Question 1

Define indifference curves and explain their properties.

Accepted Answer

The answer of Define indifference curves and explain their properties....

Question 2

Please answer the following:
a)Peter and Pip both like apples.Parker has one apple that he can give to either Pip or Peter but he thinks it is fair to give it to the person who gets the most utility from the apple.The decision presents Parker with a problem: since he cannot quantify the utility that Peter and Pip each get from the apple,he cannot compare their utilities and make a fair decision.Is Parker right? Explain.
b)Pat likes apple pies,caramel apples,and apple cake.Consumer choice theory postulates that whichever she chooses,she is maximizing her utility.However Pat finds it difficult to put a number to the level of utility she gets from each and therefore it is not possible to determine whether she is actually at her highest level of utility or not.Is Pat correct? Explain.

Accepted Answer

The answer of Please answer the following:
a)Peter and Pip both...

Question 3

At his current consumption of lobster and hamburgers,Ike's marginal utility from eating lobster is 30 and from hamburger is 5.If the price of a hamburger is $3,and the price of lobster is $20,Ike should:

Accepted Answer

Ike should choose the option that maximizes his total utility per dollar spent. We can find the marginal utility per dollar of each item by dividing the marginal utility by the price. For lobster, it is 30/20 = 1.5, and for hamburger, it is 5/3 = 1.67.

Since the marginal utility per dollar of hamburger is higher, Ike should purchase more hamburgers and fewer lobsters. Therefore, option C- purchase less lobster and more hamburgers, is the best choice.

Question 4

Graphically and mathematically illustrate the consumer's optimal choice between two goods,yams and xylophones,which are consumed in positive amounts.

Accepted Answer

The answer of Graphically and mathematically illustrate the consumer's optimal...

Question 5

Dana likes spending time at the museum (M)as well as the park (P).Given that her utility function takes the form U = U (M,P)use the utility theory approach to algebraically show the condition for her optimal consumption choice.

Accepted Answer

The answer of Dana likes spending time at the museum...

Question 6

Explain the difference between diminishing marginal utility and diminishing marginal rate of substitution.

Accepted Answer

The answer of Explain the difference between diminishing marginal utility...

Question 7

You buy only apples and bananas.Your budget is such that you can purchase 3 apples and 4 bananas or 9 apples and 2 bananas.Write down the equation for the budget line with bananas on the Y-axis.Is that equation unique?

Accepted Answer

The answer of You buy only apples and bananas.Your budget...

Question 8

The Lagrangian method of optimization results in a new variable,$\lambda$,called the Lagrangian multiplier,which shows the addition to total utility from an additional unit of income.In other words,$\lambda$ expresses the:

Accepted Answer

The Lagrangian multiplier, λ, represents the marginal utility of income. It is the amount by which total utility increases when an additional unit of income is received. Therefore, the correct answer is C.

Question 9

Karen is at the supermarket buying her weekly groceries.Since she is on a budget,she wants to limit her purchases to canned soup (c.and prepackaged salad (S).A can of soup costs $1.2 and a tub of salad costs $2.Her utility function is expressed as U(C,S)= F × S.Given that she has only $10 to spend,derive the equilibrium condition using the utility approach.

Accepted Answer

The answer of Karen is at the supermarket buying her...

Question 10

If the marginal utility of an extra hamburger is 8 utils,the marginal utility of a soft drink is 5 utils,the price of a hamburger is $1,and the price of a soft drink is 50 cents,then the consumer can achieve equilibrium when:

Accepted Answer

In order to achieve equilibrium, the consumer should allocate their spending in a way that the marginal utility per dollar spent on each item is equal. Currently, the marginal utility per dollar spent on soft drinks (10 utils/$1) is higher than that of hamburgers (8 utils/$1). Therefore, the consumer should buy more soft drinks in order to balance their spending and achieve equilibrium. Buying more hamburgers would further decrease the marginal utility per dollar and move away from equilibrium. Increasing the price of soft drinks or decreasing the price of hamburgers may also affect the equilibrium, but the information provided does not allow for a definitive answer in this regard.

Question 11

Please answer the following:
a)Microeconomic theories of fertility explain that the number of children that a couple have is balanced against the opportunity cost of raising children: the foregone wages of the mother,the other goods that the couple could have bought with their money,the time cost of raising children,the total resources of the parents,etc.Draw indifference curves for a couple who prefer a smaller number of children to a higher number.
b)The average fertility rate is lower in developed countries with high incomes than in lower income developing countries.How would this be modeled using indifference curves? What can you conclude about the nature of children as an economic good? (Assume that the couple faces a straight line budget constraint.
c)Assume that the foregone hours of free time is the only factor that affects fertility decisions.If the cost of raising children increased,how would this be shown with indifference curves? (Assume that the couple faces a straight line budget constraint)

Accepted Answer

The answer of Please answer the following:
a)Microeconomic theories of fertility...

Question 12

Suppose hamburger is on the horizontal axis and pizza on the vertical axis.If you were consuming at a point on a convex indifference curve such that the slope at that point was -4,which of the following best describes your consumption bundle?

