Exam 3: The Behavior of Consumers

Consider an income tax and a head tax,the sizes of which have been set so that the government collects the same amount of money under each tax.Which tax does the consumer prefer?

Suppose a price index is formed to measure changes in the price level between 2005 to 2010.To form a Laspeyres price index,one would

The accompanying diagram shows the effect of levying an income tax on the consumer.The pre-tax optimum is at point A,and the post-tax optimum is at point B. To measure the amount of tax money collected by the government,one uses the vertical distance between points

Marginal value equals relative price at the consumer's optimum,even if the optimum is a corner solution.

The price of wine has risen from $7 to $9 per bottle and the price of cheese has fallen from $6 to $5 per pound,while Anne's income has stayed fixed at $46 per week.Since the price changes,Anne has been buying 4 bottles of wine and 2 pounds of cheese per week.We can conclude that

A consumer can not consume a basket of goods that lies closer to the origin than their budget line because they can not afford that basket.

An indifference curve shows the baskets of goods which

If the price of good X goes up and the price of good Y goes down,then it is possible for

A Laspeyres price index is based on the basket consumed in the later period..

When there are two goods (X and Y),the consumer's optimum is typically found by locating the basket where the marginal value of X in terms of Y equals P_X/P_Y.Explain in words what this equality means,and describe two situations where the consumer's optimum is not characterized by this equation.

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.The only situation where we can conclude that this consumer's tastes must have changed is when we observe him

Under standard assumptions,which of the following is not a property of indifference curves?

Explain why crossing indifference curves would lead to a logical inconsistency.

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.How would a budget line be affected if income and both prices all simultaneously doubled?

Indifference curves fill the fourth quadrant of the plane.

The price of good X is $2.00 and the price of good Y is $1.00.Last year,the price of good X was $1.00 and the price of good Y was $2.00.If a consumer has $100,draw there their budget line for each year (label them accordingly).Add as many indifference curves as needed to show a situation in which the consumer is no better or worse off this year than they were last year.Be sure to label their optimal baskets for both years.Explain why what you have drawn is correct.

If the marginal value of beef is $8 per pound,then the consumer is willing to pay at most $8 for an additional pound of beef.