Exam 4: Consumer Behavior

A consumer buys coffee (C) for $3 each and bagels (B) for $1.50 each. If she has income of $40, what is the equation of her budget constraint? If a tax of $0.25 were placed on the purchase of bagels, what would be the equation of her new budget constraint?

(Figure: Good Y and Good X IV) Which of the following changes could have rotated the budget constraint in the direction indicated by the arrow in the graph?

Suppose that Arthur cares only about video games and coffee. His utility function is U = VC, where V is the number of video games that he plays and C is the number of cups of coffee that he drinks. The price of video games is $50, and the price of coffee is $3. Arthur has a budget of $800. Which levels of V and C maximize Arthur's utility?

(Figure: Coats and Sweaters II) Suppose that the consumer moves from point A to point B along her indifference curve. If the marginal utility of winter coats is 25, the marginal utility of wool sweaters is:

Suppose that Eugene cares only about action figures and ice cream. His utility function is U = A^0.33C^0.67, where A is the number of action figures he owns and C is the number of scoops of ice cream he eats. The price of action figures is $10, and the price of ice cream is $4. Eugene has a budget of $100. Which levels of A and C maximize Eugene's utility?

Ezra spends all of his income on pizza and gasoline. Suppose Ezra is presented with two options: A and B. Option A will subsidize gasoline by decreasing its price by 50%. Option B will increase Ezra's income by the cost of the subsidy in Option A. Which of the following is correct?

Suppose that MRS_XY = Y/X. As X increases:

Suppose that Eugene cares only about action figures and ice cream. His utility function is U = A^0.33C^0.67, where A is the number of action figures he owns and C is the number of scoops of ice cream he eats. The price of action figures is $10, and the price of ice cream is $4. Eugene has a budget of $100. How can Eugene's utility maximization problem be expressed as a Lagrangian equation?

Missy's utility increases with the size of her apartment. However, Missy is willing to sacrifice some apartment space if she can live closer to the beach. Draw Missy's indifference curves.

(Figure: Good Y and Good X II) What type of good is good X, assuming a person increases the level of happiness when consuming more of good Y?