Exam 3: Consumer Behavior

In the theory of consumer behavior,several assumptions are made about the nature of preferences.What are these assumptions? Illustrate the significance of these assumptions using indifference curves.

Oscar consumes only two goods,X and Y.Assume that Oscar is not at a corner solution,but he is maximizing utility.Which of the following is NOT necessarily true?

An individual consumes only two goods,X and Y.Which of the following expressions represents the utility maximizing market basket?

George has a fixed income and can afford at most 7 units of X if he spends his entire income on X.Alternatively,if he spends all his income on Y,he can afford at most 6 units of Y.Draw George's budget line and an indifference curve such that George chooses to buy 4 pieces of X.Martha has the same income and faces the same prices,yet she chooses to buy 2 pieces of X.In equilibrium,what is George's subjective value of X in terms of Y? What is Martha's?

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.1 -Based on Figure 3.1,it can be inferred that:

Suppose that a consumer's increase in nominal income from the base year exceeds the inflation level given by a Laspeyres cost of living index for their level of purchases Show that this information implies that the consumer is strictly better-off as compared to the base year.(HINT: Use a revealed preference argument)

If indifference curves cross,then:

Suppose that the prices of good A and good B were to suddenly double.If good A is plotted along the horizontal axis,

The key reason that the Laspeyres price index tends to overstate the impact of price changes on consumers is that it:

If Px = Py,then when the consumer maximizes utility,

Theodore's budget line has changed from A to B.Which of the following explains the change in Theodore's budget line?

In what ways can economists help auto manufacturers estimate the marginal rate of substitution between features such as vehicle interior size and acceleration?

The purpose of a chain-weighted price index is to account for:

A team of researchers has conducted a study of the well being of the citizens of the island nation of Zarasa.Using a scale from 1 (least happy)to 10 (most happy),the researchers find that citizens who earn 100 Zarutas per year have a mean happiness of 2.0,those who earn 200 Zarutas per year have a mean happiness of 6.0,and those who earn 300 Zarutas per year have a mean happiness of 7.0.The researchers should make which of the following conclusions?

Please consider the following figure: The consumer chooses A on budget line I1 and B on budget line I2.Which of the following rankings describes the consumer's preferences (first is highest ranked and last is lowest ranked)?

If a consumer must spend her entire income on some combination of two commodities and chooses to spend it all on just one of the commodities then:

The principle of revealed preference would say that if Xavier chooses market basket A over market basket B then:

Define the marginal rate of substitution.Using this concept,explain why market basket A is not utility maximizing while market basket B is utility maximizing.

Amy is currently spending her income to maximize her satisfaction.She is renting an apartment for $900 per month as shown in the diagram below (Assume each dollar spent on housing buys 1 unit of housing.H1 represents her $900 per month apartment). a.Suppose that Amy qualifies for a government housing assistance program that will provide her with a $600 per month apartment at no charge.If she accepts the apartment,she cannot augment her expenditure on housing (for example,she cannot add $300 of her income to the $600 per month provided by the government program,and rent the $900 per month apartment),nor can she exchange the apartment for cash or other goods.How does the government program alter Amy's budget line? b.Suppose that Amy is given $600 in cash instead of the $600 per month apartment.How will this alter Amy's budget line? c.Is Amy indifferent between the housing assistance program and cash program,or does she prefer one program over the other? Draw an indifference curve to illustrate your answer.

Each of the following consumers exhibit behavior that violates one of the basic assumptions of consumer preferences.Identify the assumption that is violated for each individual. ∙ Art says that he can watch 2 movies a week but couldn't be paid to watch another movie after that. ∙ Alex says that he prefers going to a movie over hiking.He also indicates that he prefers hiking to swimming.Alex then states that he would rather go swimming than go to a movie. ∙ Alicia says that she prefers hiking to watching a movie but can't determine her preferences for swimming.