Exam 5: Constraints, Choices, and Demand

The price of bread is $1.50 per pound and the price of butter is $3 per pound.Steve has an income of $30,with which he buys 4 pounds of bread.How many pounds of butter does he buy,assuming he buys nothing else and he maximizes his utility?

The revealed preference approach refers to:

Which of the following goods is given in the textbook as an example of a good whose price is subject to volume penalties?

Using carefully-labeled graphs,explain how an individual demand curve is derived from the utility-maximizing behavior of a consumer.

If a good's price is volume sensitive,the consumer will:

Terry buys 10 pounds of cheese and 12 boxes of crackers each month.A pound of cheese costs $5 and a box of crackers costs $3.If she is maximizing her utility,what is her monthly income?

If all prices and income change by the same proportion:

Nicole's income is $1,000 per month.She spends all of it on shoes (S)and books (B).Shoes cost $50 and books cost $25.Her marginal rate of substitution for shoes with books is MRS_SB = 2B/3S.Illustrate her utility-maximizing combination of shoes and books and draw her price-consumption curve if the price of books rises to $30.

A consumer's budget constraint is determined by:

Refer to Figure 5.1.In which graph could a shift from BL1 to BL2 represent a doubling of the prices of both Books and DVDs?

Suppose a consumer purchases pizza and soft drinks.If pizza is measured on the vertical axis and soft drinks are measured on the horizontal axis,then the slope of the budget line is equal to:

Refer to Figure 5.3.Which of the following statements is false?

Hailey's income is $40 per week.She spends all of it on coffee (C)and doughnuts (D).Coffee costs $2 per cup and doughnuts cost $1 each.Her marginal rate of substitution for coffee with doughnuts is D/C.How many cups of coffee and how many doughnuts will she purchase each week?

Which of the following conditions must hold if a consumer is maximizing her utility?

Mike's income is $600 per month.He spends all of it on books (B)and CDs (C).Books cost $10 and CDs cost $15.His preferences correspond to the utility function U(B,C)= B × C.For that utility function,the marginal benefit of books is C and the marginal benefit of CDs is B.How many books and how many CDs will he purchase in a month?

In the United States,some state governments set tiered prices for electricity.These tiered prices lead to budget lines that are:

An increase in the price of the good measured on the horizontal axis will cause the budget line to:

Suppose a consumer buy books and DVDs.The price of a book is $10,the price of a DVD is $20 and the consumer's income is $400.If books are measured on the vertical axis and DVDs are measured on the horizontal axis,then the budget line intersects the vertical axis at:

Refer to Figure 5.1.In which graph does a shift from BL1 to BL2 represent an increase in the price of DVDs?

A utility function is a mathematical function that assigns values to consumption bundles to represent the: