Exam 10: The Rational Consumer

Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $1.50. Joseph:

Use the following to answer questions: Figure: Indifference Curves and Consumption Bundles -(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference Curves and Consumption Bundles. In the figure, the initial optimum is at a. The price of hot dogs now increases. The change in hot dog consumption due to the substitution effect is:

Use the following to answer questions: Figure: Harold's Indifference Curves The figure shows three of Harold's indifference curves for bread and cheese. -(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves. Given that the price of bread is $1 per loaf and the price of cheese is $2 per pound, as Harold's income increases from $10 to $14, we can determine that bread is a(n) _____ good and cheese is a(n) _____ good.

Combinations of two goods that yield equal levels of utility are shown on a(n) _____ curve.

Patrick enjoys consuming chocolate but really detests broccoli. Describe the shape of Patrick's indifference curves for these two goods and explain your reasoning.

Use the following to answer question: Figure: A Changing Budget Constraint for Strawberries and Shortcake -(Figure: A Changing Budget Constraint for Strawberries and Shortcake) Look at the figure A Changing Budget Constraint for Strawberries and Shortcake. Seb's original budget line is given by BL₁ and his original indifference curve is given by I₁. Which of the following would have caused his budget line to move to BL₂?

Use the following to answer questions: -(Table: Consumer Equilibrium) Look at the table Consumer Equilibrium. Assume that the price of good X is $2 per unit, the price of good Y is $1 per unit, and you have $10 to spend on both goods. To maximize utility, you would consume _____ units of X and _____ units of Y.

Explain the concept of the marginal rate of substitution. Provide an intuitive rather than mathematical reason it is believed to be diminishing as a consumer moves down an indifference curve.

Which of the following is NOT TRUE of indifference curves for ordinary goods?

A Giffen good is one in which the _____ curve is _____ sloped.

Steven consumes staples and paper clips. He is maximizing his utility in consumption of both goods. The price of staples falls. Assuming that diminishing marginal utility applies to both goods, as he adjusts to this event, the marginal utility of staples will _____, and the marginal utility of paper clips will _____.

Use the following to answer questions: Figure: Consumer Equilibrium III -(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. Given the figure, which of the following statements is TRUE?

Use the following to answer questions: Figure: Harold's Indifference Curves The figure shows three of Harold's indifference curves for bread and cheese. -(Figure: Harold's Indifference Curves) Look at the figure Harold's Indifference Curves. If the price of bread is $2 per loaf, the price of cheese is $2 per pound, and Harold has $10 to spend on bread and cheese, Harold's optimal consumption bundle is _____ loaves of bread and _____ pounds of cheese.

The substitution effect always entails a change in consumption in the _____ direction as (of) the change in _____.

Ersida purchases both baby food (F) and cloth diapers (C). The price of a jar of baby food is P_F and the price of a box of cloth diapers is P_C. Assume that the quantity of baby food is on the horizontal axis and the quantity of cloth diapers is on the vertical axis. At any point on an indifference curve, the marginal rate of substitution of food for cloth diapers can be represented by:

If the combination of two goods occurs at a point of tangency between the budget line and an indifference curve:

Tonya's budget constraint for gasoline (G) and clothes (C) each month can be expressed with the equation G = 100 - 2C. If the price of clothing is $10, which of the following consumption bundles lies INSIDE Tonya's budget line?

Use the following to answer questions: Scenario: Music Downloads and Streamed Movies Phillip has an income of $300 per month, which he uses to purchase music downloads (MD) and streamed movies (SM). Each music download costs $1 and each streamed movie costs $5. -(Scenario: Music Downloads and Streamed Movies) Read the scenario Music Downloads and Streamed Movies. Phillip's optimal consumption bundle will be one whose:

The income effect refers to a change in:

Use the following to answer questions: -(Table: Alaina's Utility from Consuming Cups of Coffee) Look at the table Alaina's Utility from Consuming Cups of Coffee. Given the information in the table, Alaina's total utility from drinking coffee: