Exam 10: The Rational Consumer

Mario sees popcorn and pretzels as perfect substitutes. He is always willing to substitute 3 cups of popcorn for 1 cup of pretzels. His indifference curves for popcorn and pretzels are _____, and at the optimal consumption bundle his marginal rate of substitution of popcorn for pretzels is _____.

To find her optimal consumption bundle, Vanessa would have to:

The relation between an individual's consumption bundle and her satisfaction is called a _____ function.

Use the following to answer questions: Figure: The Consumption of Video Games and E-Books -(Figure: The Consumption of Video Games and E-Books) Look at the figure The Consumption of Video Games and E-Books. Which chart in the figure shows the effects of an increase in the price of video games when video games and e-books are complements but not perfect complements?

As a consumer moves upward along an indifference curve, giving up some of X (on the horizontal axis) to get more of Y (on the vertical axis), his or her marginal rate of substitution of X for Y:

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. Which of the following equations expresses Phillip's budget line?

When the price of an inferior good falls, the substitution effect contributes to _____ in the quantity demanded, and the income effect _____ the substitution effect.

Which of the following best describes the principle of diminishing marginal utility? As an individual consumes more of a good:

Juan spends all of his income on baseball cards and candy. At his current consumption bundle, the marginal utility of baseball cards is 20 and the marginal utility of candy is 10. Assuming that diminishing marginal utility applies to both goods, if the price of baseball cards is $10 and the price of candy is $2, Juan should:

The ratio of the prices of two goods is equal to the ratio of the marginal utilities of the two goods at:

At the optimal consumption bundle, which of the following conditions does NOT hold?

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 she consumes 20 baby back rib dinners and 4 tickets to Cubs games, she would be equally happy to give up 8 dinners for _____ more ticket(s) to Cubs games.

The rising price of gasoline has caused your parents to use public transportation rather than drive to work. They have also decided to cancel a cross-country trip for a family reunion. Are there substitution and income effects here? Explain.

Sam always tries to maximize his utility in his consumption of popcorn and soft drinks. Both of these goods are subject to diminishing marginal utility. Suppose the prices of these goods, along with Sam's income, stay the same, but Sam decides to decrease his consumption of popcorn. Holding everything else constant, this means that Sam must _____ his consumption of soft drinks, and his marginal utility per dollar spent on popcorn will be _____ than it used to be.

Kawamura, a careful utility maximizer, consumes peanut butter and ice cream. Assume that both peanut butter and ice cream are normal goods and that diminishing marginal utility applies to both goods. He had just achieved the utility-maximizing solution in his consumption of the two goods when the price of peanut butter fells. As he adjusted to this event, the marginal utility of peanut butter _____ and the marginal utility of ice cream _____.

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 $1 per loaf, the price of cheese is $2 per pound, and Harold has $14 to spend on bread and cheese, Harold's optimal consumption bundle is _____ loaves of bread and _____ pounds of cheese.

Use the following to answer questions: Figure: Consumer Equilibrium IV -(Figure: Consumer Equilibrium IV) Look at the figure Consumer Equilibrium IV. The highest level of utility shown in the figure is associated with indifference curve:

The substitution effect of a price change is described by the statement that:

Use the following to answer questions: Figure: The Optimal Consumption Bundle -(Figure: The Optimal Consumption Bundle) Look at the figure The Optimal Consumption Bundle. Which of the following could lead to an optimal consumption bundle on indifference curve I₃?

Use the following to answer question: -(Table: Marginal Utility from Coffee and Comic Books) Look at the table Marginal Utility from Coffee and Comic Books. Your eccentric professor has a daily budget of $40, and he spends it entirely on coffee and comic books. The table shows the marginal utility he receives from consuming different quantities of coffee and comic books. Each comic book is priced at $8, and each cup of coffee is priced at $4. To maximize his total utility, how many cups of coffee should he buy, and how many comic books should he buy? How many utils of total utility will he enjoy?