Question 1

On a big weekend of college football in 2010, The Associated Press found fans… who said they are making concessions yet determined to indulge their passion. "We basically let the wife and children not eat for a week so we can do this," joked Neil Plotkin, who was attending his first Penn State game. If Neil views eating and football games as perfect substitutes, how would his indifference curve be shaped?

Accepted Answer

If Neil views eating and football games as perfect substitutes, his indifference curve would be a straight line that is downward sloping, indicating a constant rate of substitution between the two goods.

Question 2

Janelle spends all of her $40 income on songs from iTunes ($1 each) and applications ($4 each) for her iTouch. What is her budget equation?

Accepted Answer

The answer of Janelle spends all of her $40 income...

Question 3

What is a household's real income?

Accepted Answer

The answer of What is a household's real income?...

Question 4

During October and November 2008, gasoline prices were falling dramatically making travel by car less expensive but air travel prices were as high as ever. How does the fall in gasoline price affect the relative price of air travel in terms of travel by car?

Accepted Answer

The fall in gasoline prices makes car travel cheaper relative to air travel, effectively increasing the relative price of air travel compared to car travel.

Question 5

Janelle spends all of her income on songs from iTunes ($1 each) and applications ($5 each) for her iTouch. At current prices, she makes her best affordable choice and purchases 20 songs and 4 applications. Suppose, for a limited time only, applications are buy-one, get-one-free and she purchases 30 songs and 4 applications. Which of the following statements is true?

Accepted Answer

The answer of Janelle spends all of her income on...

Question 6

-Ramen noodles are hotter than ever in 2010. Considered a bargain meal for cash-starved college students... last year, 4 billion individual packets were devoured in the United States, a 4 percent increase over 2006. Once students leave college for that first well-paying job, however, they stop eating Ramen. If the price of ramen falls, and income remains the same, describe the substitution and income effects that occur.

Accepted Answer

The answer of 
-Ramen noodles are hotter than ever in...

Question 7

During October and November 2008, gasoline prices were falling dramatically making travel by car less expensive but air travel prices were as high as ever. If travel by car is less expensive, and income remains the same, describe the substitution and income effects that occur for air travel.

Accepted Answer

The answer of During October and November 2008, gasoline prices...

Question 8

What information do you need to draw your budget line? What is your budget line? What does it show for any pair of goods?

Accepted Answer

The answer of What information do you need to draw...

Question 9

"Consumption possibilities are limited by total utility." True or false? Explain.

Accepted Answer

Consumption possibilities are limit by the consumers' income and by the prices of goods and services they buy. Total utility does not limit consumption, it is a measure of total benefit that consumers get from consumption of goods and services.

Question 10

During October and November 2008, gasoline prices were falling dramatically making travel by car less expensive but air travel prices were as high as ever. If travel by car is less expensive, and income remains the same, describe the substitution and income effects that occur for travelling by car.

Accepted Answer

The answer of During October and November 2008, gasoline prices...

Question 11

Janelle spends all of her income on songs from iTunes ($1 each) and applications ($5 each) for her iTouch. If she makes her best affordable choice, she purchases 20 songs and 4 applications, what is her income?

Accepted Answer

The answer of Janelle spends all of her income on...

Question 12

Why is the budget line negatively sloped?

Accepted Answer

The answer of Why is the budget line negatively sloped?...

Question 13

Barth Anderson states that the 2008 "downturn in the economy has really brought a lot of people home. They don't say, 'Well, we're going to order a pizza.' They actually cook." Assuming that restaurant meals and eating at home are substitutes for one another and only consumers' income decreases, what is true?

Accepted Answer

The answer of Barth Anderson states that the 2008 "downturn...

Question 14

-Ramen noodles are hotter than ever in 2010. Considered a bargain meal for cash-starved college students... last year, 4 billion individual packets were devoured in the United States, a 4 percent increase over 2006. If once college students graduated, they stopped eating ramen, would ramen be considered a normal or inferior good?

Accepted Answer

Ramen is considered an inferior good because consumption decreases as income increases, as suggested by students stopping eating it after graduation when their income likely rises.

