ECO 2301 PRIN MICROECO W/MYECONLAB >I
3rd Edition
ISBN: 9781323504406
Author: CASE
Publisher: PEARSON C
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Chapter 6, Problem 4.1P
To determine
People’s reaction in different situation.
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For each of the following events, consider how you might react. What things might you consume more or less of? Would you work more or less? Would you increase or decrease your saving? Are your responses consistent with the discussion of household behavior in this chapter?
a. You have a very close friend who lives in another city, a 3-hour bus ride away. The price of a round-trip ticket rises from $20 to $45.
b. Tuition at your college is cut 25 percent.
c. You receive an award that pays you $300 per month for the next 5 years.
d. Interest rates rise dramatically, and savings accounts are now paying 10% interest annually.
e. The price of food doubles. (If you are on a meal plan, assume that your board charges double.)
f. A new business opens up nearby offering part-time jobs at $20 per hour.
Explain how economic forces such as employment, income, prices, interest rates, and consumer confidence influence the purchasing decisions you make as a consumer.
Suppose that the price of T rises by $1 and the price of L falls by $1.25. Can Paula still afford to buy her initial consumption choices? What do you know about her new budget constraint?
Chapter 6 Solutions
ECO 2301 PRIN MICROECO W/MYECONLAB >I
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- Assume you define your permanent income as the average of your income from this and the past four years. Your earnings record over these five years has been: Yt = 40,000, Yt-1 = 38,000, Yt-2 = 34,000, Yt-3 = 32,000, Yt-4 = 31,000. If your income increases next year to Yt+1 = 46,000, by how much will your consumption change if you always consume 90 percent of your permanent income?arrow_forwardUse the following information to answer questions 1 through 8: A student has a monthly budget of $120 to spend on either burritos, which cost $6 each, or sodas, which cost $4 each. What is the largest number of burritos that the student could afford to purchase in one month? What is the largest number of sodas the student could afford to purchase in one month?arrow_forwardA consumer is currently purchasing three pairs of jeans and five T-shirts per year. The price of jeans is $30, and T-shirts cost $10. At the current rate of consumption, the marginal utility of jeans is 60, and the marginal utility of T-shirts is 30. Is this consumer maximizing his or her utility? Would you suggest that he buy more jeans and fewer T-shirts, or more T-shirts and fewer jeans?arrow_forward
- Economics Anne usually eats out at restaurants 20 times a month. Due to higher food prices, the cost of restaurant meals rises substantially. If, as a result, Anne not only eats out less but also purchase less of other goods, such as clothing, due to the decreased real purchasing power of her monthly budget this illustrates:arrow_forwardAssume a household can choose to consume units of food and units of housing. Say that the price of housing rises and that both food and housing are normal goods. What would happen to housing consumption and food consumption? Increase/Decrease/Uncertain? Explain.arrow_forwardWhat factors commonly influence a person’s daily buying choices? Select one of these and explain how one might counteract this influence to improve purchasing behavior.arrow_forward
- How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices. of Americans?arrow_forwardconsider your decision about how many hours to work. draw your budget constraint assuming that you pay no taxes on your income. on the same diagram, draw another budget constraint assuming that you pay 15 percent tax. show how the tax might lead to more hours of work,fewer hours or the same number of hours.explain.arrow_forwardIf a consumer's income decreases, what will happen to the budget line? It will shift outward. It will become steeper. It will become flatter. It will shift inward.arrow_forward
- What are the determinants for an individual demand? Receive with the help of indifference curves and the budget outline the optimal consumption plan. How do you transfer the optimal consumption plan into an individual demand function?arrow_forwardWhich consumption theory best explain the consumption behaviour of consumers in our economyarrow_forwardQuestion 2 A consumer is currently purchasing three pairs of jeans and five T-shirts per year. The price of jeans is $50, and shirts cost $25. At the current rate of consumption, the marginal utility of jeans is 150, and the marginal utility of shirts is 100. Based on the model of consumer choice, what should this consumer do to maximize utility? Purchase more shirts and fewer jeans. Purchase fewer shirts and more jeans. Purchase only jeans. This consumer is already maximizing utility. Purchase only shirts.arrow_forward
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