spends her entire income on computers andpastries, since these are the only two items that provide her utility. Furthermore, a) Draw an indifference curve showing the optimum choice. Label the optimum aspoint A. What would be the marginal rate of substitution at the point thatcorresponds to the optimal consumption choice? Interpret the marginal rate ofsubstitution. b) What would be the new marginal rate of substitution that corresponds to theoptimal consumption choice? Interpret the marginal rate of substitution. c) Assume for this question only that when the price of computers decreases, less ofthat good is demanded. Illustrate the income and substitution effect of this pricedecrease.