Exam 10: The Rational Consumer

Use the following to answer questions: Figure: Consumer Equilibrium III -(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. The lowest level of total utility at which Ivan still spends all of his income is associated with point _____ on _____.

Wolfgang really likes rutabagas and likes broccoli fairly well. Suppose the price of each good is $0.60 per pound and Wolfgang is maximizing utility, consuming 5 pounds of rutabagas and 0.5 pound of broccoli per month. At the point of maximal utility, the marginal utility of:

If combination A lies on a higher indifference curve than combination B and combination B lies on a higher indifference curve than combination C, it must be that the total utility associated with combination A is _____ the total utility associated with combination C.

Kelli likes to bake cookies and doesn't care whether she uses corn oil or safflower oil in her recipes. To her, they provide the same function and the same taste. What do Kelli's indifference curves look like for corn oil and safflower oil? What is her tangency condition when it comes to finding the utility-maximizing bundle?

A Giffen good is an inferior good for which the income effect dominates the substitution effect.

The substitution effect always involves a change in consumption in the _____ direction as (to) the _____ change.

Rhonda spends all of her income on clothes and CDs. Suppose this situation were graphed with clothes on the vertical axis and CDs on the horizontal axis. Rhonda consumes a bundle of the two goods whose indifference curve is flatter than the budget line. To increase total utility, given her income, Rhonda should:

Jane is a utility-maximizing consumer who is spending her entire budget on the optimal quantity of wallets and eyeglasses. The price of wallets falls. Jane will _____ her consumption of wallets if wallets are a(n) _____ good and (because) the income effect _____ the substitution effect.

Use the following to answer question: Table: MP3 Music Downloads -(Table: MP3 Music Downloads) Jen spends her daily income of $28 on MP3 music downloads and jumbo diet sodas. One MP3 music download costs $2, and one jumbo diet soda costs $4. The table provided shows three consumption bundles. Identify the bundle that is unaffordable, the one that lies on her budget line, and the one that is affordable but does not use all of her income.

The assumption that more is preferred to less explains why indifference curves:

Use the following to answer questions: Figure: Consumer Equilibrium IV -(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV. The highest attainable level of utility, given budget constraint FL, is at point:

Margo has a monthly income of $60 to spend on coffee or bagels. Each cup of coffee costs $3 and each bagel costs $4. Margo spends all of her income, and at her consumption bundle, she is willing to forgo 1 bagel to get the next cup of coffee to achieve the same level of utility. To maximize her utility, Margo should:

Alison is a traveling salesperson who drives many miles each day to visit her clients. She gets utility from the purchase of gasoline, but she doesn't care which brand of gasoline she consumes. Suppose she has a daily budget of $100 for gasoline and can purchase from two companies, PB and Noxxe. Today she notices that the price of a gallon of gas at PB is $2.50 and the price of a gallon of gas at Noxxe is $3.33. What is her optimal purchase of gas?

Use the following to answer questions: Figure: The Indifference Curve Map II -(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib dinners. The figure shows two of her indifference curves for Cubs tickets and baby back rib dinners. If a new health report is released stating that there is a connection between baby back rib dinners and heart attacks and this concerns Sara, each combination of Cubs tickets and baby back ribs will now yield _____ for Sara.

If, because of a price change, both the income and substitution effects are strong for a normal good, this segment of the demand curve must be:

Professor Makrung spends his entire weekly income of $700 on economics books (E) and coffee (C). The price of an economics book (P_E) is $50 and the price of a cup of coffee (P_C) is $2. If the professor buys 10 economics books and 50 cups of coffee per week, he finds that MU_E = 75 and MU_C = 3. This implies that a consumption bundle consisting of 10 economics books and 50 cups of coffee per week maximizes the professor's utility.

A consumer maximizes utility, given her income, when she chooses a consumption bundle whose:

Consider the following bundles of two ordinary goods, X and Y. Can you rank them from the one that provides the most utility to the least? Explain your reasoning.

Wolfgang really likes rutabagas and likes broccoli as well. The price of each good is $0.60 per pound and Wolfgang is maximizing utility. At the point of maximal utility the marginal utility of:

If Joe drinks iced tea while he is mowing his yard, he will probably derive a lower marginal utility from the sixth glass of tea than from the first glass.