Exam 9: Possibilities, Preferences, and Choices

-The rate at which a person is willing to give up a gallon of gasoline to get one more pound of coffee and remain on the same indifference curve is called his or her

Movies are $10 a ticket, and DVD rentals are $5 a DVD. With movies on the vertical axis, the magnitude of the slope of the budget line is

-The ________ effect can be divided into the ________ effect and the ________ effect.

Bob plans to spend $60 per month on DVD movie rentals and CDs. The price of a movie rental is $3 and the price of a CD is $15. If Bob rents 5 DVDs per month, how many CDs can he buy?

-The budget line can shift or rotate

When a consumer is at his or her best affordable point, the budget line

When the consumer is at his or her best affordable consumption point, it is the case that the marginal rate of substitution is

Hermione and Ron are at a sweet shop in London. Hermione looks at the prices of ice cream and chocolate bars and says to Ron: "I can tell you what your marginal rate of substitution between ice cream and chocolate bars is at your best affordable point." "No, you can't," says Ron. "You don't know my preferences and how much money I have." "I don't need to know all this because I know the prices," Hermione replies. Is she right? Explain.

-Some parents struggling with back-to-school buys. "A couple of years ago, I was able to buy everything practically new," said Charles Lane-Bey, a U.S. Postal Service worker who's struggling to make ends meet. Suppose Charles has $10 to spend on back-to-school clothing for his son, and pants cost 50 cents and shirts cost $1. What is the slope of Charles's budget line if it is drawn with pants on the x-axis?

Janelle spends all of her income on songs from iTunes ($1 each) and applications ($5 each) for her iTouch. At current prices, she makes her best affordable choice and purchases 20 songs and 4 applications. Suppose, for a limited time only, applications are buy-one, get-one-free and she purchases 30 songs and 4 applications. Which of the following statements is true?

If an indifference curve is a straight line it will not show which of the following?

-George has a $600 annual entertainment budget that he uses to buy trips to the movies and dinners at local restaurants. The figure above shows indifference curves and budget lines for these two goods. The price of a movie is $15. a) Along budget line BL₁, what is the price of a dinner? b) What combination of dinners and movies will George select along budget line BL₁? c) Budget line BL₂ represents a change in the price of dinners from that along BL₁. What is the new price of dinners along this budget line? d) What combination of dinners and movies will George select along budget line BL₂? e) Use the information in this problem to give two points on George's demand curve for dinners.

-The table above has different combinations of hamburgers and hot dogs that Alex can buy. After labeling the axes, graph Alex's budget line in the figure, putting hot dogs on the x-axis. a) Alex's income is $8 per day. What is the price of a hot dog? Of a hamburger? b) What is the slope of the budget line?

-In the above figure, as Brendan's income falls his consumption bundle moves from point A to point E. This implies that for Brendan, compact discs are ________ good and haircuts are ________ good.

-In the above figure, Reggie's budget line rotates outward from BL₁ to BL₂. He initially consumes at point A. If his new consumption bundle is at point C, this implies that his demand curve for kiwi fruit

-The figure above shows Sam's budget line. Which of the following equals the vertical intercept of Sam's budget line?

-Shaniq consumes only magazine and CDs. Her income equals $60 per month. CDs are $12 each and magazines are $5 each. What is the equation for her budget line?

If all prices fall by 5 percent and money income remains constant, the new budget line will have

Except for perfect substitutes or perfect complements, indifference curves

What is the relationship between the income effect and the substitution effect for a normal good and what is it for an inferior good?