Exam 3: The Behavior of Consumers

When using the composite good convention all other goods are measured in terms of dollars.

When a consumer spends all of the income,it must be true that they are consuming a basket of goods on their budget line.

Goods X and Y For the following questions, assume that good X is on the horizontal axis and good Y is on the vertical axis in the consumer-choice diagram. PX denotes the price of good X, PY is the price of good Y, and I is the consumer's income. Unless otherwise stated, the consumer's preferences are assumed to satisfy the standard assumptions. -Refer to Goods X and Y.If the indifference curves are horizontal,then we can conclude that

Goods X and Y For the following questions, assume that good X is on the horizontal axis and good Y is on the vertical axis in the consumer-choice diagram. PX denotes the price of good X, PY is the price of good Y, and I is the consumer's income. Unless otherwise stated, the consumer's preferences are assumed to satisfy the standard assumptions. -Refer to Goods X and Y.When the price of good X rises,what happens to the budget line?

If the consumer's income doubles,then his optimal purchases of all goods will double.

Goods X and Y For the following questions, assume that good X is on the horizontal axis and good Y is on the vertical axis in the consumer-choice diagram. PX denotes the price of good X, PY is the price of good Y, and I is the consumer's income. Unless otherwise stated, the consumer's preferences are assumed to satisfy the standard assumptions. -Refer to Goods X and Y.If the marginal rate of good X in terms of good Y is large,then the indifference curve will be

Suppose the consumer's indifference curves are concave (i.e.,bowed away from the origin)instead of convex.In this situation,

A utility maximizing person gets marginal utility from consuming their last orange and apple of 5 and 10 respectively.If apples cost 90 cents a piece,the oranges must cost

Goods X and Y For the following questions, assume that good X is on the horizontal axis and good Y is on the vertical axis in the consumer-choice diagram. PX denotes the price of good X, PY is the price of good Y, and I is the consumer's income. Unless otherwise stated, the consumer's preferences are assumed to satisfy the standard assumptions. -Refer to Goods X and Y.Which of the following would cause the vertical intercept to move upwards?

There are an infinite number of choices faced by a consumer that are shown along an indifference curve.

If the indifference curve is not tangent to the budget line,then we can be sure that the consumer is not at the optimum.

Facing choices between beer and pizza,the number of pizzas a consumer would be willing to trade for just one beer is called

If the consumer's income and all prices simultaneously triple,then his optimum will not change.

Budget Lines The following questions refer to the following diagram, which shows the budget lines faced by a consumer last year and this year. -Refer to Budget Lines.Which of the following changes is consistent with the situation shown in the diagram?

The budget line illustrates the consumer's opportunities and the indifference curve illustrates the consumer's preference.

Suppose the price of cheese has recently risen from $4 to $6 per pound,while the price of fruit has fallen from $8 to $6 per pound.During this time,Miguel's income has stayed fixed at $48 per week.Before the price changes,Miguel had been buying 4 pounds of cheese and 4 pounds of fruit per week.Since the price changes,he has been buying 2 pounds of cheese and 6 pounds of fruit weekly.Assuming Miguel's preferences have not changed,is it possible to say whether the price changes have made Miguel better off or worse off? Explain.

The steeper the indifference curve,the greater the marginal value of a good.

If the consumer chooses not to purchase potatoes,then the marginal value of potatoes must be less than or equal to the relative price of potatoes.

Consider the following:

A Paasche price index makes price changes seem better for the consumer than they really are.