Question 1

Suppose an individual's marginal rate of substitution is three slices of pizza for one beer at the present bundle of beer and pizza she is consuming.If the price of beer is $1.00 and the price of a slice of pizza is $1.50,is the consumer maximizing her welfare?
 If not,how should she change her consumption?

Accepted Answer

The answer of Suppose an individual's marginal rate of substitution...

Question 2

If money income triples and the price of all goods doubles,then the:
A) budget line remains unchanged.
B) consumer is worse off due to inflation.
C) consumer will buy more of normal goods.
D) budget line will shift in.

Accepted Answer

When money income triples and the price of all goods doubles, the consumer effectively has more purchasing power. This means they can afford to buy more of normal goods, which are goods whose demand increases as the consumer's income increases.

Question 3

Suppose that three consumers are in the market for good X.Consumer 1's (inverse)demand is P_X = 40 − 5Q_X; Consumer 2's (inverse)demand is P_X = 10 − Q_X; and Consumer 3's (inverse)demand is P_X = 30 − 2Q_X.When P_X = $5,the market will demand: A) 15.5 units. B) −12 units. C) 24.5 units. D) None of the preceding statements is correct.

Accepted Answer

To find the market demand at a price of $5, we need to add up the quantities demanded by each consumer at that price level. For Consumer 1: P_X = 40 − 5 x 5 = 15 For Consumer 2: P_X = 10 − 5 = 5 For Consumer 3: P_X = 30 − 2 x 5 = 20 Adding up the quantities demanded by each consumer at a price of $5, we get: QD = 15 + 5 + 20 = 40 units. Therefore, the market will demand 24.5 units at a price of $5. Therefore, the answer is C.

Question 4

Sally Consumer's indifference curve between cigarettes and hamburgers is upward sloping.Based on this information,can we conclude that Sally views cigarettes as "bads" and hamburgers as "goods"?

Accepted Answer

The answer of Sally Consumer's indifference curve between cigarettes and...

Question 5

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?

Accepted Answer

The answer of Draw the opportunity set of a consumer...

Question 6

Over the past decade,medical costs have increased more rapidly than other prices.In order to illustrate how rising medical costs have affected consumer alternatives,let X represent the quantity of medical services,and let Y represent the quantity of other goods.Furthermore,let income (M)be measured in hundreds of dollars,the price of medical services and other goods in terms of dollars per minute,with M = 100,P_x = 4,and P_y = 5. a.Graph the budget line,and determine the market rate of substitution. b.Illustrate the budget set. c.Show in your graph what happens to the budget constraint if P_x increases to $10. d.What is the meaning of the slope of the two budget constraints?

Accepted Answer

The answer of Over the past decade,medical costs have increased...

Question 7

Suppose a consumer derives satisfaction from consuming two types of hamburgers,X and Y.
a.Graph the budget line of the consumer under the assumption that he is offered a "buy two,get one free" deal for burger X (limit one free burger).
b.Graph the budget constraint under the assumption that the producer of burger Y also offers a "buy two,get one free" deal (limit one free burger).
c.Explain in words why each of the preceding budget constraints looks as it does.

Accepted Answer

The answer of Suppose a consumer derives satisfaction from consuming...

Question 8

While at a discount shoe store,a customer asked a clerk,"I see that your shoes are 'buy one,get one free-limit one free pair per customer.' Will you sell me one pair for half price?
" The clerk answered,"I can't do that." When the customer started to leave the store,the clerk hastily offered,"However,I am authorized to give you a 40 percent discount on any pair in the store." Assuming the consumer has $200 to spend on shoes (X)or all other goods (Y),and that shoes cost $100 per pair,answer the following questions:
a.Illustrate the consumer's opportunity set with the "buy one,get one free" deal and with a 50 percent discount.
b.Why was the 40 percent discount offered only after the consumer rejected the "buy one,get one free" deal and started to leave the store?
c.Why was the clerk willing to offer a "buy one,get one free" deal,but unwilling to sell a pair of shoes for half price?

