Exam 3: The Behavior of Consumers

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.Suppose the consumer is at an optimum,spending all his income on good X.How are the marginal value of X and the relative price of X related at this corner solution?

An indifference curve is a construct used by economists to show how tastes for an individual change.

Comparing a market basket A to other market baskets,we can say that for a typical consumer,A is preferred to baskets to the

A utility maximizing person has a utility function such that their marginal rate of substitution equals the amount of good Y they consume divided by the amount of good X that they consume (i.e.MRS = Y/X).If the prices of goods X and Y are the same,then the person will

Along a convex indifference curve,the marginal value of a good rises as the quantity of the good rises.

A budget line is constructed to show

All of the following can be true about the optimal basket consumed by a consumer,except

The marginal value of a good is the dollar value that the consumer receives,on average,from each unit of the good purchased.

A utility maximizing person gets marginal utility of 20 from consuming their last piece of bread and of 10 from consuming their last glass of milk.If a piece of bread costs 5 cents,then a glass of milk must cost 20 cents.

When a consumer spends all of the income,it must be true that they are maximizing utility.

Last year,the price of heating oil was $4 per gallon,and Jonetta purchased 100 gallons of heating oil.This year,the price of heating oil falls to $3 per gallon while Jonetta's income is unchanged.Jonetta decides to share her good fortune by giving her retired father a gift of $100.Consider an indifference curve-budget line diagram with heating oil on the horizontal axis and "all other goods" on the vertical axis.

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.If the consumer purchased basket D last year and basket A this year,

Market basket B is to the northwest of basket A but lies on the same indifference curve for a consumer.Market basket C also lies to the northwest of A but is above the indifference curve.This consumer

Suppose the marginal value of bread in terms of wine is 1/2 bottle of wine per loaf of bread,while the relative price of bread in terms of wine is 1/4 bottle of wine per loaf of bread.Explain how the consumer can adjust his purchases to raise his level of satisfaction.

If the price of marshmallow exceeds the marginal value that the consumer places on marshmallows,then

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 downward sloping straight lines (rather than convex curves),then we can conclude that

Suppose a price index is formed to measure changes in the price level between 1989 to 1995.If the price index focuses on the year-to-year costs of the typical market basket purchased in 1989,then the reported price changes

If Odetta's marginal value of freedom fries is $8 per pound,then

Suppose leisure is on the horizontal axis and dollars are on the vertical axis in the consumer-choice diagram.What happens to the budget line when a head tax is imposed?

If a person is willing to trade one good for another,their new basket after the trade must lie on a lower indifference curve than their original basket.