Exam 4: The Theory of Individual Behavior

Draw the opportunity set of a consumer with an income of $200 who faces prices of P_x = 5 and P_y = 10.What is the market rate of substitution between the two goods?

If an increase in the price of good X leads to a decrease in the consumption of good Y,then goods X and Y are called

Diminishing marginal rate of substitution implies that indifference curves are:

At a very basic level,food and shelter constitute the two most important goods needed to sustain human life.Accordingly,assume that a poor person must allocate his income solely between food and shelter. a.Show that if shelter is an inferior good,food must be a normal good. b.If food is a normal good,is shelter necessarily an inferior good? Explain,and show your answer graphically.

By the completeness property,if neither A ≻ B nor B ≻ A hold,then:

Use indifference curve and constraint analysis to analyze the behavior of employees who are paid: a.An hourly wage rate of $4 per hour. b.A fixed hourly wage of $4 per hour,plus an overtime bonus of $4 for every hour worked in excess of eight hours. c.A fixed salary of $40 per day,plus $4 for each hour worked. d.Which of the above schemes would yield the largest number of hours worked?

If shoes and socks are complements and both are normal goods,show graphically what would happen to the consumption of shoes and socks if: a.the price of shoes decreased. b.consumer incomes increased.

Consider a two-good world,with commodities X and Y.If X is an inferior good,then an increase in consumer income cannot:

If income increases,the budget line:

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied.Furthermore,assume that both X and Y are inferior goods and the price of good Y increases.Then the substitution effect will lead consumers to consume:

A≻B means:

If a firm offers to pay a worker $10 for each hour of leisure the worker gives up,then the opportunities confronting the worker will be given by the:

Suppose that a consumer's preferences are well behaved in that properties 4-1 to 4-4 are satisfied and the initial equilibrium consumption bundle consists of 100 units of X and 50 units of Y.If P_X decreases such that the new equilibrium consumption bundle is 150 units of X and 75 units of Y,then goods X and Y are:

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied.Furthermore,assume that X is a normal good,Y is an inferior good,and the price of good Y decreases.Then,which of the following effects is known with certainty?

If you sell an inferior good,offering to sell gift certificates to those looking for a gift may result in:

Suppose that three consumers are in the market for good X.Consumer 1's (inverse)demand is P_X = 40 − 5Q_X; Consumer 2's (inverse)demand is P_X = 10 − Q_X; and Consumer 3's (inverse)demand is P_X = 30 − 2Q_X.When P_X = $5,the market will demand:

If money income triples and the price of all goods doubles,then the:

The substitution effect isolates the change in the consumption of a good caused by:

Suppose the utility function for a firm manager is U =  + bQ,where Q is output, is profit,and b is a negative constant.How would the firm's output compare with what it would be if the manager's objective was to maximize profit?

The firm manager with horizontal indifference curves (output on the horizontal axis,profit on the vertical axis)views: