Exam 3: Consumer Behavior

The slope of an indifference curve reveals:

Scenario 3.1: Andy derives utility from two goods,potato chips (Qp)and Cola (Qc).Andy receives zero utility unless he consumes some of at least one good.The marginal utility that he receives from the two goods is given as follows: -Refer to Scenario 3.1.If the price of potato chips is $0.50 and the price of Cola is $4.00,and Andy has an unlimited income,how many units of potato chips will he consume?

Use the following two statements to answer this question: I.According to the three basic assumptions regarding people's preferences,a person will always prefer to earn a living through honest work rather than a life of crime. II.When we say that preferences are complete,we mean that if a consumer prefers market basket A to market basket B,and prefers market basket B to market basket C,then the consumer prefers market basket A to market basket C.

If prices and income in a two-good society double,what will happen to the budget line?

In the field of financial management it has been observed that there is a trade-off between the rate of return that one earns on investments and the amount of risk that one must bear to earn that return. a.Draw a set of indifference curves between risk and return for a person that is risk averse (a person that does not like risk). b.Draw a set of indifference curves for a person that is risk neutral (a person that does not care about risk one way or the other). c.Draw a set of indifference curves for a person that likes risk.

Hulk goes to the gym 20 times a month.His income is $1,000 per month and his visits to the gym cost $4 per visit. a.Draw Hulk's budget line for visits to the gym and all other goods,show the consumption bundle that maximizes his satisfaction,and draw the indifference curve through that point. b.Recently,a new health club opened which offers identical facilities but which charges a flat fee of $60 per month plus $1 per visit.Draw Hulk's budget line if he were to join this new club. c.Would Hulk continue to work out at the gym or would he join the new health club.Why?

May enjoys spending her free time with her friends at the mall and solving problems from her microeconomics text.She has 16 hours per week of free time.Diagram May's time constraint.If and where F is her time spent with friends at the mall and P is her time spent working problems,how much time should May spend at each activity?

Indifference curves are convex to the origin because of:

Natasha derives utility from attending rock concerts (r)and from drinking colas (c)as follows: U(c,r)= c^.9r^.1 The marginal utility of cola (MUc)and the marginal utility of rock concerts (MUr)are given as follows: MUc = .9c^-.1r^.1 MUr = .1c^.9r^-.9 a.If the price of cola (Pc)is $1 and the price of concert tickets (Pr)is $30 and Natasha's income is $300,how many colas and tickets should Natasha buy to maximize utility? b.Suppose that the promoters of rock concerts require each fan to buy 4 tickets or none at all.Under this constraint and given the prices and income in (a),how many colas and tickets should Natasha buy to maximize utility? c.Is Natasha better off under the conditions in (a)or (b)? Explain your answer.

Alvin's preferences for good X and good Y are shown in the diagram below. Figure 3.2 -Based on Figure 3.2,it can be inferred that:

To simplify our consumption models,suppose U.S.consumers only purchase food and all other goods where food is plotted along the horizontal axis of the indifference map.If the U.S.Congress passes an economic stimulus package that pays $300 to each person,how does this affect the budget line for each consumer?

In the theory of consumer behavior,certain axioms about the nature of preferences imply that indifference curves cannot cross.Which axioms imply this? Explain your answer using a diagram and using words.