Problem Set 10

If an individual only consumes goods X and Y and is currently maximizing her total benefits, which of the following must be true?

-the marginal benefits per dollar spent are the same for both goods -the "equal bang for the buck" rule is adhered to -MBx/Px = MBy/Py -no other consumption choice can make total benefits greater

How does a consumer's budget differ from his budget constraint?

A budget set refers to all of the possible bundles of goods and services a consumer can purchase, while a budget constraint is limited to the bundles he can purchase using all of his income

Which of the following best describes why consumers are price takers?

Individual transactions are too small to have much impact on the market price

Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $180 and his marginal benefit from an additional slice of pizza is $30. If the price of a soft drink is $4 and the price of a slice of pizza is $4, is Charley maximizing his total benefits?

No, he should shift consumption toward soft drinks and away from pizza to maximize total benefits

A consumer's budget constraint refers to the collection of all possible bundles that ___

exactly exhaust a consumer's enture budget

For economists, the "buyer's problem" refers to ___

how consumers arrive at a choice as to what to purchase

An increase in a consumer's income causes her budget set to encompass ___ bundles

more

A consumer's satisfaction is maximized when the marginal benefit from the last dollar she spent on one good is equal to the marginal benefit from the last dollar she spent on another good because ___

the reality of diminishing marginal benefits assures that any shift in consumption toward either good must necessarily make her worse off