Appendix: Indifference Curves
|
|
- Benjamin Banks
- 6 years ago
- Views:
Transcription
1 Appendix: Indifference Curves Chapter APPENDIX CHECKLIST The appendix uses indifference curves and budget lines to derive a demand curve. Indifference curves An indifference curve is a line that shows combinations of goods among which a consumer is indifferent. All combinations above the indifference curve are preferred to those on the indifference curve and all combinations on the indifference curve are preferred to those below the indifference curve. The marginal rate of substitution, MRS, is the rate at which the consumer will give up the good y (the good measured on the y axis) to get more of the good x (the good measured on the x axis) and at the same time remain on the same indifference curve. The magnitude of the slope of the indifference curve equals the marginal rate of substitution. The marginal rate of substitution diminishes as the consumer moves along an indifference curve, increasing consumption of the good measured on the x axis and decreasing consumption of the good measured on the y axis. The consumer equilibrium is at the best affordable point so that the consumer is on the budget line, is on the highest attainable indifference curve, and has a marginal rate of substitution equal to the relative price of the two goods. We can use the indifference curve model to generate a demand curve. CHECKPOINT 1 Indifference curves. Additional Practice Problems 1 1. Figure A12.1 shows one of Maria s indifference curves between ice cream cones and milkshakes. Lightly shade combinations of cones and milkshakes that are more preferred to those on the indifference curve. More heavily shade combinations that are less preferred to those on the indifference curve. 2. In Figure A12.1, what is Maria s marginal rate of substitution when she is consuming 4 ice cream cones and 2 milkshakes?
2 186 Part 4. A CLOSER LOOK AT DECISION MAKERS through the combination of 4 ice cream cones and 2 milkshakes and touches the indifference curve at only that point. The magnitude of the slope of this line is 1/2 of a milkshake per ice cream cone, so Maria s marginal rate of substitution is 1/2 of a milkshake per ice cream cone. This marginal rate of substitution means that when Maria is consuming 4 ice cream cones and 2 milkshakes, she is willing to give up only 1/2 of a milkshake in order to get another ice cream cone. 3. Figure A12.2 shows Maria s budget line and several of her indifference curves. a. What is Maria s best affordable point? b. If Maria consumed 3 milkshakes and 2 ice creams, how would her marginal rate of substitution between cones and shakes compare to the relative price of cones and shakes? Solutions to Additional Practice Problems 1 1. Figure A12.3 shows that all combinations above the indifference curve are more preferred to those on it and all combinations below the indifference curve are less preferred to those on it. 2. Maria s marginal rate of substitution equals the magnitude of the slope of the indifference curve. Use the straight line that goes 3a. Figure A12.4 shows Maria s best affordable point. This point is on Maria s budget line and also on the highest attainable indifference curve, I3. At this point, Maria s marginal rate of substitution between cones and shakes equals the relative price of cones and shakes. 3b. If Maria consumed 3 milkshakes and 2 ice cream cones, she would be on indifference curve I3. The slope of this indifference curve at that point equals Maria s marginal rate of substitution. So Maria s marginal rate of substitution between cones and shakes at this consumption possibility is greater than the relative price of cones and shakes. Self Test 1 Fill in the blanks An is a curve that shows combinations of goods among which a consumer is indifferent. A consumer prefers being on a (lower;
3 Appendix 12. Indifference Curves 187 higher) indifference curve. The magnitude of the slope of an indifference curve equals the. If an indifference curve is steep, the marginal rate of substitution is (high; low). The best affordable point occurs at the point on the budget line where the magnitude of the slope of the budget line (is greater than; equals; is less than) the marginal rate of substitution. True or false 1. A consumer is indifferent among combinations of goods that are on his or her indifference curve. 2. A consumer is indifferent among combinations on different indifference curves. 3. The marginal rate of substitution is the rate at which a person will give up the good measured on the y axis to get more of the good measured on the x axis and at the same time remain indifferent. 4. The only requirement for a consumer to be at his best affordable point is that the consumer be on the budget line. 5. Along a demand curve that is derived using indifference curves, the quantity of the good demanded increases when the price rises. Multiple choice 1. An indifference curve is a line that shows combinations of goods among which a consumer a. prefers one over the other. b. places no value on any of the items. c. can afford to buy all the combinations. d. is indifferent. e. believes that all combinations have the same marginal rate of substitution. 2. What is the difference between a budget line and an indifference curve? a. One is measured in dollars while the other is measured in units of goods. b. One shows what is possible while the other shows what is preferred. c. One shows a positive relationship and the other shows a negative relationship. d. The budget line is bowed in toward the origin and the indifference curves are linear. e. There is no difference. 3. In a preference map, consumption combinations on higher indifference curves a. always cost more than any combination on a lower indifference curve. b. always are preferred to combinations on lower indifference curves. c. always cost less than any combination on a lower indifference curve. d. always are less preferred than combinations on lower indifference curves. e. are sometimes more preferred, sometimes less preferred, and sometimes equally preferred than any combination on a lower indifference curve. 4. The marginal rate of substitution for the good on the horizontal axis is a. the consumer surplus. b. the same as the consumer s budget line. c. equal to the magnitude of the slope of the indifference curve. d. equal to the magnitude of the slope of the consumer surplus curve. e. equal to 1.0 if the indifference curves are linear.
4 188 Part 4. A CLOSER LOOK AT DECISION MAKERS 17. When the consumer whose indifference curve is illustrated in the figure consumes more tacos, the marginal rate of substitution is of slices of pizza for tacos a. stays the same. b. increases. c. decreases. d. changes randomly. e. More information is needed about the consumer s budget line to determine how the marginal rate of substitution changes. 5. When the consumer whose indifference curve is illustrated in the figure above is consuming 3 slices of pizza and 3 tacos per week, the marginal rate of substitution is of pizza per taco a. 3 slices b. 9 slices c. 0 slices d. 1 slice e. More information is needed about the consumer s budget line to determine the marginal rate of substitution. 6. When the consumer whose indifference curve is illustrated in the figure above is consuming 1½ slices of pizza and 6 tacos per week, the marginal rate of substitution is of pizza per taco a. 6 slices b. 1½ of a slice c. 1/4 of a slice d. 1 slice e. More information is needed about the consumer s budget line to determine the marginal rate of substitution. 18. At her best affordable point, Kris i. is on her budget line. ii. is on the highest attainable indifference curve. iii. has a marginal rate of substitution equal to the relative price of the goods. a. i only. b. ii only. c. iii only. d. i, and ii. e. i, ii, and iii. 19. When Bo is at his best affordable consumption point, his marginal rate of substitution is a. greater than the relative price. b. equal to the relative price. c. less than the relative price. d. is equal to one. e. maximized. 10. To derive a demand curve using the indifference curve model, you must change the a. consumer s preferences. b. consumer s income. c. price of one good, holding the price of the other good and income constant. d. price of both goods simultaneously but by different amounts. e. price of both goods simultaneously but by the same percentage.
5 Appendix 12. Indifference Curves 189 Complete the graph a. Initially, the price of a movie is $10 and the price of a DVD is also $10. Brent s income is $40 per month. Draw Brent s budget line in Figure A12.7. How many DVDs does Brent buy per month? b. DVDs fall in price to $5. Brent s income remains at $40 and the price of a movie remains at $10. Draw Brent s new budget line in Figure A12.7. How many DVDs does Brent now buy per month? 1. For entertainment, Laura goes to the movies and buys magazines. Laura devotes a monthly budget of $24 per month for entertainment. The price of a movie is $8 and the price of a magazine is $4. a. In Figure A12.6, draw Laura s budget line and label it BL1. b. Suppose magazines rise in price to $6. Draw Laura s new budget line in Figure A12.6 and label it BL2. c. Finally suppose that magazines fall in price to $3. Draw Laura s new budget line in Figure A12.6 and label it BL3. 2. Brent goes to the movies and buys DVDs. Figure A12.7 shows two of his indifference curves. c. You have two points on Brent s demand curve for DVDs. What are these two points? Assuming Brent s demand curve is linear, plot these points in Figure A12.8 and draw his demand curve. How does a fall in the price of a DVD affect the quantity of DVDs Brent buys? Short answer and numeric questions 1. What is the defining characteristic of the points on an indifference curve? 2. If Alberto s marginal rate of substitution between shirts and pants is 2 shirts per pair of pants, what does this number mean? As Alberto obtains more pants, what happens to his marginal rate of substitution? 3. What is the difference between an indifference curve and a demand curve?
6 190 Part 4. A CLOSER LOOK AT DECISION MAKERS SELF TEST ANSWERS CHECKPOINT 1 Fill in the blanks An indifference curve is a curve that shows combinations of goods among which a consumer is indifferent. A consumer prefers being on a higher indifference curve. The magnitude of the slope of an indifference curve equals the marginal rate of substitution. If an indifference curve is steep, the marginal rate of substitution is high. The best affordable point occurs at the point on the budget line where the magnitude of the slope of the budget line equals the marginal rate of substitution. True or false 1. True; page False; page True; page False; page False; page 317 Multiple choice 11. d; page b; page b; page c; page d; page c; page c; page e; page b; page c; page a. Figure A12.10 shows the budget line. Brent buys 2 DVDs a month; page 316. b. Figure A12.10 shows the new budget line. Brent now buys 4 DVDs a month; page 316. Complete the graph 1. a. Figure A12.9 shows the budget line;. page 317. b. Figure A12.9 shows the budget line;. page 317. c. Figure A12.9 shows the budget line;. page 317.
7 Appendix 12. Indifference Curves 191 c. One point on Brent s demand curve is from part (a). When the price of a DVD rental is $10, the quantity of DVDs Brent buys is 2 a month. The other point is from part (b). When the price of a DVD is $5, Brent buys 4 DVDs a month. Figure A12.11 plots these two points and draws Brent s demand curve. A fall in the price of a DVD increases the quantity of DVDs Brent buys; page 317. Short answer and numeric questions 1. The defining characteristic of points on an indifference curve is that the consumer is indifferent about which combination he or she consumes. Of all the possible combinations on an indifference curve, the consumer does not care which combination he or she receives; page The marginal rate of 2 shirts per pair of pants means that Alberto is willing to give up 2 shirts in order to get another pair of pants. As Alberto obtains more pants, his marginal rate of substitution decreases; page An indifference curve and a demand curve are quite different. An indifference curve shows combinations of goods among which a consumer is indifferent. A demand curve shows the relationship between the price of a good and the quantity demanded. An indifference curve, along with a budget line, can be used to derive a demand curve. Hence the demand curve can be viewed as a result of using an indifference curve; pages 313 and 317.
8
POSSIBILITIES, PREFERENCES, AND CHOICES
Chapt er 9 POSSIBILITIES, PREFERENCES, AND CHOICES Key Concepts Consumption Possibilities The budget line shows the limits to a household s consumption. Figure 9.1 graphs a budget line. Consumption points
More informationRecitation #7 Week 03/01/2009 to 03/07/2009. Chapter 10 The Rational Consumer
Recitation #7 Week 03/01/2009 to 03/07/2009 Chapter 10 The Rational Consumer Exercise 1. The following table provides information about Carolyn s total utility from reading articles about current events.
More informationEastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester. ECON 101 Mid term Exam
Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2014 15 Fall Semester ECON 101 Mid term Exam Suggested Solutions 28 November 2014 Duration: 90 minutes Name Surname:
More informationConsumer Choice and Demand
Consumer Choice and Demand CHAPTER12 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Calculate and graph a budget line that shows the limits to
More informationConsumer Choice and Demand
Consumer Choice and Demand 1 Utility Utility Analysis Sense of pleasure, or satisfaction that comes from consumption Subjective Assumption Taste are given Tastes are relatively stable 2 Total utility Utility
More information(Note: Please label your diagram clearly.) Answer: Denote by Q p and Q m the quantity of pizzas and movies respectively.
1. Suppose the consumer has a utility function U(Q x, Q y ) = Q x Q y, where Q x and Q y are the quantity of good x and quantity of good y respectively. Assume his income is I and the prices of the two
More informationMidterm #2 / Version #1 October 27, 2000 TF + MC PROBLEM TOTAL VERSION 1
Economics 101 Lec 3 Elizabeth Kelly Fall 2000 Midterm #2 / Version #1 October 27, 2000 Student Name: ID Number: Section Number: TA Name: TF + MC PROBLEM TOTAL VERSION 1 DO NOT BEGIN WORKING UNTIL THE INSTRUCTOR
More informationPossibilities, Preferences, and Choices
9 Possibilities, Preferences, and Choices Learning Objectives Household s budget line and show how it changes when prices or income change Use indifference curves to map preferences and explain the principle
More informationEcon 1101 Practice Questions about Consumer Theory Solution
Econ 0 Practice Questions about Consumer Theory Solution Question : Sam eats only green eggs and ham. He has an income of $3. Green eggs have a price of P G = $ and ham has a price of P H = $. Sam s preferences
More informationConsumer Theory. Introduction Budget Set/line Study of Preferences Maximizing Utility
Consumer Theory Introduction Budget Set/line Study of Preferences Maximizing Utility Introduction Where does the law of demand come from? Consumption choices depend on two factors: 1. What choices you
More information8 POSSIBILITIES, PREFERENCES, AND CHOICES. Chapter. Key Concepts. The Budget Line
Chapter 8 POSSIBILITIES, PREFERENCES, AND CHOICES Key Concepts FIGURE 8. The Budget Line Consumption Possibilities The budget shows the limits to a household s consumption. Figure 8. graphs a budget ;
More information<Table 1> Total Utility Marginal Utility Total Utility Marginal Utility
Economics 101 Answers to Homework #4 Fall 2009 Due 11/11/2009 before lecture Directions: The homework will be collected in a box before the lecture. Place your name, TA name and section number on top of
More informationD
Econ Holmes Fall 9 Some Additional Practice Questions to Get Ready for Midterm Question Let s put Econland in the world economy. Suppose the world price of widgets is $. Suppose Econland is small relative
More informationFile: ch03, Chapter 3: Consumer Preferences and The Concept of Utility
for Microeconomics, 5th Edition by David Besanko, Ronald Braeutigam Completed download: https://testbankreal.com/download/microeconomics-5th-edition-test-bankbesanko-braeutigam/ File: ch03, Chapter 3:
More information2013 CH 11 sample questions
Class: Date: 2013 CH 11 sample questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The budget line shows a. the person's lifetime earnings. b. a
More informationEconomics 101 Section 5
Economics 101 Section 5 Lecture #10 February 17, 2004 The Budget Constraint Marginal Utility Consumer Choice Indifference Curves Overview of Chapter 5 Consumer Choice Consumer utility and marginal utility
More informationMarginal Utility Theory. K. Adjei-Mantey Department of Economics
Marginal Utility Theory K. Adjei-Mantey Department of Economics Kadjei-mantey@ug.edu.gh Utility and Marginal Utility Every economic agent attempts to make the best out of every decision Marginal utility
More informationPOSSIBILITIES, PREFERENCES, AND CHOICES
9 POSSIBILITIES, PREFERENCES, AND CHOICES You buy your music online and play it on an ipod. As the prices of a music download and an ipod have tumbled, the volume of downloads and sales of ipods have
More informationPRACTICE QUESTIONS CHAPTER 5
CECN 104 PRACTICE QUESTIONS CHAPTER 5 1. Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility realized by consuming one
More informationModule 2 THEORETICAL TOOLS & APPLICATION. Lectures (3-7) Topics
Module 2 THEORETICAL TOOLS & APPLICATION 2.1 Tools of Public Economics Lectures (3-7) Topics 2.2 Constrained Utility Maximization 2.3 Marginal Rates of Substitution 2.4 Constrained Utility Maximization:
More informationEcn Intermediate Microeconomic Theory University of California - Davis November 13, 2008 Professor John Parman. Midterm 2
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis November 13, 2008 Professor John Parman Midterm 2 You have until 6pm to complete the exam, be certain to use your time wisely.
More informationc U 2 U 1 Econ 310 Practice Questions: Chaps. 4, 7-8 Figure 4.1 Other goods
Econ 310 Practice Questions: Chaps. 4, 7-8 Figure 4.1 Other goods A H a c U 2 b U 1 0 x Z H Z 1. Figure 4.1 shows the effect of a decrease in the price of good x. The substitution effect is indicated by
More informationMICROECONOMIC THEORY 1
MICROECONOMIC THEORY 1 Lecture 2: Ordinal Utility Approach To Demand Theory Lecturer: Dr. Priscilla T Baffour; ptbaffour@ug.edu.gh 2017/18 Priscilla T. Baffour (PhD) Microeconomics 1 1 Content Assumptions
More information1. Compare the following two pairs of goods: (1) Coke and Pepsi, (2) Plane tickets and hotel bookings
ECNS 251 Homework 5 Consumer Theory 1. Compare the following two pairs of goods: (1) Coke and Pepsi, (2) Plane tickets and hotel bookings a. What is the relationship between Coke and Pepsi? What is the
More information2. Explain the notion of the marginal rate of substitution and how it relates to the utilitymaximizing
LEARNING OBJECTIVES 1. Explain utility maximization using the concepts of indifference curves and budget lines. 2. Explain the notion of the marginal rate of substitution and how it relates to the utilitymaximizing
More informationTHEORETICAL TOOLS OF PUBLIC FINANCE
Solutions and Activities for CHAPTER 2 THEORETICAL TOOLS OF PUBLIC FINANCE Questions and Problems 1. The price of a bus trip is $1 and the price of a gallon of gas (at the time of this writing!) is $3.
More informationUtility ) Calculate the marginal utility of eating each unit of bratwurst.
Economics 11 Answer to Homework # Spring 9 Due 3/31/9 at beginning of lecture Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number
More informationMicroeconomics. The Theory of Consumer Choice. N. Gregory Mankiw. Premium PowerPoint Slides by Ron Cronovich update C H A P T E R
C H A P T E R 21 The Theory of Consumer Choice Microeconomics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2010 South-Western, a part of Cengage Learning, all rights
More informationChapter 1 Microeconomics of Consumer Theory
Chapter Microeconomics of Consumer Theory The two broad categories of decision-makers in an economy are consumers and firms. Each individual in each of these groups makes its decisions in order to achieve
More informationMidterm 1 - Solutions
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis October 16, 2009 Instructor: John Parman Midterm 1 - Solutions You have until 11:50am to complete this exam. Be certain to put
More informationEcon 1101 Summer 2013 Lecture 7. Section 005 6/26/2013
Econ 1101 Summer 2013 Lecture 7 Section 005 6/26/2013 Announcements Homework 6 is due tonight at 11:45pm, CDT Midterm tomorrow! Will start at 5:40pm, there is a recitation beforehand. Make sure to work
More informationFaculty: Sunil Kumar
Objective of the Session To know about utility To know about indifference curve To know about consumer s surplus Choice and Utility Theory There is difference between preference and choice The consumers
More informationECS2601 Oct / Nov 2014 Examination Memorandum. (1a) Raymond has a budget of R200. The price of food is R20 and the price of clothes is R50.
ECS2601 Oct / Nov 201 Examination Memorandum (1a) Raymond has a budget of R200. The price of food is R20 and the price of clothes is R50. (i) Draw a budget line, with food on the horizontal axis. (2) Clothes
More informationEcon 1101 Holmes Fall 2007 Homework 5
Econ 0 Holmes Fall 007 Homework 5 Note : This is a copy of the homework for practice. The actual homework is a web document that is completed online. It can be found at the WebVista course home page by
More informationIntroduction to economics for PhD Students of The Institute of Physical Chemistry, PAS Lecture 3 Consumer s choice
Introduction to economics for PhD Students of The Institute of Physical Chemistry, PAS Lecture 3 Consumer s choice Dr hab. Gabriela Grotkowska, University of Warsaw Based on: Mankiw G., Taylor R, Economics,
More informationPAPER NO.1 : MICROECONOMICS ANALYSIS MODULE NO.6 : INDIFFERENCE CURVES
Subject Paper No and Title Module No and Title Module Tag 1: Microeconomics Analysis 6: Indifference Curves BSE_P1_M6 PAPER NO.1 : MICRO ANALYSIS TABLE OF CONTENTS 1. Learning Outcomes 2. Introduction
More informationFalse_ The average revenue of a firm can be increasing in the firm s output.
LECTURE 12: SPECIAL COST FUNCTIONS AND PROFIT MAXIMIZATION ANSWERS AND SOLUTIONS True/False Questions False_ If the isoquants of a production function exhibit diminishing MRTS, then the input choice that
More informationChapter 21: Theory of Consumer Choice
Chapter 21: Theory of Consumer Choice We will now try to "get behind the demand curve To get behind the D curve we must study individual behavior How do individuals make consumption decisions? We have
More informationMicroeconomics Pre-sessional September Sotiris Georganas Economics Department City University London
Microeconomics Pre-sessional September 2016 Sotiris Georganas Economics Department City University London Organisation of the Microeconomics Pre-sessional o Introduction 10:00-10:30 o Demand and Supply
More informationMIDTERM #2 VERSION 1
Econ 101 Lec 3 Fall 2001 Midterm #2 Version 1 November 6, 2001 Student Name: ID Number: Section # (Official): TA Name (Official): MIDTERM #2 VERSION 1 DO NOT BEGIN WORKING UNTIL THE INSTRUCTOR TELLS YOU
More informationLECTURE NOTES ON MICROECONOMICS
LECTURE NOTES ON MICROECONOMICS ANALYZING MARKETS WITH BASIC CALCULUS William M. Boal Part 4: General equilibrium and market power Chapter 13: General equilibrium Problems (13.1) [Efficiency versus fairness]
More informationMidterm 1 - Solutions
Ecn 100 - Intermediate Microeconomics University of California - Davis April 15, 2011 Instructor: John Parman Midterm 1 - Solutions You have until 11:50am to complete this exam. Be certain to put your
More informationChapter Four. Utility Functions. Utility Functions. Utility Functions. Utility
Functions Chapter Four A preference relation that is complete, reflexive, transitive and continuous can be represented by a continuous utility function. Continuity means that small changes to a consumption
More informationWe will make several assumptions about these preferences:
Lecture 5 Consumer Behavior PREFERENCES The Digital Economist In taking a closer at market behavior, we need to examine the underlying motivations and constraints affecting the consumer (or households).
More informationLecture 19 Monday, Oct. 26. Lecture. 1 Indifference Curves: Perfect Substitutes. 1. Problem Set 2 due tomorrow night.
Lecture 19 Monday, Oct. 1. Problem Set due tomorrow night.. At the course web site, I have posted some practice questions about consumer theory. I recommend taking a look at this. This material will be
More informationSolutions to Assignment #2
ECON 20 (Fall 207) Department of Economics, SFU Prof. Christoph Lülfesmann exam). Solutions to Assignment #2 (My suggested solutions are usually more detailed than required in an I. Short Problems. The
More informationMICROECONOMICS I REVIEW QUESTIONS SOLUTIONS
MICROECONOMICS I REVIEW QUESTIONS SOLUTIONS 1.i. 1.ii. 1.iii. 1.iv. 1.v. 1.vi. 1.vii. 1.vi. 2.i. FALSE. The negative slope is a consequence of the more is better assumption. If a consumer consumes more
More information1. Madison has $10 to spend on beer and pizza. Beer costs $1 per bottle and pizza costs $2 a slice.
Econ 3144 Fall 2001 Name Test 2 Rupp Essay Questions (50 points) & 25 Multiple Choice Questions (50 points) Note the following formula maybe helpful in this exam: E P = (P/Q) * (1/slope). 1. Madison has
More informationThe Rational Consumer. The Objective of Consumers. The Budget Set for Consumers. Indifference Curves are Like a Topographical Map for Utility.
The Rational Consumer The Objective of Consumers 2 Finish Chapter 8 and the appendix Announcements Please come on Thursday I ll do a self-evaluation where I will solicit your ideas for ways to improve
More informationThe Ricardian Model. Rafael López-Monti Department of Economics George Washington University Summer 2015 (Econ 6280.
SURVEY OF INTERNATIONAL ECONOMICS The Ricardian Model Rafael López-Monti Department of Economics George Washington University rlopezmonti@gwu.edu Summer 2015 (Econ 6280.20) Required Reading: Feenstra,
More informationMicroeconomic Analysis ECON203
Microeconomic Analysis ECON203 Consumer Preferences and the Concept of Utility Consumer Preferences Consumer Preferences portray how consumers would compare the desirability any two combinations or allotments
More informationIntroduction. The Theory of Consumer Choice. In this chapter, look for the answers to these questions:
21 The Theory of Consumer Choice P R I N C I P L E S O F ECONOMICS FOURTH EDITION N. GREGORY MANKIW Premium PowerPoint Slides by Ron Cronovich 2008 update 2008 South-Western, a part of Cengage Learning,
More informationEconomics II - Exercise Session # 3, October 8, Suggested Solution
Economics II - Exercise Session # 3, October 8, 2008 - Suggested Solution Problem 1: Assume a person has a utility function U = XY, and money income of $10,000, facing an initial price of X of $10 and
More informationChapter 3. Consumer Behavior
Chapter 3 Consumer Behavior Question: Mary goes to the movies eight times a month and seldom goes to a bar. Tom goes to the movies once a month and goes to a bar fifteen times a month. What determine consumers
More informationDemand and income. Income and Substitution Effects. How demand rises with income. How demand rises with income. The Shape of the Engel Curve
Demand and income Engel Curves and the Slutsky Equation If your income is initially 1, you buy 1 apples When your income rises to 2, you buy 2 apples. To make the obvious point, demand is a function of
More informationECON 310 Fall 2005 Final Exam - Version A. Multiple Choice: (circle the letter of the best response; 3 points each) and x
ECON 30 Fall 005 Final Exam - Version A Name: Multiple Choice: (circle the letter of the best response; 3 points each) Mo has monotonic preferences for x and x Which of the changes described below could
More informationTopic 2 Part II: Extending the Theory of Consumer Behaviour
Topic 2 part 2 page 1 Topic 2 Part II: Extending the Theory of Consumer Behaviour 1) The Shape of the Consumer s Demand Function I Effect Substitution Effect Slope of the D Function 2) Consumer Surplus
More informationEcn Intermediate Microeconomic Theory University of California - Davis October 16, 2009 Instructor: John Parman. Midterm 1
Ecn 100 - Intermediate Microeconomic Theory University of California - Davis October 16, 2009 Instructor: John Parman Midterm 1 You have until 11:50am to complete this exam. Be certain to put your name,
More informationMidterm 2 - Solutions
Ecn 00 - Intermediate Microeconomic Theory University of California - Davis February 7, 009 Instructor: John Parman Midterm - Solutions You have until 3pm to complete the exam, be certain to use your time
More informationTheory of Consumer Behavior First, we need to define the agents' goals and limitations (if any) in their ability to achieve those goals.
Theory of Consumer Behavior First, we need to define the agents' goals and limitations (if any) in their ability to achieve those goals. We will deal with a particular set of assumptions, but we can modify
More informationWe want to solve for the optimal bundle (a combination of goods) that a rational consumer will purchase.
Chapter 3 page1 Chapter 3 page2 The budget constraint and the Feasible set What causes changes in the Budget constraint? Consumer Preferences The utility function Lagrange Multipliers Indifference Curves
More informationCONSUMPTION AND THE CONSUMER SOCIETY Microeconomics in Context (Goodwin, et al.), 3 rd Edition
Chapter 8 CONSUMPTION AND THE CONSUMER SOCIETY Microeconomics in Context (Goodwin, et al.), 3 rd Edition Chapter Overview This chapter presents the standard economic model of consumer behavior. We explain
More informationEconomics 101 Fall 2010 Homework #3 Due 10/26/10
Economics 101 Fall 2010 Homework #3 Due 10/26/10 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework (legibly).
More informationECON 221: PRACTICE EXAM 2
ECON 221: PRACTICE EXAM 2 Answer all of the following questions. Use the following information to answer the questions below. Labor Q TC TVC AC AVC MC 0 0 100 0 -- -- 1 10 110 10 11 1 2 25 120 20 4.8.8
More informationECON 317, Microeconomic Analysis Dr. Walker 21 September PROBLEM SET 2 [REVISED 9/21, 2:00PM] Consumer Theory
ECON 37, Microeconomic Analysis Dr. Walker September 7 Name: PROBLEM SET [REVISED 9/, :PM] Consumer Theory. Draw a figure showing a budget line for Meatwad, who spends his entire income (I=$4) on PeePantz
More informationDO NOT BEGIN WORKING UNTIL YOU ARE TOLD TO DO SO. READ THESE INSTRUCTIONS FIRST.
Midterm Exam #2; Page 1 of 10 Economics 101 Professor Wallace Midterm #2, Version #1 November 16 th, 2005. DO NOT BEGIN WORKING UNTIL YOU ARE TOLD TO DO SO. READ THESE INSTRUCTIONS FIRST. You have 75 minutes
More informationMarginal Utility, Utils Total Utility, Utils
Mr Sydney Armstrong ECN 1100 Introduction to Microeconomics Lecture Note (5) Consumer Behaviour Evidence indicated that consumers can fulfill specific wants with succeeding units of a commodity but that
More informationECNB , Spring 2003 Intermediate Microeconomics Saint Louis University. Midterm 2
, Spring 2003 Intermediate Microeconomics Saint Louis University Multiple Choice (4 points each) Midterm 2 Name: 1) If Fred's marginal rate of substitution of salad for pizza equals -3, then A) his marginal
More informationMICROECONOMICS - CLUTCH CH CONSUMER CHOICE AND BEHAVIORAL ECONOMICS
!! www.clutchprep.com CONCEPT: BUDGET CONSTRAINT A budget constraint shows the limitations on what you can Income The amount of money available to spend Choose between various combinations of goods that
More informationFile: Ch04; Chapter 4: Demand and Supply, Offer Curves, and the Terms of Trade
File: Ch04; Chapter 4: Demand and Supply, Offer Curves, and the Terms of Trade Multiple Choice 1. Which of the following statements is correct? a. The demand for imports is given by the excess demand for
More informationnot to be republished NCERT Chapter 2 Consumer Behaviour 2.1 THE CONSUMER S BUDGET
Chapter 2 Theory y of Consumer Behaviour In this chapter, we will study the behaviour of an individual consumer in a market for final goods. The consumer has to decide on how much of each of the different
More informationECONOMICS SOLUTION BOOK 2ND PUC. Unit 2
ECONOMICS SOLUTION BOOK N PUC Unit I. Choose the correct answer (each question carries mark). Utility is a) Objective b) Subjective c) Both a & b d) None of the above. The shape of an indifference curve
More informationConsumers cannot afford all the goods and services they desire. Consumers are limited by their income and the prices of goods.
Budget Constraint: Review Consumers cannot afford all the goods and services they desire. Consumers are limited by their income and the prices of goods. Model Assumption: Consumers spend all their income
More informationX= ( B, D ) Y= ( B, D)
1) (30 points) Suppose Homer consumes only two goods: Beer (B) and Donut (D). Homer s income from working at a nuclear plant is $120. A pack of beer costs $10, a pack of donuts costs $6. a) Assume Beer
More informationCOMM 220 Practice Problems 1
COMM 220 RCTIC ROLMS 1. (a) Statistics Canada calculates the Consumer rice Index (CI) using a similar basket of goods for all cities in Canada. The CI is 143.2 in Vancouver, 135.8 in Toronto, and 126.5
More informationAggregate Supply and Demand
Aggregate demand is the relationship between GDP and the price level. When only the price level changes, GDP changes and we move along the Aggregate Demand curve. The total amount of goods and services,
More informationEconomics 301- Homework 2 Stacy Dickert-Conlin Due: September 21, at the start of class
Economics 31- Homework Stacy Dickert-Conlin Fall Name Due: September 1, at the start of class Three randomly selected questions (chosen by Professor Dickert-Conlin) will be graded for credit. All graded
More informationSign Pledge I have neither given nor received aid on this exam
Econ 3144 Fall 2010 Test 1 Dr. Rupp Name Sign Pledge I have neither given nor received aid on this exam Multiple Choice (45 questions) Identify the letter of the choice that best completes the statement
More informationBest Reply Behavior. Michael Peters. December 27, 2013
Best Reply Behavior Michael Peters December 27, 2013 1 Introduction So far, we have concentrated on individual optimization. This unified way of thinking about individual behavior makes it possible to
More informationThe Rational Consumer. The Objective of Consumers. Maximizing Utility. The Budget Set for Consumers. Slope =
The Rational Consumer The Objective of Consumers 2 Chapter 8 and the appendix Announcements We have studied demand curves. We now need to develop a model of consumer behavior to understand where demand
More informationVersion 1 READ THESE INSTRUCTIONS CAREFULLY. DO NOT BEGIN WORKING UNTIL THE PROCTOR TELLS YOU TO DO SO
Economics 101 Name Fall 2013 TA Name November 26, 2013, 2:30pm 3:45pm Discussion Section Number Second Midterm Student ID Number Version 1 READ THESE INSTRUCTIONS CAREFULLY. DO NOT BEGIN WORKING UNTIL
More information제 4 장소비자행동이론. The Theory of Consumer Behavior
제 4 장소비자행동이론 The Theory of Consumer Behavior 소비자행동 Consumer Behavior Consumer Preferences 소비자선호 The goods and services consumers actually consume. Given the choice between 2 bundles of goods a consumer
More informationECON 103C -- Final Exam Peter Bell, 2014
Name: Date: 1. Which of the following factors causes a movement along the demand curve? A) change in the price of related goods B) change in the price of the good C) change in the population D) both b
More informationTest Review. Question 1. Answer 1. Question 2. Answer 2. Question 3. Econ 719 Test Review Test 1 Chapters 1,2,8,3,4,7,9. Nominal GDP.
