LABRST 3A03 Lecture Notes - Lecture 3: Indifference Curve

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limewolf4

27 Sep 2017

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Indifference curves two goods on the axis consumption and leisure and show different combinations that show the same amount of happiness. Slope of indifference curve is negative, and the magnitude is the marginal rate of substitution. If the curve is farther away from the origin you are happier. Plot leisure curve on exam they cannot cross on the graph. Preferences: preferences over all conceivable combinations of consumption and leisure, all combinations lie on some indifference curve, represented by an indifference map. Constraints: constraints are determined by the economic properties of the market, which, in turn, transform consumption-leisure to income-leisure by setting the price of consumption. Equilibrium of a participant know the parts of the graph. Linear potential income constraint the dotted line is the income that is earned not in the market.

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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

1. Assume that beer is an inferior good for Wei. If the price of beer goes up, then the total effect results in Wei buying _______ beer and the substitution effect results in Wei buying ______ beer.

	a.	more, more
	b.	more, less
	c.	less, more
	d.	less, less
	e.	not enough information to determine

2. A consumer has preferences that are complete, transitive and satisfy the "more is better" property. Which of the following statements are necessarily true?

	a.	Indifference curves are negatively sloped.
	b.	Indifference curves do not cross.
	c.	Indifference curves exhibit diminishing marginal rates of substitution.
	d.	Both a) and b) are true.
	e.	a), b), and c) are true.

3. Suppose an individual has preferences over two goods - good X and good Y. In response to changes in the price of good X, the individual has a positively sloped price consumption curve, where good X is drawn on the horizontal axis. Which of the following statements is true?

	a.	Good Y is a normal good.
	b.	Good Y is a Giffen good.
	c.	Good Y is a complement for good X.
	d.	Good Y is an inferior good.
	e.	Good Y is a substitute for good X.

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.

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LABRST 3A03 Lecture Notes - Lecture 3: Indifference Curve

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