Exam 9: Possibilities, Preferences, and Choices

-In the figure above, Sam originally selects his consumption bundle at point A with 3 pounds of olives and 4 pounds of pickles a year. Then the price of pickles rises and the price of olives falls so that his budget line rotates but it still goes through point A. Sam's consumption of pickles

-John likes to spend Thursday nights playing pool and drinking soda. John's budget for Thursday nights is $10, a soda costs $2, and one game of pool costs $1. a) Draw a graph of John's budget line in the figure above. b) In your graph, label the affordable and unaffordable areas.

-In an indifference curve/budget line diagram, generally when the price of a good increases, the consumer purchases ________ of the good and moves to a ________ indifference curve.

If your marginal rate of substitution between two goods diminishes continuously as you give up one good for the other, that means the

-A change in a person's money income changes real income and therefore changes the slope of the person's budget line.

At the best affordable point, consumers equate their marginal rates of substitution to

-Lizzie's budget line is shown in the figure above. If Lizzie's income is $20, which of the following formulas represents her budget equation?

-In the figure above, as more six-packs of soda are consumed, moving along any of the illustrated indifference curves, the MRS between twelve-packs of soda and six-packs of soda

A constant marginal rate of substitution between two goods implies that they are

When two goods are perfect substitutes, their indifference curves are straight lines.

-Lizzie's budget line is shown in the figure above. If the price of a magazine falls, the budget line

Tonya, who is rich, and Jerome, who is poorer, both buy orange juice and croissants for lunch at the student cafeteria. Their budget constraints on a diagram with orange juice on the vertical axis and croissants on the horizontal have the same

Explain how changes in the price of goods and the consumer's budget affect the budget line.

-The above figure shows Jane's budget line and two of her indifference curves. Which of the following happens to Jane's budget line if the price of a lobster dinner fell?

Indifference curves are

If the price of the good measured on the horizontal axis falls, a consumer's budget line

-The price effect is the effect of a ________ on the quantity of the good ________.

What is the meaning of the term "marginal rate of substitution"?

Suppose that initially the price of a bag of jellybeans is $6, and the price of a bottle of Jolt cola is $2. If the price of a bottle of Jolt cola increases, then the relative price of jellybeans

-In the above figure, income is $8, the price of a soft drink is $1, and the initial price of a milkshake is $2. If the price of a milkshake decreases to $1, milkshakes are revealed to be