Question 1 Test Review Econ 719 Test Review Test 1 Chapters 1,2,8,3,4,7,9 All of the following variables have trended upwards over the last 40 years: Real GDP The price level The rate of inflation The
More informationChapter 4 The Theory of Individual Behavior
Managerial Economics & Business Strategy Chapter 4 The Theory of Individual Behavior McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. Overview I. Consumer Behavior
More informationProfessor Bee Roberts. Economics 302 Practice Exam. Part I: Multiple Choice (14 questions)
Fall 1999 Economics 302 Practice Exam Professor Bee Roberts Part I: Multiple Choice (14 questions) 1. The law of demand (quantity demanded increases as price decreases) is always fulfilled for a normal
More informationTopic 4b Competitive consumer
Competitive consumer About your economic situation, do you see the light at the end of the tunnel? I think the light at the end of the tunnel has been turned off due to my budget constraints. 1 of 25 The
More informationAssignment 1: Hand in only Answer. Last Name. First Name. Chapter
Assignment 1: Hand in only Answer Last Name First Name Chapter 3 1 11 21 2 12 22 3 13 23 4 14 24 5 15 25 6 16 7 17 8 18 9 19 10 20 Chapter 4 1 8 15 2 9 16 3 10 17 4 11 18 5 12 19 6 13 7 14 Chapter 3: Page
More informationNo books, notes, or other aids are permitted. You may, however, use an approved calculator. Do not turn to next pages until told to do so by examiner.
Economics 103 F11 Principles of Microeconomics: Sample Test #2 Dr. H.J. Schuetze 70 Minutes Part A Multiple Choice 30 x 2 marks each = 60 (note this is 10 more than will be on our exam but I thought the
More informationThe Theory of Consumer Behavior ZURONI MD JUSOH DEPT OF RESOURCE MANAGEMENT & CONSUMER STUDIES FACULTY OF HUMAN ECOLOGY UPM
The Theory of Consumer Behavior ZURONI MD JUSOH DEPT OF RESOURCE MANAGEMENT & CONSUMER STUDIES FACULTY OF HUMAN ECOLOGY UPM The Theory of Consumer Behavior The principle assumption upon which the theory
More informationECON 201 Intermediate Microeconomics Midterm Examination Suggested Solution Tuesday, April 24, 2012
ECON 201 Intermediate Microeconomics Midterm Examination Suggested Solution Tuesday, April 24, 2012 Beomsoo Kim Spring 2012 1. (25 points) Draw a set of indifference curves for the following pairs of goods:
More informationTopic 3: The Standard Theory of Trade. Increasing opportunity costs. Community indifference curves.
Topic 3: The Standard Theory of Trade. Outline: 1. Main ideas. Increasing opportunity costs. Community indifference curves. 2. Marginal rates of transformation and of substitution. 3. Equilibrium under
More informationUniversity of Toronto June 22, 2004 ECO 100Y L0201 INTRODUCTION TO ECONOMICS. Midterm Test #1
Department of Economics Prof. Gustavo Indart University of Toronto June 22, 2004 SOLUTIONS ECO 100Y L0201 INTRODUCTION TO ECONOMICS Midterm Test #1 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1.
More informationECON 311 Winter Quarter, 2010 NAME: KEY Prof. Hamilton
ECON 311 Winter Quarter, 2010 NAME: KEY Prof. Hamilton FINAL EXAM 200 points 1. (30 points). A firm produces rubber gaskets using labor, L, and capital, K, according to a production function Q = f(l,k).
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Jim has $600 a week to spend on clothing and food. The price of clothing is $30 and the
More informationmyepathshala.com (For Crash Course & Revision)
Chapter 2 Consumer s Equilibrium Who is Consumer A consumer is one who buys goods and services for satisfaction of wants. What is Equilibrium An equilibrium is a point of state or point of rest which every
More informationSign Pledge I have neither given nor received aid on this exam
Econ 3144 Spring 2007 Test 1 Dr. Rupp Name Multiple Choice Questions (2 points each) 1. True/False: A price ceiling can cause a surplus. A. True B. False Sign Pledge I have neither given nor received aid
More informationFile: Ch02, Chapter 2: Supply and Demand Analysis. Multiple Choice
File: Ch02, Chapter 2: Supply and Demand Analysis Multiple Choice 1. A relationship that shows the quantity of goods that consumers are willing to buy at different prices is the a) elasticity b) market
More informationProblem Set #1. 1) CD s cost $12 each and video rentals are $4 each. (This is a standard budget constraint.)
Problem Set #1 I. Budget Constraints Ming has a budget of $60/month to spend on high-tech at-home entertainment. There are only two goods that he considers: CD s and video rentals. For each of the situations
More informationThe Theory of Consumer Choice. UAPP693 Economics in the Public & Nonprofit Sectors Steven W. Peuquet, Ph.D.
The Theory of Consumer Choice UAPP693 Economics in the Public & Nonprofit Sectors Steven W. Peuquet, Ph.D. 1 These slides are for use only as part of a formal instructional course and may not be copied,
More information