Exam 3: The Theory of Consumer Choice

Suppose hamburgers are on the horizontal axis and root beer on the vertical axis.Your budget allowance is $10 and the price of hamburgers is $4 each and root beer $2 each.If at your present consumption of hamburger and root beer your marginal rate of substitution of hamburger for root beer is 4,to maximize utility you should:

Dana likes spending time at the museum (M)as well as the park (P).Given that her utility function takes the form U = U (M,P)use the utility theory approach to algebraically show the condition for her optimal consumption choice.

Good Y is measured on the vertical axis and good X on the horizontal axis.If the price of Y is zero,the price of X is $10,and the consumer's income $100,the budget line:

If a consumer's marginal utility was 10 utils per unit of meat and 5 utils per unit of potatoes:

The assumption of completeness of preferences states that _____.

At any point on an indifference curve,the slope indicates:

Karen is at the supermarket buying her weekly groceries.Since she is on a budget,she wants to limit her purchases to canned soup (c.and prepackaged salad (S).A can of soup costs $1.2 and a tub of salad costs $2.Her utility function is expressed as U(C,S)= F × S.Given that she has only $10 to spend,derive the equilibrium condition using the utility approach.

If the marginal utility of an extra hamburger is 8 utils,the marginal utility of a soft drink is 5 utils,the price of a hamburger is $1,and the price of a soft drink is 50 cents,then the consumer can achieve equilibrium when:

Suppose you have two indifference curves U₁ and U₂ representing the consumption of two normal goods.If U₂ is twice as far from the origin as U₁,then _____.

For the utility function U =3x5y,the slope of the indifference curve is:

Define indifference curves and explain their properties.

When the income-consumption curve is upward-sloping to the right,the good represented on the X-axis must be _____.

Suppose there are two goods,X and Y,with X being measured on the horizontal axis and Y being measured on the vertical axis.The budget line connecting these two goods does not:

Please answer the following: a)Peter and Pip both like apples.Parker has one apple that he can give to either Pip or Peter but he thinks it is fair to give it to the person who gets the most utility from the apple.The decision presents Parker with a problem: since he cannot quantify the utility that Peter and Pip each get from the apple,he cannot compare their utilities and make a fair decision.Is Parker right? Explain. b)Pat likes apple pies,caramel apples,and apple cake.Consumer choice theory postulates that whichever she chooses,she is maximizing her utility.However Pat finds it difficult to put a number to the level of utility she gets from each and therefore it is not possible to determine whether she is actually at her highest level of utility or not.Is Pat correct? Explain.

John will eat peanut butter and jelly sandwiches only when they are made with exactly two ounces of peanut butter and one ounce of jelly.If peanut butter is on the horizontal axis (Pb.and jelly on the vertical axis (J),John's indifference curve for peanut butter and jelly is:

Using the utility approach,the consumer is in equilibrium when:

Please answer the following: a)Microeconomic theories of fertility explain that the number of children that a couple have is balanced against the opportunity cost of raising children: the foregone wages of the mother,the other goods that the couple could have bought with their money,the time cost of raising children,the total resources of the parents,etc.Draw indifference curves for a couple who prefer a smaller number of children to a higher number. b)The average fertility rate is lower in developed countries with high incomes than in lower income developing countries.How would this be modeled using indifference curves? What can you conclude about the nature of children as an economic good? (Assume that the couple faces a straight line budget constraint. c)Assume that the foregone hours of free time is the only factor that affects fertility decisions.If the cost of raising children increased,how would this be shown with indifference curves? (Assume that the couple faces a straight line budget constraint)