Accepted Answer

The slope of an indifference curve is equal to the negative of the ratio of the marginal utilities of the two goods. So, if the slope is -4, then the marginal utility of hamburger is one-fifth that of pizza.

Question 13

Prove that the slope of the budget line is equal to the negative of the price ratio.

Accepted Answer

The answer of Prove that the slope of the budget...

Question 14

For the utility function U =3x5y and income constraint I =3x + 5y,the utility maximizing consumer will choose to consume:

Accepted Answer

The utility function U = 3x5y is linear, meaning the consumer will be indifferent along the budget line, and there is no unique utility-maximizing combination of x and y.

Question 15

Define a normal good and an inferior good and give an example of each.

Accepted Answer

The answer of Define a normal good and an inferior...

Question 16

For the utility function U =3x5y,the slope of the indifference curve is:

Accepted Answer

The slope of the indifference curve is -MUx/MUy = -5y/3x.

Question 17

Tim gets constant marginal utility of 4 utils from eating apples and a constant marginal utility of 5 utils from eating bananas.In other words,he considers them perfect substitutes and is willing to substitute 5 apples for 4 bananas and remain equally well off.He has $10 to spend on apples and bananas.The price of bananas is $1.Assume he can consume fractional amounts.Plot the demand curve for apples.(Hint: consider several different prices for apples. )

Accepted Answer

The answer of Tim gets constant marginal utility of 4...

Quiz 3: The Theory of Consumer Choice

Define indifference curves and explain their properties.

At his current consumption of lobster and hamburgers,Ike's marginal utility from eating lobster is 30 and from hamburger is 5.If the price of a hamburger is $3,and the price of lobster is $20,Ike should:

Graphically and mathematically illustrate the consumer's optimal choice between two goods,yams and xylophones,which are consumed in positive amounts.

Dana likes spending time at the museum (M)as well as the park (P).Given that her utility function takes the form U = U (M,P)use the utility theory approach to algebraically show the condition for her optimal consumption choice.

Explain the difference between diminishing marginal utility and diminishing marginal rate of substitution.

You buy only apples and bananas.Your budget is such that you can purchase 3 apples and 4 bananas or 9 apples and 2 bananas.Write down the equation for the budget line with bananas on the Y-axis.Is that equation unique?

The Lagrangian method of optimization results in a new variable, $\lambda$ ,called the Lagrangian multiplier,which shows the addition to total utility from an additional unit of income.In other words, $\lambda$ expresses the:

If the marginal utility of an extra hamburger is 8 utils,the marginal utility of a soft drink is 5 utils,the price of a hamburger is $1,and the price of a soft drink is 50 cents,then the consumer can achieve equilibrium when:

Suppose hamburger is on the horizontal axis and pizza on the vertical axis.If you were consuming at a point on a convex indifference curve such that the slope at that point was -4,which of the following best describes your consumption bundle?

Prove that the slope of the budget line is equal to the negative of the price ratio.

For the utility function U =3x5y and income constraint I =3x + 5y,the utility maximizing consumer will choose to consume:

Define a normal good and an inferior good and give an example of each.

For the utility function U =3x5y,the slope of the indifference curve is:

Quiz 3: The Theory of Consumer Choice

Define indifference curves and explain their properties.

At his current consumption of lobster and hamburgers,Ike's marginal utility from eating lobster is 30 and from hamburger is 5.If the price of a hamburger is $3,and the price of lobster is $20,Ike should:

Graphically and mathematically illustrate the consumer's optimal choice between two goods,yams and xylophones,which are consumed in positive amounts.

Dana likes spending time at the museum (M)as well as the park (P).Given that her utility function takes the form U = U (M,P)use the utility theory approach to algebraically show the condition for her optimal consumption choice.

Explain the difference between diminishing marginal utility and diminishing marginal rate of substitution.

You buy only apples and bananas.Your budget is such that you can purchase 3 apples and 4 bananas or 9 apples and 2 bananas.Write down the equation for the budget line with bananas on the Y-axis.Is that equation unique?

The Lagrangian method of optimization results in a new variable, λ\lambdaλ ,called the Lagrangian multiplier,which shows the addition to total utility from an additional unit of income.In other words, λ\lambdaλ expresses the:

If the marginal utility of an extra hamburger is 8 utils,the marginal utility of a soft drink is 5 utils,the price of a hamburger is $1,and the price of a soft drink is 50 cents,then the consumer can achieve equilibrium when:

Suppose hamburger is on the horizontal axis and pizza on the vertical axis.If you were consuming at a point on a convex indifference curve such that the slope at that point was -4,which of the following best describes your consumption bundle?

Prove that the slope of the budget line is equal to the negative of the price ratio.

For the utility function U =3x5y and income constraint I =3x + 5y,the utility maximizing consumer will choose to consume:

Define a normal good and an inferior good and give an example of each.

For the utility function U =3x5y,the slope of the indifference curve is:

The Lagrangian method of optimization results in a new variable, $\lambda$ ,called the Lagrangian multiplier,which shows the addition to total utility from an additional unit of income.In other words, $\lambda$ expresses the: