Exam 9: Possibilities, Preferences, and Choices

-The figure above contains several budget lines for Sarah, who uses her income to purchase two goods, cheese and crackers. a) A movement between which two budget lines represents an increase in income? b) A movement between which two budget lines represents an increase in the price of a pound of cheese? c) A movement between which two budget lines represents an increase in the price of a box of crackers?

-Based on the above figure showing a budget line, which of the following combinations of soda and bottled water are not affordable?

-According to the budget line in the above figure, which of the following combinations is unaffordable?

-Given the budget line in the above figure, what is the relative price of pizza?

-The relative price of a magazine in the above figure is

When the price of a normal good decreases, the ________ can be divided between the ________, which keeps the best affordable point on the same indifference curve and the ________, which moves the best affordable point farther away from the origin.

A curve/line that shows combinations of goods among which a consumer would not desire one combination of goods to another combination of goods on that curve/line is called

-In the above figure, if the price of pizza falls, the budget line

-The figure above shows Ilene's budget line. If her dog, Muffin, runs away and she adopts another cat, named Sphynx, the budget line shown in the figure will

-In the figure above, suppose the original budget line is BD. A rise in the price of a compact disc will

-Tom is stranded on a deserted island where he can only consume coconuts and crabs. Two of his indifference curves are in the figure above. a) Would Tom prefer his consumption to be at point a or at point b? At point b or at point c? Explain your answers. b) Between points a and b, what is Tom's marginal rate of substitution for a crab?

"Every point on a budget line has an indifference curve passing through it." Explain whether the previous statement is correct or not.

-Lizzie's budget line is shown in the figure above. If the price of a cookie rises, Lizzie's real income in terms of cookies ________ and her real income in terms of magazines ________.

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. If travel by car is less expensive, and income remains the same, describe the substitution and income effects that occur for air travel.

-The indifference curves in the figure above (I₁, I₂, and I₃) reflect Peter's consumption preferences. If Peter consumes 24 slices of pizza and 24 chocolate bars per month, he as satisfied as he would be consuming ________ slices of pizza and ________ chocolate bars per month.

The price effect refers to how changes in

If Sam has $60.00 each week to spend on gasoline and coffee, and their respective prices are $1.50 per gallon and $3.00 per pound, which of the following equations represents his budget line?

All points below the budget line are

-When your income increases

A relative price is the