Consumer Theory and Horizontal Axis

Only available on StudyMode
  • Download(s) : 67
  • Published : April 27, 2011
Open Document
Text Preview
Chapter 2

1. A consumer prefers more to less of every good. Her income rises, and the price of one of the goods falls while other prices stay constant. These changes must have made her better of. TRUE 2. A decrease in income pivots the budget line around the bundle initially consumed. FALSE 3. If all prices are doubled and money income is left the same, the budget set does not change because relative prices don't change. FALSE 4. If all prices double and income triples, then the budget line will become steeper. FALSE 5. If good 1 is measured on the horizontal axis and good 2 is measured on the vertical axis, and if the price of good 1 is p1 and the price of good 2 is p2; then the slope of the budget line is ��p2=p1. FALSE 6. If Good 1 is on the horizontal axis and Good 2 is on the vertical axis, then an increase in the price of Good 1 will not change the horizontal intercept of the budget line. FALSE 7. If there are two goods and the prices of both goods rise, then the budget line must become steeper. FALSE 8. If there are two goods with positive prices and the price of one good is reduced, while income and other prices remain constant, then the size of the budget set is reduced. FALSE 9. If there are two goods, and if one good has a negative price and the other has a positive price, then the slope of the budget line will be positive. TRUE 10. There are 3 goods. The price of good 1 is ��1; the price of good 2 is +1; and the price of good 3 is +2. It is physically possible for a consumer to consume any commodity bundle with non-negative amounts of each good. A consumer who has income of 10 could afford to consume some commodity bundles that include 5 units of good 1 and 6 units of good 2. TRUE 11. There are two goods. You know how much of good 1 a consumer can afford if she spends all of her income on good 1. If you know the ratio of the prices of the two goods, then you could draw the consumer's budget line without any more information. TRUE

1. Ads in a slick business magazine are read by 300 lawyers and 1000 M.B.A's. Ads in a consumer publication are read by 250 lawyers and 300 M:B:A:0s. If Harry had $ 2,600 to spend on advertising, if the price of ads in the business magazine were $400 and the price of ads in the consumer magazine were $200, then the combinations of recent M:B:A:0s and lawyers with hot tubs whom he could reach with his advertising budget would be represented by the integer values along a line segment that runs between the two points: (a) (3; 250; 3; 900) and (1; 950; 6; 500). 2. Ads in a slick business magazine are read by 300 lawyers and 1000 M.B.A's. Ads in a consumer publication are read by 250 lawyers and 300 M:B:A:0s. If Harry had $ 3,600 to spend on advertising, if the price of ads in the business magazine were $600 and the price of ads in the consumer magazine were $300, then the combinations of recent M:B:A:0s and lawyers with hot tubs whom he could reach with his advertising budget would be represented by the integer values along a line segment that runs between the two points: (a) (3; 000; 3; 600) and (1; 800; 6; 000). 3. Bella's budget line for x and y depends on all of the following except: (c) her preferences between x and y. 4. Billy Bob wants to gain some weight so that he can play football. Billy eats only milkshakes and spinach. Milkshakes cost him $1 each and spinach costs $2 per serving. A milkshake has 850 calories and a serving of spinach has 200 calories. Billy Bob never spends more than $20 a day on food and he always consumes at least 8000 calories per day. Which of the following is necessarily true? (b) Billy Bob never consumes more than 6 servings of spinach a day. 5. Deadly Serious, II, studying for his M.B.A., consumes only two goods, Wheaties and pens. Each pen costs $1. Each box of Wheaties costs $2 but has a "free" pen inside. Pens can be dis- carded at no cost. If we draw Serious's budget set with pens plotted on the...
tracking img