Question 15

On a big weekend of college football in 2010, The Associated Press found fans… who said they are making concessions yet determined to indulge their passion. "We basically let the wife and children not eat for a week so we can do this," joked Neil Plotkin, who was attending his first Penn State game. If Neil's marginal rate of substitution between weeks of food and his first Penn State game is 1, what do you predict the marginal rate of substitution between food and subsequent Penn State games is for Neil?

Accepted Answer

The fact that Neil is joking about not feeding his family for a week to attend his first game suggests that he values attending the game more than multiple weeks of food. This implies a high marginal rate of substitution initially. However, it is likely that subsequent Penn State games will not be valued as highly, and therefore the marginal rate of substitution between food and subsequent games is expected to be lower, i.e. less than one.

Question 16

Organic food might be good for your health but in light of the 2008 downturn in the economy and falling incomes, consumers are buying less organic and more non-organic food. Based on these events, what is true?

Accepted Answer

When incomes fall, consumers buy less of normal goods and more of inferior goods. Since consumers are buying less organic food and more non-organic food, organic food is a normal good and non-organic food is an inferior good.

Question 17

During October and November 2008, gasoline prices were falling dramatically, making travel by car less expensive but air travel prices were as high as ever. What is true about consumer preferences, possibilities, or choices?

Accepted Answer

The answer of During October and November 2008, gasoline prices...

Question 18

How is a budget line similar to a production possibilities frontier? How do they differ?

Accepted Answer

The answer of How is a budget line similar to...

Question 19

Janelle spends all of her income on songs from iTunes ($1 each) and applications ($5 each) for her iTouch. If she makes her best affordable choice, she purchases 20 songs and 4 applications, what is her real income in terms of applications?

Accepted Answer

Janelle spends $1 for each song and $5 for each application, so in total, she spends:
20 songs x $1 per song = $20 on songs
4 applications x $5 per application = $20 on applications
Thus, her total spending is $40.
If she spends all of her income on applications, she can purchase:
$40 total spending / $5 per application = 8 applications
Therefore, the maximum number of applications she can purchase with her real income is 8.
Since she actually purchased 4 applications, we know that she could have purchased more if she wanted to. This means that her real income in terms of applications is greater than 4, and the only option greater than 4 is C, which is 10 applications. Thus, the best choice is C.

Question 20

You are studying with a friend and your friend says "A budget line shows the various combinations of two goods that can be purchased with the buyer's income at current prices." Is your friend's assessment correct or not?

Accepted Answer

The answer of You are studying with a friend and...

Quiz 9: Possibilities, Preferences, and Choices

Janelle spends all of her $40 income on songs from iTunes ($1 each) and applications ($4 each) for her iTouch. What is her budget equation?

What is a household's real income?

During October and November 2008, gasoline prices were falling dramatically making travel by car less expensive but air travel prices were as high as ever. How does the fall in gasoline price affect the relative price of air travel in terms of travel by car?

During October and November 2008, gasoline prices were falling dramatically making travel by car less expensive but air travel prices were as high as ever. If travel by car is less expensive, and income remains the same, describe the substitution and income effects that occur for air travel.

What information do you need to draw your budget line? What is your budget line? What does it show for any pair of goods?

"Consumption possibilities are limited by total utility." True or false? Explain.

During October and November 2008, gasoline prices were falling dramatically making travel by car less expensive but air travel prices were as high as ever. If travel by car is less expensive, and income remains the same, describe the substitution and income effects that occur for travelling by car.

Janelle spends all of her income on songs from iTunes ($1 each) and applications ($5 each) for her iTouch. If she makes her best affordable choice, she purchases 20 songs and 4 applications, what is her income?

Why is the budget line negatively sloped?

Organic food might be good for your health but in light of the 2008 downturn in the economy and falling incomes, consumers are buying less organic and more non-organic food. Based on these events, what is true?

During October and November 2008, gasoline prices were falling dramatically, making travel by car less expensive but air travel prices were as high as ever. What is true about consumer preferences, possibilities, or choices?

How is a budget line similar to a production possibilities frontier? How do they differ?

Janelle spends all of her income on songs from iTunes ($1 each) and applications ($5 each) for her iTouch. If she makes her best affordable choice, she purchases 20 songs and 4 applications, what is her real income in terms of applications?

You are studying with a friend and your friend says "A budget line shows the various combinations of two goods that can be purchased with the buyer's income at current prices." Is your friend's assessment correct or not?