Exam 9: Possibilities, Preferences, and Choices

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?

-In the table above, in terms of units of pizza, real income is

Why is the budget line negatively sloped?

Nick considers macaroni and cheese to be an inferior good. As a result of macaroni and cheese being an inferior good, the

-The income effect from a fall in the price of a gallon of gasoline is shown in the above figure by the movement from

-The indifference curves in the figure above (I₁, I₂, and I₃) reflect Peter's consumption preferences. Which of the following combinations of goods does Peter prefer the most?

Which of the following is NOT a divisible good?

-In the above figure, which curve is an indifference curve for someone who views frozen pizzas and milk as perfect complements?

Jake spends $200 on fried chickens and Pepsi. The price of a fried chicken is $5 and Pepsi is $2.50 per bottle. With the quantity of Pepsi being measured along the vertical axis, the slope of Jake's budget line is ________ per fried chicken.

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

-In the figure above, the marginal rate of substitution (MRS) at point A is equal to ________ pounds of pickles per pound of olives.

When a consumer is consuming at a point where his or her budget line is not as steep as his or her indifference curve, then he or she should

The magnitude of the slope of the budget line is determined by

-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 olives

-In the figure above, the marginal rate of substitution (MRS) at point A is

During October and November 2008, gasoline prices were falling dramatically making travel by car less expensive but air travel prices were as high as ever. How does the fall in gasoline price affect the relative price of air travel in terms of travel by car?

-The substitution effect from a fall in the price of a gallon of gasoline is shown in the above figure by the movement from

If you considered steak and lobster to be perfect substitutes for each other, your indifference curves between them would be L-shaped.

-Lizzie's budget line is shown in the figure above. If Lizzie's income increases, her budget line

Indifference curves are