Exam 4: The Theory of Individual Behavior

Explain what would happen to the equilibrium consumption of two goods, X and Y, if (a) income doubled and all prices tripled, (b) all prices doubled and income tripled, and (c) all prices and income doubled. In each case, show the effects when both goods are normal goods and when one good is a normal good and the other an inferior good.

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 10 units of X and 25 units of Y. If P_Y increases such that the new equilibrium consumption bundle is 15 units of X and 10 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 goods X and Y are normal goods and the price of good X decreases. Then the substitution effect will lead consumers to consume:

If you include in your offerings some inferior goods, the demand for these products will increase:

Under the buy one, get one free regime, the:

A price increase causes a consumer's "real" income to:

A consumer has a choice of spending $13,000 on a Honda or $9,000 on a Saturn. She is observed buying the Saturn. Does this mean the consumer prefers the Saturn? Explain your answer.

Suppose a worker is paid according to the following pay scheme: For every unit produced, the worker gets $8. Assume a worker can produce three units per hour. a. Express the worker's earnings as a function of hours worked. b. Graph the equation for earnings. c. Graphically depict equilibrium, and show the earnings and hours worked by the employee. d. Do you think that from the firm's point of view, this scheme is better, worse, or the same as paying the worker a wage of $24 per hour? Explain carefully.

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

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

Diminishing marginal rate of substitution implies that indifference curves are:

Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. What is the maximum this worker can earn in three (3) days?

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 normal goods and that the price of good Y decreases. Then, which of the following effects is known with certainty?

Some individuals choose to undertake risky prospects while others choose safer ones because they have different:

Which of the following pairs of goods is probably NOT an example of substitutes?

Which combination of the following properties rules out indifference curves that intersect one another?

Suppose a manager views both quantity and profit as "goods." Such a manager will then have an indifference curve that:

The equilibrium consumption bundle is: