Exam 4: The Theory of Individual Behavior

Airlines give away millions of tickets each year through their frequent flyer programs, with the typical airline awarding a free ticket for each 25,000 miles flown on the airline. The average airline ticket costs $500 and is for a 2,500-mile round trip. Given this information, evaluate the following statement: Airlines could have the same effect on demand by eliminating their frequent flyer programs and simply lowering the average ticket price by 10 percent.

Suppose a consumer has M = $200 to spend on two goods, X and Y. If the per-unit prices of X and Y are respectively given by P_X = $2 and P_Y = $4, then utility maximization subject to a budget constraint can be found from which of the following Lagrangians?

If the price of good X increases, what will happen to the budget line?

The possibility of the endless cyclical preference is eliminated by the property of:

A decrease in the price of good Y will have what effect on the budget line on a normal X-Y graph?

If the price of a good rises, then the equilibrium consumption of that good:

Suppose that three consumers are in the market for good X. Consumer 1's (inverse) demand is P_X = 20 - Q_X; Consumer 2's (inverse) demand is P_X = 20 - 2Q_X; and Consumer 3's (inverse) demand is P_X = 20 - 4Q_X. When P_X = $10, the market will demand:

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day. What are the maximum total earnings the worker can earn in a day?

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

If the price of a good purchased by a utility-maximizing consumer goes down, all other things remain the same, and the consumer's income is adjusted so that he can just barely attain his previous level of satisfaction, and if the consumer has indifference curves of the usual shape, it will be found that:

If a worker receives a fixed payment of $100 plus $10 for every hour she works, what is the maximum total earnings the worker can receive if she is restricted to a maximum of 12 hours of work per day?

If income increases, then the:

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

Mitchell's money income is $150, the price of X is $2, and the price of Y is $2. Given these prices and income, Mitchell buys 50 units of X and 25 units of Y. Call this combination of X and Y bundle J. At bundle J, Mitchell's MRS is 2. Given these prices and income, what is Mitchell's equilibrium consumption of X?

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:

Given that income is $500 and P_X = $20 and P_Y = $5, what is the market rate of substitution between goods X and Y?

Indifference curves further from the origin imply:

Suppose the utility function for a firm manager is U = π + bQ, where Q is output, π 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?

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?

Suppose we are given that the value of a particular utility function is a constant. That is, U(X,Y) = c. Then, the total derivative of this relation is: