Question 1

Hermione and Ron are at a sweet shop in London. Hermione looks at the prices of ice cream and chocolate bars and says to Ron: "I can tell you what your marginal rate of substitution between ice cream and chocolate bars is at your best affordable point." "No, you can't," says Ron. "You don't know my preferences and how much money I have." "I don't need to know all this because I know the prices," Hermione replies. Is she right? Explain.

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Question 2

Why do consumers prefer higher indifference curves (farther to the right) to lower indifference curves?

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Question 3

"As Jake consumes more sodas over the course of a day, it is likely that his marginal rate of substitution of sodas for other goods will rise." Is the previous statement correct or incorrect?

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Question 4

"The marginal rate of substitution of the good measured along the x-axis increases as a consumer moves downward along an indifference curve." Is the previous statement correct or not?

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Question 5

Describe the consumer equilibrium in the indifference curve/budget line model.

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Question 6

Can the process of consumer choice as illustrated with a budget line/indifference curves approach explain the downward sloping demand curves that consumers have for goods, such as Pepsi?

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Question 7

What is the marginal rate of substitution and how does it relate to an indifference curve?

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Question 8

"Every point on a demand curve represents a consumer equilibrium in the indifference curve model." Explain why the previous statement is correct or not.

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Question 9

Explain how changes in the price of goods and the consumer's budget affect the budget line.

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Question 10

Why does your marginal rate of substitution between chocolate and vanilla ice cream decline continuously as you move rightward on your indifference curve between the two?

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Question 11

What will an indifference curve look like between two commodities that are perfect complements, such as right shoes and left shoes?

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Question 12

What is the substitution effect?

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Question 13

"If Ivan says he is indifferent between the consumption of a new pair of jeans or a set of earrings, he means that he does not want either product." Is the previous analysis CORRECT? Explain your answer.

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Question 14

What is an indifference curve?

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Question 15

"Every point on a budget line has an indifference curve passing through it." Explain whether the previous statement is correct or not.

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Question 16

What is the relationship between the income effect and the substitution effect for a normal good and what is it for an inferior good?

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Question 17

In a budget line/indifference curve figure, how do you identify the best affordable combination of any two goods?

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Question 18

In an indifference curve/budget line framework, how does a consumer decide which of all possible combinations of goods to purchase?

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Question 19

Suppose that Dell computers and Gateway computers are very close substitutes. Then the indifference curves between Dell computers and Gateway computers are almost straight lines. Is this analysis correct or incorrect? Explain.

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Question 20

What is the meaning of the term "marginal rate of substitution"?

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Quiz 9: Possibilities, Preferences, and Choices