ECON 2HH3 Study Guide - Budget Constraint, Proportional Tax, Indifference Curve

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goldchinchilla614

8 Mar 2014

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Textbook question solutions: consumers consume an aggregate consumption good and leisure, consumers" preferences are summarized in a utility function. 3 the first property is that more is always preferred to less. This property assures us that a consumption bundle with more of one good and no less of the other good than any second bundle will always be preferred to the second bundle. The second property is that a consumer likes diversity in his or her consumption bundle. This property assures us that a linear combination of two consumption bundles will always be preferred to the two original bundles. The third property is that both consumption and leisure are normal goods. The second property of indifference curves is that they are bowed toward the origin. Chapter 4: consumer and firm behaviour: an increase in the real wage makes the consumer more well-off. As a result of this pure income effect, the consumer wants more leisure.

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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

Respond True or False to the following, and explain why each answer is True or False:

a. If two goods x and y are perfect complements, then if the price of x falls, the entire change in demand for x is due to the income effect.

b. A consumer has the utility function given by U=min{x1,2x2}. If good 2, has a price of zero, the consumer will always strictly prefer more of good 2 to less.

c. Ivan spends his entire income on two goods. One of them is a Giffen good. If the price of the Giffen good rises, demand for the other good must fall.

d. Jimmy's utility function is U(a,b) = ab, where a is his consumption of apples and b is his consumption of bananas. If prices and income change in such a way that Jimmy's old consumption bundle lies on his new budget line, then Jimmy will not change his consumption bundle.

blueantelope865

This paper evaluates the wage, employment, and hours effects of the first and second phase of the Seattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016. Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees' earnings by an average of $125 per month in 2016. Evidence attributes more modest effects on the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies.

The increase in the minimum wage may cause workers to work more OR work less. Explain using the income and substitution effect why? (HINT: The price of the good is work, and the alternative good is leisure, which is anything but work).

Workers choose, simply, to work, earn income, and consume, or leisure (i.e., not work). Explain how relative preferences for consumption or leisure can impact the work-no work decision after a minimum wage increase.

The article explains how, even with the minimum wage increase, employment has not fallen. Utilizing the substitution effect, explain how the firm may choose to minimize its costs increases elsewhere. Discuss 3 potential mechanisms instead of firing workers that an employer may use.

oliveotter480

ECON 2HH3 Study Guide - Budget Constraint, Proportional Tax, Indifference Curve

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