ECON281 Lecture 4: Econ 281 - Lecture 4.docx

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goldhound544

17 Apr 2015

School

University of Alberta

Department

Economics

Course

ECON281

Professor

Jie Yong

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ECON281 Full Course Notes

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How does a change in income affect the budget line: an increase in income shifts the budget line outward in a parallel fashion. How does a change in price affect the. Budget line: an increase in the price of one good moves the intercept on that good"s axis toward the origin. Conversely, a decrease in the price of one good would move the intercept on that good"s axis away from the origin. If all of the goods have positive marginal utilities, then at the optimal basket the consumer will spend all of his income. 2: expenditure minimization problem consumer choice between goods that will minimize total spending while achieving a given level of utility. Goods: composite good a good that represents the collective expenditures on every other good except the commodity being considered. Applications: coupons and cash subsidies: py = 1, vertical axis equals the number of units of the composite good and the total expenditure.

Related Questions

A consumer is in equilibrium at point A in the diagram below. The price of good X is $5.

A. What is the price of good Y?
$____________

B. What is the consumer's income?
$____________

C. At point A, how many units of good X does the consumer purchase?
_________ units

D. Suppose the budget line changes so that the consumer achieves a new equilibrium at point B. What change in the economic environment led to this new equilibrium?

a. The price of good X decreased to $2.50.

b. The price of good Y increased to $10.

c. The price of good Y decreased to $2.50.

d. The price of good X increased to $10.

E. Is the consumer better off or worse off as a result of the price change?

redfox51

Question 7:

Melanie earns a market wage of $8 per hour and can work up to 40 hours each week. Melanie's budget set is drawn with income on the vertical axis. If her wage increases to $10 per hour, then her budget set will

a)	pivot inwards along the vertical axis

b)	pivot inwards along the horizontal axis

c)	pivot outwards along the vertical axis

d)	pivot outwards along the horizontal axis

Question 8

0 / 1 point

Dale receives a cash prize of $3,000 and is trying to decide how much money to invest at an interest rate of 5% and how much to spend now. Consider Dale's intertemporal budget constraint where future interest income is measured on the vertical axis. If the interest rate were 7% instead, Dale's budget constraint would

Question options:

a)	pivot outward so that the horizontal intercept stays the same and vertical intercept is higher

b)	pivot inward so that the horizontal intercept stays the same and the vertical intercept is lower

c)	pivot outward so that the horizontal intercept moves out and the vertical intercept stays the same

d)	pivot inward so that the horizontal intercept moves in and the vertical intercept stays the same

True or False. If False explain why it's false.

1. If all prices are doubled an money income is the left the same, the budget set does not change because the relative prices do not change.

2. A decrease in income pivots the budget line around the bundle initially consumed.

3. If preferences are well-behaved, then for any commodity bundle (x1,x2), the set of commodity bundles that are worse than (x1,x2) is a convex set.

4. The marginal rate of substitution measures the distance betwee one indifference curve and the next one.

5. If someone has the utility function U= 2min(x, y), then x and y are perfect complements for that person.

6. At the boundary optimum, a consumers indifference curve must be tangent to her budget line.

7. If two goods are substitutes, then an increase in the price of one of them will increase the demand for the other.

8. An Engel curve is a demand curve with the vertical and horizontal axes reversed.

9. An inferior good is less durable than a normal good.

10. When other variables are held fixed, the demand for a Giffen good rises when income increase.

ECON281 Lecture 4: Econ 281 - Lecture 4.docx

ECON281 Full Course Notes

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