Economics Chapter on Consumer Choices

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is Larry's marginal rate of substitution (MRS) between good 1 and good 2?

5/3

1/4

3/5 (correct)

1/5

If Larry's budget constraint is given by $p_1x_1 + p_2x_2 = m$, what is the total income (m) Larry can spend?

$80

$150

$100

$120 (correct)

When facing the prices of $4 for both goods, which case does Larry's demand fall under?

Case 1

Case 2

Case 3 (correct)

None of the above

What does Beyonce maximize her utility by purchasing?

Only cases of Pepsi Signup and view all the answers

How many cans does a case of Pepsi contain?

24 cans Signup and view all the answers

If the price of a six pack is $1, what is the cost per can when purchased in a six pack?

$0.17 per can Signup and view all the answers

What is the main preference of Phoebe in Central Park regarding coffee and scones?

Two scones for every cup of coffee Signup and view all the answers

What would be the alternative bundle Phobe considers equivalent to (0; 10) cases of soda?

(40; 0) Signup and view all the answers

What is the equation of Jim's budget line with an income of $120 and prices of $2 for good 1 and $5 for good 2?

2x₁ + 5x₂ = 120 Signup and view all the answers

What is the slope of Jim's budget line calculated as the ratio of the prices of the two goods?

$2/5$ Signup and view all the answers

What does Laura's budget line equate when her income is $240, burgers cost $4, and coke costs $2?

4x + 2y = 240 Signup and view all the answers

If Laura benefits from a promotion reducing hamburger prices by 25%, what will be the new price of each hamburger?

$3$ Signup and view all the answers

What might be the marginal rate of substitution between the cereal (C) and milk (M) in Michelle's case?

$3/10$ Signup and view all the answers

What is the marginal utility function for Michael Phelps regarding crackers (C) and ice cream (I) given he has no preference for ice cream?

U(C, I) = C + 0I Signup and view all the answers

How does the hamburger promotion in October affect Laura's budget line structure for purchases?

It introduces a kink in the budget line. Signup and view all the answers

What happens to Laura's budget line in November when she can get up to 10 hamburgers for free?

It shifts outward. Signup and view all the answers

What is the total number of scones and cups of coffee Phoebe can buy with her $20 budget at the given prices?

10 scones and 5 cups of coffee Signup and view all the answers

What type of goods are scones and coffee for Phoebe?

Perfect complements Signup and view all the answers

What is the utility function that best represents the fixed proportion consumption of goods x and y?

U(x, y) = min(ax, by) Signup and view all the answers

How many total goods does the individual consume in the first period when px = 1 and py = 1?

50 units Signup and view all the answers

In which period does the individual consume both goods x and y at the same time?

Second period only Signup and view all the answers

What implication can be drawn from the consumption bundles over the different periods?

Consumption shows fixed proportions indicating the nature of the goods. Signup and view all the answers

What is a correct conclusion about the consumption point (100, 0) in both the first and third periods?

Represents a boundary optimum. Signup and view all the answers

How does Phoebe maximize her utility when consuming scones and coffee?

By choosing the combination that matches her preferred mix. Signup and view all the answers

What is the marginal rate of substitution between crackers and ice cream when the utility function is defined as u(C,M)=10C?

0 Signup and view all the answers

In the utility function u(T, C)=3T+2C, what is the marginal utility from consuming coffee (C)?

2 Signup and view all the answers

Which of the following accurately describes the marginal utility obtained from good x₂, according to the function u = x₁² x₂?

2x₁ x₂ Signup and view all the answers

What is the marginal rate of substitution (MRS) between good x₁ and good x₂ for the utility function up = ln x₁ + 5x₂?

5x₂/x₁ Signup and view all the answers

Which utility functions can represent Kate's preferences based on her original function u = x₁² x₂?

u₅ = 3x₁²/⁵x₂²/⁵ Signup and view all the answers

What is the marginal utility from consuming tea according to Stacy's utility function u(T, C)=3T+2C?

3 Signup and view all the answers

In the utility function u = ln x₁ + 5x₂, what is the value of the marginal utility from consuming x₁?

1/x₁ Signup and view all the answers

What does it mean if the marginal rate of substitution between two goods is infinity?

The consumer prefers one good exclusively. Signup and view all the answers

What is the general form of the utility function for perfect substitutes?

U(x; y) = ax + by Signup and view all the answers

In the case of perfect substitutes, when are non-boundary optimums possible?

When the indifference curve has the same slope as the budget line. Signup and view all the answers

What does the slope of the indifference curve represent for perfect substitutes?

The rate at which the consumer is willing to give up goods. Signup and view all the answers

Which utility function example does not follow the slope condition of perfect substitutes having a/b = 2?

U(x; y) = 3x + y Signup and view all the answers

What is the maximum income the schoolgirl has to spend on movie tickets and sundaes?

$20 per week Signup and view all the answers

If the price of a sundae increases to $2.50, what happens to the schoolgirl's budget constraint?

It rotates inward. Signup and view all the answers

If Dad buys the schoolgirl two movie tickets and three sundaes, how does her total spending power change?

Her total spending power increases by $10. Signup and view all the answers

What happens if the movie theater introduces a discount program for movie tickets?

It only benefits those who buy more than two tickets. Signup and view all the answers

Study Notes

Budget Constraints and Choice

Consumers have limited income to spend on goods and services
Budget lines illustrate all possible combinations of goods that a consumer can buy given their income and prices
The slope of the budget line represents the relative price of the two goods
Changes in income or prices shift the budget line
Quantity subsidies can dramatically change the budget line and purchasing possibilities.

Indifference Curves

Show combinations of goods that yield the same level of utility to the consumer
Curved lines that are always downward-sloping
Higher indifference curves represent higher levels of utility
Indifference curves do not cross
Utility maximizing choices occur where the budget line is tangent to an indifference curve

Marginal Rate of Substitution (MRS)

The rate at which a consumer is willing to trade one good for another while maintaining a constant level of utility
The slope of an indifference curve at a given point
MRS is diminishing as the consumer consumes more of one good and less of another, a phenomenon often illustrated graphically

Perfect Substitutes and Complements

Perfect substitutes - Consumers are willing to substitute one good for another at a constant rate
Perfect complements - Goods are consumed in fixed proportions

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz covers key concepts related to budget constraints, indifference curves, and marginal rate of substitution in consumer choice theory. It examines how income and prices influence consumer decisions and utility maximization. Test your understanding of these fundamental economic principles.