Exam 9: Possibilities, Preferences, and Choices

-In the above figure, if the price of milk rises, the budget line

Tunitra consumes at a point on her budget line where her marginal rate of substitution exceeds the magnitude of the slope of her budget line. As Tunitra moves toward her consumer equilibrium point, she will move to a

Larry consumes at a point on his budget line where his marginal rate of substitution is less than the magnitude of the slope of his budget line. As Larry moves toward his consumer equilibrium point, he will move to a

-To draw your budget line between steak and lobster, all you need to know is the price of a steak and the price of a lobster.

-Melissa has an income of $240 a month to spend on tennis lessons and concert tickets. The price of a tennis lesson is $20, and the price of a concert ticket is $40. If the quantity of tennis lessons is Q_T, and the quantity of concert tickets is Q_C, Melissa's budget line equation is

________ on an indifference curve that is farther from the origin ________ on an indifference curve that is closer to the origin.

Sue consumes only sandwiches and soda and is at her best affordable point. The price of a sandwich falls. The substitution effect is that Sue substitutes ________ for ________. The income effect is that Sue ________.

Suppose that initially the price of a bag of jellybeans is $6, and the price of a bottle of cola is $2. If the price of a bottle of cola increases, then the relative price of jellybeans

An indifference diagram has movies on the vertical axis and sodas on the horizontal axis. As the consumption of sodas increases, the marginal rate of substitution ________ and the indifference curve becomes ________.

When the price of a normal good rises, the income effect results in ________ in the quantity demanded and the substitution effect results in ________ in the quantity demanded.

-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.

You consume only steak and lobster. Your substitution effect from a drop in the price of lobster is measured by a movement along your indifference curve between steak and lobster.

Ramen noodles were hotter than ever in 2010. Considered a bargain meal for cash-starved college students... In 2010, 4 billion individual packets were devoured in the United States, a 4 percent increase over 2006. Once students leave college for that first well-paying job, however, they stop eating Ramen. If the price of ramen falls, and income remains the same, describe the substitution and income effects that occur.

The higher the price of the good measured on the vertical axis, other thing remaining the same, the flatter the budget line.

-The figure above shows one of Bob's indifference curves for CDs and books. a) Is the indifference curve steeper at point a or point b? b) What is Bob's marginal rate of substitution at point a? c) What is Bob's marginal rate of substitution at point b?

Organic food might be good for your health but in light of the 2008 downturn in the economy and falling incomes, consumers are buying less organic and more non-organic food. Based on these events, what is TRUE?

Suppose that Dave has $200 to spend per week and he buys only magazines and pizza. The price of a pizza is $10 and the price of a magazine is $5. If Dave buys 15 pizza each week, what is the maximum number of magazines can he buy?

-In the above figure, point B

-Given the budget line in the above figure, which of the following combinations of pizza and milk are affordable?

In 2012, the Associated Press examined the effect higher gas prices on consumption of other goods. It said that the increase in the price of gasoline has decreased the quantity of other goods, such as food, that people consume. (Source: Associated Press, September 28, 2012) -If consumers spend their income either on gasoline or food, then an increase in the price of gasoline rotates the budget line