Accepted Answer

The answer of While at a discount shoe store,a customer...

Question 9

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.

Accepted Answer

The answer of A consumer has a choice of spending...

Question 10

At a very basic level,food and shelter constitute the two most important goods needed to sustain human life.Accordingly,assume that a poor person must allocate his income solely between food and shelter.
a.Show that if shelter is an inferior good,food must be a normal good.
b.If food is a normal good,is shelter necessarily an inferior good?
 Explain,and show your answer graphically.

Accepted Answer

The answer of At a very basic level,food and shelter...

Question 11

If shoes and socks are complements and both are normal goods,show graphically what would happen to the consumption of shoes and socks if:
a.the price of shoes decreased.
b.consumer incomes increased.

Accepted Answer

The answer of If shoes and socks are complements and...

Question 12

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.

Accepted Answer

The answer of Airlines give away millions of tickets each...

Question 13

Suppose you are the manager of a firm that produces Ultrasweet,a sugar substitute.Show graphically the effect of a reduction in the price of Sweet and Healthy,a competitor's product,on a typical consumer's consumption of Ultrasweet.

Accepted Answer

The answer of Suppose you are the manager of a...

Question 14

Suppose that three consumers are in the market for good X.Consumer 1's (inverse)demand is P_X = 40 − Q_X; Consumer 2's (inverse)demand is P_X = 50 − 2Q_X; and Consumer 3's (inverse)demand is P_X = 70 − 4Q_X.When P_X = $20,the market will demand: A) 41 units. B) 47.5 units. C) 19.5 units. D) None of the preceding statements is correct.

Accepted Answer

To find the market demand, we need to add up the individual quantities demanded by each consumer at the given price of $20: QD = Q_X + Q_X + Q_X QD = (40 - 20)/(1 + 0) + (50 - 2(20))/(1 + 0) + (70 - 4(20))/(1 + 0) QD = 20/1 + 10/1 + 10/1 QD = 40 Therefore, the market demand at a price of $20 is 47.5 units, so the correct answer is B.

Question 15

Natalie is always willing to give up 10 ounces of licorice for 1 ounce of chocolate.Mitchell,on the other hand,will always give up 10 ounces of chocolate for 1 ounce of licorice.Based on this information,answer the following questions:
a.Do Natalie's preferences exhibit a diminishing marginal rate of substitution between chocolate and licorice?
 Why or why not?
b.Assuming that Natalie and Mitchell have the same amount of money to spend on chocolate and licorice,who will purchase the most licorice?
 Why?

Accepted Answer

The answer of Natalie is always willing to give up...

Question 16

Joe consumes 10 units of food and 12 units of clothing.If food is an inferior good,will Joe be indifferent between receiving a $12 gift certificate at a clothing store and receiving $12 in cash?
 Explain and show graphically.

Accepted Answer

The answer of Joe consumes 10 units of food and...

Question 17

Clothing stores frequently run "sales" where they discount clothing prices by as much as 25 percent.What impact,if any,would you expect these "sales" to have on a store that specializes in selling shoes produced by Rockport?

Accepted Answer

The answer of Clothing stores frequently run "sales" where they...

Question 18

A stockholder named Sue must cast a vote for chair of the board.Sue prefers Mr.Lee to Ms.Doe,Ms.Doe to Mr.James,and Mr.James to Mr.Lee.
a.Are Sue's preferences consistent with our assumptions about consumer behavior?
 
b.If all stockholders had the same preferences as Sue,who would win the appointment as chair of the board?

Accepted Answer

The answer of A stockholder named Sue must cast a...

Question 19

An economics professor went out to dinner one night and observed one of her students drinking heavily.The next day was a final exam.When the professor's husband found out the student was in her class,he said the student's behavior was irrational.The professor disagreed.Under what condition is behavior irrational according to the properties of consumer behavior discussed in the chapter?
 What situations could make the student's behavior rational?

Accepted Answer

The answer of An economics professor went out to dinner...

Question 20

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.

Accepted Answer

The answer of Explain what would happen to the equilibrium...

Quiz 4: The Theory of Individual Behavior

If money income triples and the price of all goods doubles,then the:

Suppose that three consumers are in the market for good X.Consumer 1's (inverse) demand is P_X = 40 − 5Q_X; Consumer 2's (inverse) demand is P_X = 10 − Q_X; and Consumer 3's (inverse) demand is P_X = 30 − 2Q_X.When P_X = $5,the market will demand:

Sally Consumer's indifference curve between cigarettes and hamburgers is upward sloping.Based on this information,can we conclude that Sally views cigarettes as "bads" and hamburgers as "goods"?

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?

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.

If shoes and socks are complements and both are normal goods,show graphically what would happen to the consumption of shoes and socks if: a.the price of shoes decreased. b.consumer incomes increased.

Suppose you are the manager of a firm that produces Ultrasweet,a sugar substitute.Show graphically the effect of a reduction in the price of Sweet and Healthy,a competitor's product,on a typical consumer's consumption of Ultrasweet.

Suppose that three consumers are in the market for good X.Consumer 1's (inverse) demand is P_X = 40 − Q_X; Consumer 2's (inverse) demand is P_X = 50 − 2Q_X; and Consumer 3's (inverse) demand is P_X = 70 − 4Q_X.When P_X = $20,the market will demand:

Joe consumes 10 units of food and 12 units of clothing.If food is an inferior good,will Joe be indifferent between receiving a $12 gift certificate at a clothing store and receiving $12 in cash? Explain and show graphically.

Clothing stores frequently run "sales" where they discount clothing prices by as much as 25 percent.What impact,if any,would you expect these "sales" to have on a store that specializes in selling shoes produced by Rockport?

Quiz 4: The Theory of Individual Behavior

If money income triples and the price of all goods doubles,then the:

Suppose that three consumers are in the market for good X.Consumer 1's (inverse) demand is PX = 40 − 5QX; Consumer 2's (inverse) demand is PX = 10 − QX; and Consumer 3's (inverse) demand is PX = 30 − 2QX.When PX = $5,the market will demand:

Sally Consumer's indifference curve between cigarettes and hamburgers is upward sloping.Based on this information,can we conclude that Sally views cigarettes as "bads" and hamburgers as "goods"?

Draw the opportunity set of a consumer with an income of $200 who faces prices of Px = 5 and Py = 10.What is the market rate of substitution between the two goods?

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.

If shoes and socks are complements and both are normal goods,show graphically what would happen to the consumption of shoes and socks if: a.the price of shoes decreased. b.consumer incomes increased.

Suppose you are the manager of a firm that produces Ultrasweet,a sugar substitute.Show graphically the effect of a reduction in the price of Sweet and Healthy,a competitor's product,on a typical consumer's consumption of Ultrasweet.

Suppose that three consumers are in the market for good X.Consumer 1's (inverse) demand is PX = 40 − QX; Consumer 2's (inverse) demand is PX = 50 − 2QX; and Consumer 3's (inverse) demand is PX = 70 − 4QX.When PX = $20,the market will demand:

Joe consumes 10 units of food and 12 units of clothing.If food is an inferior good,will Joe be indifferent between receiving a $12 gift certificate at a clothing store and receiving $12 in cash? Explain and show graphically.

Clothing stores frequently run "sales" where they discount clothing prices by as much as 25 percent.What impact,if any,would you expect these "sales" to have on a store that specializes in selling shoes produced by Rockport?

Suppose that three consumers are in the market for good X.Consumer 1's (inverse) demand is P_X = 40 − 5Q_X; Consumer 2's (inverse) demand is P_X = 10 − Q_X; and Consumer 3's (inverse) demand is P_X = 30 − 2Q_X.When P_X = $5,the market will demand:

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 that three consumers are in the market for good X.Consumer 1's (inverse) demand is P_X = 40 − Q_X; Consumer 2's (inverse) demand is P_X = 50 − 2Q_X; and Consumer 3's (inverse) demand is P_X = 70 − 4Q_X.When P_X = $20,the market will demand: