EC120 Lecture Notes - Lecture 16: Indifference Curve, Budget Constraint, Inverse Relation

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The theory of consumer choice: how consumers make decisions on what to buy. Preferences: what the consumer wants: the consumer is indifferent between two bundles if they suit his/her tastes equally well. Indifference curve: a curve that shows consumption bundles that give the consumer the same level of satisfaction. Higher indifference curves are preferred to lower ones: 2. Contradicts the fact that consumers always prefer more of both goods: 4. Less likely to give away, what a consumer has little of: two extreme examples of indifference curves, perfect substitutes: two goods with straight line indifference curves. You would always be willing to trade two nickels to one dime, that means the marginal rate of substitution is 2. A constant mrs results in a straight indifference curve: perfect complements: two goods with right-angle indifference curves. How much pepsi the consumer requires in order to be compensated for a one-unit reduction in pizza consumption.

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1.	_____	The satisfaction or benefit that consumers receive from consuming goods or services.
2.	________________ _	A particular combination of specific quantities of goods or services
3.	________________ _	Consumers can rank all conceivable bundles of goods or services
4.	_____	If A is preferred to B, and B is preferred to C, then A is always preferred to C.
5.	_____	Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services.
6.	_____	A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.
7.	_____	The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.
8.	_____	The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.
9.	_____	The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.
10.	_____	The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.
11.	_____	The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.
12.	________________ _	The sum of the substitution and income effects.
13.	_____	A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.
14.	_____	A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.

blushwildebeest943

Microeconomics Four-part multiple choice question with an explanation. Give a short explanation for each part regarding how your answer is computed or why your answer is correct.

Part A.

Para mi volunteers at a homeless shelter. It takes a lot of her time, and thus she sometimes takes off time from her job to do the volunteer work. Parami's behavior can be explained by:

	overconfidence.
	a framing bias.
	altruism.
	overvaluing the present relative to the future.

Part B.

Indifference curves cannot be concave to the origin because:

	consumers generally will prefer to have more of a good than less of a good.
	the satisfaction consumers get from consuming additional units of a good decline.
	the substitution effect holds across indifference curves.
	consumers must give up more of one good to obtain more of another good.

Part C.

Marginal utility analysis and indifference curve analysis are both used to:

	compute comparative advantage.
	derive supply curves.
	derive demand curves.
	analyze the total revenue.

Part D.

Indifference curves:

	represent a set of product bundles to which a consumer is indifferent.
	slope up and to the right.
	show the difference between the marginal utilities of two different goods.
	are concave to the origin.

limecod304

The demand curve for a good is very unlikely to be perfectly vertical because

A) scarcity and limited income restrict the ability of consumers to afford goods as they become very expensive.
B) as the price of a good rises to high enough levels, the incentive for other suppliers to invent new substitutes for the good increases.
C) consumers generally do not care about the price of the goods they consume.
D) both a and b are true.

As the period for firms to expand output is lengthened, the elasticity of the market supply curve will

A) approach zero.
B) increase.
C) decrease.
D) remain the same since time does not affect the elasticity of market supply.

The price elasticity of demand for automobiles measures the responsiveness of

A) consumer purchases to a change in the price of automobiles.
B) consumer purchases to a change in the quality of automobiles.
C) supplier production levels to a change in the price of automobiles.
D) consumer purchases of automobiles to a change in their income.

Which of the following is true regarding the price elasticity of demand?

A) Demand is generally more elastic in the long run than in the short run.
B) Along a single demand curve, demand elasticity decreases as you move down the curve (to lower prices).
C) a flatter demand curve (has a less steep slope) is relatively more elastic than a demand curve that has a steeper slope.
D) All of the above are true.

5. (Answer ONE of the Following Question)

Economists maintain that the price of a product does not affect demand. How can this be true?
National defence is considered a public good because there appear to be no limits to the nonrivalry-in-consumption characteristic, and exclusion of nonpayers is impossible. Are there any other goods that so perfectly meet both public goods criteria?
Congressman Local stuff always votes for a balanced budget amendment to the U.S. Constitution. He also always votes for spending bills supported by the leadership of his political party. Is this rational?

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EC120 Lecture Notes - Lecture 16: Indifference Curve, Budget Constraint, Inverse Relation

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