Exam 3: Consumer Behavior

Jane is attempting to maximize utility by selecting a market basket of goods.For each of the goods in the market basket the marginal utility per dollar spent is equal.There are some goods which are affordable but do not appear in the Jane's market basket.If Jane has maximized utility,the marginal utility per dollar spent on each of the goods that does not appear in the market basket is:

Suppose a consumer only purchases food and clothing,and food is plotted along the horizontal axis of the consumer's indifference map.If the price of food and clothing increase and income does not change,then the budget line changes by rotating:

Consider the indifference map in the figure below: Which of the four basic assumptions about consumer preferences are violated by this indifference map?

Which of the following will result in a decrease in a consumer's purchasing power?

The magnitude of the slope of an indifference curve is:

An upward sloping indifference curve defined over two goods violates which of the following assumptions from the theory of consumer behavior?

Sue views hot dogs and hot dog buns as perfect complements in her consumption,and the corners of her indifference curves follow the 45-degree line.Suppose the price of hot dogs is $5 per package (8 hot dogs),the price of buns is $3 per package (8 hot dog buns),and Sue's budget is $48 per month.What is her optimal choice under this scenario?

Draw a set of indifference curves for the following pairs of goods: a.Hamburgers and carrots for a vegetarian who neither likes nor dislikes meat.(Vegetarians do not eat meat.) b.Peanut butter and jelly for an individual that will not eat peanut butter sandwiches or jelly sandwiches,but loves peanut butter and jelly sandwiches made with two parts peanut butter and one part jelly. c.Tickets for Knott's Berry Farm (KBF)and Universal Studios (US)for a tourist that believes that KBF and US are perfect substitutes. d.Ice cream and pie if these are goods that you like,but if you consume enough of either,you get sick of them.If you are sick of a good,consuming more of it lowers your utility.

Match the following descriptions of preferences to the indifference curve diagrams that follow. ________ Ann does not care whether she has more diet soft drinks or fewer diet soft drinks. ________ Peter is very picky about his buttered popcorn.He tops every quart of popped corn with exactly one quarter cup of melted butter. ________ Amy likes M&M's,plain and peanut.For Amy,the marginal rate of substitution between plain and peanut M&M's does not vary with the quantities of plain and peanut M&M's she consumes. ________ George dislikes broccoli and would be willing to pay something to not have to eat it. ________ Natalya likes rap and rock music.Natalya's preferences exhibit a diminishing marginal rate of substitution between the two types of music. ________ Matthew knows his limit.He likes beer up to a point,but if he drinks too much he gets sick.

Bobby is a college student who has $500 of income to spend each semester on books and pizzas.The price of a pizza is $10 and the price of a book is $50.Diagram Bobby's budget constraint.Now,suppose Bobby's parents buy him a $300 gift certificate each semester that can only be used to buy books.Diagram Bobby's budget constraint when he has the gift certificate in addition to his $500 income.Is Bobby better-off with the gift certificates?

Suppose that the price of gasoline has risen by 50%.What happens to a consumer's level of well-being given he spends some of his income on gasoline? Diagram the impact of the increase in gas prices in a commodity space diagram,and show the relevant indifference curves. Now,if the individual's income rises just enough so that his original consumption bundle exactly exhausts his income,will the individual purchase more or less gasoline (this level of income implies the consumer can afford his original consumption bundle)? Is the individual better-off at the higher price level of gasoline with the higher income level or the original price of gas and income?

If indifference curves are concave to the origin,which assumption on preferences is violated?

Consider the following three market baskets: Table 3.1 -Consider the following three market baskets: If baskets B and C are on the same indifference curve,and if preferences satisfy all four of the basic assumptions,then:

Evelyn Lips' preferences are depicted by the set of indifference curves in the diagram below.Her budget line is also shown in the diagram.Use the information in the diagram to answer the following questions. a.Which of the basic assumptions of consumer preferences are violated by E.Lips' indifference curves? Explain. b.The price of food is $5 per unit.What is E.Lips' income and what is the price of clothing? c.Show the market basket of food and clothing that maximizes E.Lips' satisfaction.When satisfaction is maximized,has E.Lips equated the marginal rate of substitution (of food for clothing)to the ratio of the prices (of food to clothing)? If so,explain why.If not,explain why not.

When Joe maximizes utility,he finds that his MRS of X for Y is greater than Px/Py.It is most likely that:

The local farmer's market sells corn for 20 cents an ear.At this price,Sam buys 6 ears each Thursday.What would happen to Sam's consumption of corn if the market offered corn at 20 cents an ear for the first 6 ears,but 10 cents an ear for each additional ear? Explain your answer.

Jane is trying to decide which courses to take next semester.She has narrowed down her choice to two courses,Econ 1 and Econ 2.Now she is having trouble and cannot decide which of the two courses to take.It's not that she is indifferent between the two courses,she just cannot decide.An economist would say that this is an example of preferences that:

If MUa/Pa is greater than MUb/Pb,and the consumer is consuming both goods,the consumer is not maximizing utility.True or false.Explain.

Consider the following three market baskets: If baskets A and B are on the same indifference curve and if indifference curves exhibit diminishing MRS:

The fact that Alice spends no money on travel: