advanced micro
A consumer has $210 in monthly income to be spent on two goods Z and B. The price of good Z (P Subscript z) is $8.00. The Marginal Rate of Transformation (MRT) is equal to −2. That is 2 units of good B can be traded for 1 unit of good Z. Part 2 What is the price of good B? ___ (round your answer to the nearest penny). Part 3 How many units of good B can be purchased if all income is used for that good? ____ units (round your answer to two decimal places).
$4 ; 52.50 units
The incidence of the tax that falls on consumers is enter your response here percent (enter a numeric response using an integer) because producers are ▼ price sensitive.
0%; not
The incidence of the tax that falls on consumers is enter your response here percent (enter a numeric response using an integer) because producers are ▼ not infinitely price sensitive.
100% ; infinitely
Andy purchases only two goods, apples (a) and kumquats (k). He has an income of $200 and can buy apples at $8 per pound and kumquats at $5 per pound. His utility function is U(a, k) = 4a + 4k. What is his marginal utility for apples and his marginal utility for kumquats? Part 2 Andy's marginal utility for apples (MUa) is (MUk) is What bundle of apples and kumquats should he purchase to maximize his utility? Part 4 Andy should consume enter your response here apples and enter your response here kumquats. (Enter your responses as whole numbers.)
4; 4 0; 40
Which of the following statements is true?
A. More tax revenue is raised if a tax is collected from consumers. B. More tax revenue is raised if a tax is collected from producers. C. More tax revenue is raised if a tax is collected from both consumers and producers. D. The same tax revenue is raised regardless of whether the government collects the tax from consumers or producers. .E. There is no way to identify with any certainty the collection conditions under which more tax revenue will be raised. D
Which of the following is true?
A. The elasticity of demand varies only along downward-sloping linear demand curves. B. The elasticity of demand varies along most demand curves. C. The elasticity of demand is constant along most demand curves. D. None of the above. B
Which of the following statements is true?
A. The equilibrium price after a specific tax will be the same whether the tax is collected from consumers or producers. B. The equilibrium price after a specific tax will depend on whether the tax is collected from consumers or producers. .C. The tax incidence on consumers will be higher if the tax is collected from consumers. D. The tax incidence on producers will be higher if the tax is collected from producers. A
Which of the following is true?
A. When epsilonε < minus−1, demand is considered elastic. B. When epsilonε = minus−1, demand is considered unitary elastic. C. When minus−1 < epsilonεless than or equals≤0, demand is considered inelastic. D. All of the above. E. None of the above. D
If the demand curve for a good is horizontal and the price is positive, then a leftward shift of the supply curve results in
A. a decrease in price. B. an increase in price. C. no change in price. D. a price of zero. C
What section of a straight-line demand curve is elastic? The elasticity of demand is elastic
A. at all points above the curve's midpoint. .B. at some random points. C. at the midpoint. D. at all points below the curve's midpoint. E. at no points A.
Do you care whether a 15cents¢ tax per gallon of milk is collected from milk producers or from consumers at the store? Why? As a consumer, you
A. do not care how the tax is applied because consumer incidence is always zero. B. do not care how the tax is applied because consumer incidence is only determined by the elasticity of supplysupply. C. prefer the tax be levied on producers because consumersconsumers are moremore price-sensitive. D. prefer the tax be levied on producers so they will have to pay it. E. do not care how the tax is applied because the after-tax price will be the same. E
Dan has a much lower elasticity of demand for fish than most other people. Is the incidence of a tax on fish, which is sold in a competitive market, greater for him than for other people? Compared to most other people, the incidence of a tax on fish for Dan will be
A. larger because Dan's demand curve is steeper. B. larger because Dan has a relatively high income. C. smaller because Dan's demand curve is horizontal. D. smaller because Dan consumes a lot of fish. E. larger because Dan is moremore sensitive to price. A
The incidence of the tax falls entirely on producers because
A. producers supply an infinite quantity. B. producers are more price sensitive than consumers. C. consumers are infinitely price sensitive. D. the price elasticity of supply is infinite. E. consumers demand the same quantity regardless of price. C
An empirical study by Callison and Kaestner (2012) suggests that a 100% cigarette tax would be required to decrease adult smoking by as much as 5%. What does this result suggest about the shapes of the supply and demand curves (assuming that the cigarette market is competitive)? That a 100% cigarette tax would only reduce adult cigarette smoking by 5% suggests
A. the demand curve must be linear and the supply curve must be linear. B. the price elasticity of demand must be relatively largelarge and the price elasticity of supply must be relatively largelarge. C. the price elasticity of demand must be relatively inelasticinelastic and the price elasticity of supply must be relatively inelastic. D. the demand curve must be relatively horizontal and the supply curve must be relatively horizontal. E. the demand curve must be upward-sloping and the supply curve must be downward-sloping. C
The change in price that results from a leftward shift of the demand curve will be greater if
A. the supply curve is relatively steep than if the supply curve is relatively flat. .B. the supply curve is relatively flat than if the supply curve is relatively steep. C. the supply curve is horizontal than if the supply curve is upward sloping. D. the supply curve is horizontal than if the supply curve is vertical. A
If the supply curve for a good is horizontal and the price is positive, then a leftward shift of the demand curve results in
A.no change in price. .B. an increase in price. C. a decrease in price. D. a price of zero. A
The change in price that results from a leftward shift of the supply curve will be greater if
A.the demand curve is relatively flat than if the demand curve is relatively steep. B. the demand curve is relatively steep than if the demand curve is relatively flat. C. the demand curve is horizontal than if the demand curve is downward sloping. D. the demand curve is horizontal than if the demand curve is vertical. B
If Jose Maria's utility function is U(x, y)=x+Axαyβ+y, what is his marginal utility of good y? Part 2 Jose Maria's marginal utilityLOADING... of good y (MUy) is
Answer
Phil's quasilinear utility function is Uq1,q2=lnq1+q2. Show that his MRS is the same on all of his indifference curves at a given q1. Phil's marginal rate of substitution is the same on all his indifference curves because
Answer
What age cohort is less likely to make transitive choices?
Children (4-5 years old).
Felix chooses between clothing, q1,and food, q2. His initial income is $4,000 a month, p1=400, and p2=40. At his initial bundle, he consumes q1=2and q2=80. Later, his income rises to $4,800 and the price of clothing rises to p1=$1,200, but the price of food does not change (p2=40). As a result, he reduces his consumption of clothing to q1=1. Using a revealed preference reasoning (that is, knowing nothing about his indifference curves), can you determine how he ranks the two bundles?
Felix prefers his initial bundle.
Felix chooses between clothing, q1, and food, q2. His initial income is $4,000 a month, p1=400, and p2=40. At his initial bundle, he consumes q1=2 and q2=80. Later, his income rises to $4,800 and the price of clothing rises to p1=$800, but the price of food does not change (p2=40). As a result, he reduces his consumption of clothing to q1=1. Using a revealed preference reasoning (that is, knowing nothing about his indifference curves), can you determine how he ranks the two bundles?
Felix prefers his new bundle.
Felix chooses between clothing, q1,and food, q2. His initial income is $3,000 a month, p1=300, and p2=30. At his initial bundle, he consumes q1=2 and q2=80. Later, his income rises to $3,600 and the price of clothing rises to p1=$600, but the price of food does not change (p2=30). As a result, he reduces his consumption of clothing to q1=1. Using a revealed preference reasoning (that is, knowing nothing about his indifference curves), can you determine how he ranks the two bundles?
Felix prefers his new bundle.
is the maximum amount of one good that a consumer will sacrifice (trade) to obtain one more unit of another good.
Marginal rate of substitution
Remy views ice cream and fudge sauce as perfect complements. Is it possible that either of these goods or both of them are Giffin goods?
Neither good can be a Giffen good because there is no substitution effect with perfect complements.
Javier consumes large pepperoni pizzas, Z, and boxes of graham crackers, G. Each of his indifference curves reflects strictly diminishing marginal rates of substitution. Where Z = 4 and C = 6 (point R), his marginal rate of substitution between pizzas and boxes of graham crackers equals −1.00 (MU Subscript Z/MU Subscript G). Part 2 Will she prefer a bundle with 1 pizza(s) and 7 box(es) of graham crackers (bundle T) to her current bundle?
No
What is the effect of a $1 specific tax collected from producers on equilibrium price and quantity if supply is perfectly elastic?
Price increases by $1 and quantity decreases
What is the effect of a $1 specific tax collected from producers on equilibrium price and quantity if demand is perfectly inelastic?
Price increases by $1 and quantity is unchanged
What is the effect of a $1 specific tax collected from producers on equilibrium price and quantity if supply is perfectly inelastic?
Price is unchanged and quantity is unchanged
What is the effect of a $1 specific tax collected from producers on equilibrium price and quantity if demand is perfectly elastic?
Price is unchanged and quantity decreases
What is the effect of a $1 specific tax collected from producers on equilibrium price and quantity if supply is perfectly inelastic?
Price is unchanged and quantity is unchanged
What is the incidence on consumers? Explain.
The incidence of the tax that falls on consumers is 00 percent (enter a numeric response using an integer) because consumers are infinitely price sensitive.
What is the incidence on consumers? Explain.
The incidence of the tax that falls on consumers is 00 percent (enter a numeric response using an integer) because producers are not price sensitive.
What is the incidence on consumers? Explain.
The incidence of the tax that falls on consumers is 100 percent (enter a numeric response using an integer) because consumers are not price sensitive.
What is her utility function? Let "H" represent hot dogs and "C" units of whipped cream. As a function of H and C, Sofia's utility function is
U=min{H,C}.
Complements
When the cross-price elasticity is less than zero (epsilon Subscript xy Baseline less than 0εxy<0), the goods are considered complements since the quantity of good x demanded falls as the price of the other good rises.
Substitutes
When εxy>0, the goods are considered substitutes since the quantity of good x demanded rises as the price of the other good rises.
According to a 2018 survey, 41% of single, employed millennials without children would be willing to dump their partner for a $37,000 raise. Was the survey asking a CV or an EV question? (Hint: See the Application "Compensating Variation and Equivalent Variation for Smartphones and Facebook.") The survey was asking ______ question
a compensating variation
According to the U.S. Bureau of Labor Statistics, in 2018, average annual consumer expenditures were $1,450 on education, $4,612 on health care, and $3,780 on entertainment. Given that a person buys only these three goods, estimate the person's Cobb-Douglas utility function for these three goods. Part 2 The person's Cobb-Douglas utility function, where ED is education, H is health care, and EN is entertainment, is
answer
According to the U.S. Bureau of Labor Statistics, in 2018, average annual consumer expenditures were $1,450 on education, $5,678 on health care, and $2,913 on entertainment. Given that a person buys only these three goods, estimate the person's Cobb-Douglas utility function for these three goods. Part 2 The person's Cobb-Douglas utility function, where ED is education, H is health care, and EN is entertainment, is
answer
Ann's utility function is U(x, z)=xz(x+z). Solve for her optimal values of good x and good z as a function of the price of good x (px), the price of good z (pz), and income (Y). For simplicity, assume that the price of good z is normalized to be one:
answer
Arthur can spend his income on chocolate candy and chocolate cookies. He views chocolate candy as a good but chocolate cookies is a neutral good , in that he doesn't care if he consumes it or not. Part 2 Use the line drawing tool to draw three lines representing his indifference curve map. Label these three lines: I Superscript 1, I Superscript 2, and I Superscript 3 such that U Subscript 3 > U Subscript 2 > U Subscript 1. Part 3 Carefully follow the instructions above, and only draw the required objects.
answer
Arthur can spend his income on chocolate cookies and chocolate candy. He views chocolate cookies as a good but chocolate candy is a neutral good , in that he doesn't care if he consumes it or not. Part 2 Use the line drawing tool to draw three lines representing his indifference curve map. Label these three lines: I Superscript 1, I Superscript 2, and I Superscript 3 such that U Subscript 3 > U Subscript 2 > U Subscript 1
answer
Diogo has a utility function, U(q1, q2)=q1^0.5q2^0.5, where q1 is chocolate candy and q2 is slices of pie. If the price of slices of pie, p2, is $2.00, the price of chocolate candy, p1, is $4.00, and income, Y, is $100, what is Diogo's optimal bundle?
answer
Governments frequently limit how much of a good a consumer can buy. During emergencies, governments may ration "essential" goods such as water, food, and gasoline rather than let their prices rise. Suppose that the government rations water, setting quotas on how much a consumer can purchase. If a consumer can afford to buy 20 thousand gallons a month but the government restricts purchases to no more than 10 thousand gallons a month, how do the consumer's budget line and opportunity set change? Assume the figure to the right shows the initial budget line and opportunity set of a consumer before the water quota. What is the effect of a quota of 10 thousand gallons of water per month on the opportunity set of the consumer? 1.) Using the line drawing tool, draw a new line indicating the quota. Label this 'Quota.' 2.) Using the multipoint line drawing tool, draw the new budget constraint. Label this line 'L2.' 3.) Using the triangle drawing tool and the rectangle drawing tool, shade in the new opportunity set. Label these shapes 'Opportunity setTriangle' and 'Opportunity setRectangle.' Carefully follow the instructions above, and only draw the required objects. Comp
answer
In 2005, Americans bought 9.1 million home radios and 3.8 million home-theater-in-a-box units (TWICE, March 27, 2006, www.twice.com/article/CA6319031.html). Suppose (for simplicity) that the cost of the home radios was $230 million, that the cost of the home-theater-in-a-box units was $770 million, and that the average consumer has a Cobb-Douglas utility function and buys only these two goods. Estimate a plausible Cobb-Douglas utility function such that the consumer would allocate income in the proportions actually observed. Part 2 The typical consumer's Cobb-Douglas utility function, where R is radios and T is home-theater-in-a-box units, is
answer
The government collects a specific tax of t on each hour worked. Thus, a worker whose wage is w keeps w−t after tax and supplies H(w−t) hours of work. The government wants to know if its tax revenue will increase or decrease if it lowers t. Give a condition for that to occur in terms of the elasticity of supply of labor, η. Part 2 A decrease in the tax on work hours will increase government revenue if the elasticity of labor is such that (as a function of the tax, t)
answer
Utility perfect substitutes graph and utility function
answer
What happens to the budget lineLOADING... if the government applies a specific tax of $1 per gallon of gasoline but does not tax other goods (assuming that the consumer will still buy more than 10 gallons per week)? What happens to the budget line if the tax applies only to purchases of gasoline in excess of 10 gallons per week? Part 2 1.) Use the line drawing tool to draw a new budget constraint with the gasoline tax on all gallons of gasoline. Label this line 'L2'. 2.) Use the multipoint curve drawing tool to draw the new budget constraint when the gasoline tax applies only to purchase of gasoline in excess of 10 gallons per week. Label this line 'L3'. (Note: Be sure to draw the entire budget constraint, starting at a quantity of 0). Part 3 Carefully follow the instructions above, and only draw the required objects.
answer
What is the marginal rate of substitution (MRS) for the utility function U(x, y)=x^ρ+y^ρ?
answer
Diogo has a utility function, U(q1, q2)=q1^0.2q2 ^0.8, where q1 is chocolate candy and q2 is slices of pie. If the price of slices of pie, p2, is $1.00, the price of chocolate candy, p1, is $2.00, and income, Y, is $100, what is Diogo's optimal bundle? Part 2 The optimal valueLOADING... of good q1 is
answer in the notebook
Suppose we calculate MRS at a particular bundle for a consumer whose utility function is Uq1,q2. If we use a positive monotonic transformation, F, to obtain a new utility function, Vq1,q2=FUq1,q2, then this new utility function contains the same information about the consumer's rankings of bundles. Prove that the MRS is the same as with the original utility function. Part 2 The marginal rate of substitution for the transformed utility is the same as for the original utility function because
answer on pic
Tiffany's constant elasticity of substitution (CES) utility function is Uq1,q2=qρ1+qρ21ρ. Show that there is a positive monotonic transformation such that there is an equilivalent utility function (one with the same preferences ordering) Uq1,q2=qρ1+qρ2. Part 2 There is a positive monotonic transformation such that there is an equilivalent utility function because Part 3
answer on pic
Like the simple Ricardianmodel, the specific factors model
assumes an economy that produces two goods and that can allocate its labor supply between the two sectors.
During his first year at school, Ximing buys 11 new college textbooks at a cost of $60.00 each. Used books cost $30.00 each. When the bookstore announces a 20.00% price increase in new texts and a 10.00% increase in used texts for the next year, Ximing's father offers him $132.00 extra. Is Ximing better off, the same, or worse off after the price change? Why? Part 2 With the price increases and his additional textbook allowance, Ximing is
at least as well off, and potentially better off, because any combination of books that includes one or more used books is now cheaper in real terms.
Is a poor person more likely to benefit from $300 a month worth of food stamps (which can be spent only on food) or $300 a month worth of clothing stamps (which can be spent only on clothing)? Why? Part 2 A poor person will
benefit equally from each kind of stamps if she otherwise would spend at least $300 on food and $300 on clothing.
Can an indifference curve be downward sloping in one section, but then bend backward so that it forms a "hook" at the end of the indifference curve An indifference curve :
cannot form a hook because it then would be upward sloping.
Explain why economists assume that the more-is-better (or nonsatiation) property holds and describe how these explanations relate to the results in the Application "You Can't Have Too Much Money." Economists assume the more-is-better property holds because
consumers can freely dispose of excess goods and be no worse off with extra goods. ; consumers tend to exhibit behaviors that suggest this assumption is true
The Application "Reducing the CPI Substitution Bias" discusses the new inflation index, which averages the Laspeyres and Paasche indexes. Give an example of circumstances in which the traditional CPI (Laspeyres) index would be superior to the new one. The traditional CPI (Laspeyres) index would be superior to a new index that averages the Laspeyres and Paasche indexes if
consumers do not substitute when prices change.
What is the primary reason why indifference curves are convex to the origin? Indifference curves are convex to the origin because
consumers have a diminishing marginal rate of substitution.
Alternatively, the indifference curve might be ____ implying the more he gives to charity, its value in terms of other goods decreases.
convex
Einav et al. (2012) found that people who live in high sales tax areas were much more likely than other consumers to purchase over the Internet, where they were generally exempt from the sales tax if the firm was located in another state. They found that a one percentage point increase in a state's sales tax increases online purchases by state residents by just under 2%. Is the explanation for this result similar to that in the Challenge Solution? Why or why not? Part 2 In the Challenge Solution, Americans and Germans are both assumed to be indifferent between traditional books and electronic books, but Americans consume lots of electronic books while Germans consume virtually none because the after-tax price of electronic books is less than the after-tax price of traditional books in the U.S., but in Germany, the after-tax price of traditional books is less. Part 3 That a one percentage point increase in a state's sales tax would increase online purchases by less than 2% is due to a
different explanation because online goods and traditional goods are imperfect substitutes.
Do you care whether a 15¢ tax per gallon of milk is collected from milk producers or from consumers at the store? Why? As a consumer, you
do not care how the tax is applied because the after-tax price will be the same.
What happens to a consumer's choice set if all prices and income double? (Hint: What happens to the intercepts of the budget line?) If all prices and income double then the budget line
does not change.
e < -1
elastic
Sofia will consume hot dogs only with whipped cream. Show her preferences map. What is her utility function? Part 2 Assume for simplicity that one hot dog and one unit of whipped cream generate a total of one unit of utility for Sofia. Part 3 Using the multipoint curve tool, draw an indifference curve for Sofia corresponding to one unit of utility. Label the curve 'I.' Part 4 Carefully follow the instructions above, and only draw the required object.
graph
Today, most developed countries have progressive income taxes where rich people pay a higher marginal tax rate than poor people. Under such a taxation program, is the marginal tax higher than, equal to, or lower than the average tax? Part 2 With a progressive tax system, the marginal tax is _____ the average tax.
higher than
Salvo and Huse (2013) found that roughly one-fifth of the owners of flexible-fuel cars (those that can run on a mix of ethanol and gasoline) choose gasoline when the price of gas is 20% above that of ethanol (in energy-adjusted terms) and, similarly, one-fifth of motorists choose ethanol when ethanol is 20% more expensive than gasoline. What can you say about these people's tastes? Do they view ethanol and gasoline as perfect substitutes? Part 2
imperfect substitutes because these motorists are not completely indifferent as to which fuel to consume.
Canada provided a 35% subsidy of the wage of employees of video game manufacturers in 2011. ("Video game makers say subsidies are vital," CBS News, June 4, 2011.) Suppose the government subsidy is paid to employers. What is the effect of a wage subsidy on the equilibrium wage and quantity of workers? The equilibrium wage will ___ and the equilibrium quantity of workers will ___. Compared to the equilibrium with the original subsidy, the equilibrium wage will ____ and the equilibrium quantity of workers will ___
increase; increase ; decrease; decrease
The Economist magazine publishes the Big Mac Index for various countries, based on the price of a Big Mac at McDonald's over time. Under what circumstances would people find this index to be as useful as or more useful than the Consumer Price Index in measuring how their true cost of living changes over time?
individuals spend the same proportion of their incomes on Big Macs over time.
e > -1
inelastic
Assuming the supply curve is upward-sloping, the incidence of a tax on consumers will be 0% if demand is
infinitely elastic.
If an individual's labor supply curve slopes upward at low wages and bends backward at high wages, is leisure a Giffen good? If so, at high or low wage rates? Part 2 With such a supply curve (as illustrated in the figure to the right), leisure
is not necessarily a Giffen good for any portion of the individual's labor supply curve.
Two linear demand curves go through the initial equilibrium, e1. One demand curve is less elastic than the other at e1. For which demand curve will a price increase cause the larger consumer surplus loss?
less elastic because the decrease in quantity will be smaller.
For the utility function U(x, z)=x^ρ+z^ρ, derive expressions for the optimal levels of good x and good z as functions of the price of good x, px, the price of good z, pz, and income, Y. For simplicity, assume that the price of good z is normalized to be one: pz=1. In your answer, use 1 for "pz" and the relationship σ=11−ρ.
look at pic
Why would a consumer's demand for a supermarket product change when the product price is quoted inclusive of taxes rather than before tax? Is the same effect as likely for people buying a car? Part 2 Whether taxes are quoted as part of a supermarket product's price might affect consumer demand because; Quoting car prices after deducting sales taxes rather than in pre-tax form
mentally calculating the impact of taxes has a cost.; would have a smaller effect on car sales because for such an important decision, the consumer would calculate the taxes.
Fiona requires a minimum level of consumption, a threshold, to derive additional utilityLOADING...: U(X,Z) is 0 if X+Z≤3 and X+Z otherwise. Draw Fiona's indifference curvesLOADING.... Which of our usual assumptions are violated by this example? Part 2 1.) Use the triangle drawing tool to shade in the area of an indifference curve that corresponds to utility of 0. Label this shaded area 'I0'. 2.) Use the line drawing tool to draw an indifference curve that corresponds to utility of 4. Label this line 'I4'. 3.) Use the line drawing tool to draw an indifference curve that corresponds to utility of 5. Label this line 'I5'. Part 3 Carefully follow the instructions above and only draw the required objects. Indifference curve I0 violates the assumption of
more is better because it is thick.
If more of both charity and other goods give Don utility, then his indifference curve must be
negatively-sloped
Under what conditions does the income effect reinforce the substitution effect? Part 2 The income effect will reinforce the substitution effect for a normal good. Part 3 Under what conditions does it have an offsetting effect? Part 4 The income effect will have an offsetting effect for an inferior good. Part 5 If the income effect more than offsets the substitution effect for a good, what do we call that good? Part 6 The income effect more than offsets the substitution effect for a Giffen good.
normal ; inferior ; Giffen
Mark consumes only cookies and books. At his current consumption bundle, his marginal utility from books is 16 and from cookies is 2. Each book costs $10.00 and each cookie costs $2.00. Is he maximizing his utility? Explain. If he is not, then how can he increase his utility while keeping his total expenditure constant?; To increase utility without increasing total expenditures, Mark could trade
not maximizing utility because MRS=−UBUC>−pBpC. ; 5 cookies for 1 book
Remy spends her weekly income of $120 on chocolate, q1, and shampoo, q2. Initially, when the prices are p1=$4=p2, she buys q1=20 and q2=10. After the prices change to p1=$2 and p2=6, she purchases q1=18 and q2=14. Use a revealed preference argument to discuss whether or not she is maximizing her utility before and after the price changes. Part 2 Remy is
not maximizing utility because the quantities of the goods she consumes move in the same direction as the price changes.
Bounded rationality means that:
people have a limited capacity to anticipate, solve complex problems, or enumerate all options.
For 100% of a tax cut to benefit customers, the price elasticity of demand must be ____ or the price elasticity of supply must be _____
perfectly inelastic ; perfectly elastic
The income effect shows the change in consumption for all goods in reaction to a change in ____ holding ____ constant.
purchasing power relative prices
The substitution effect shows the change in consumption for all goods in reaction to a change in _______ holding _______ constant.
relative prices utility
Alix consumes only coffee and coffee cake, and only consumes them together (they are perfect complements). If we calculate a CPI using only these two goods, by how much will this CPI differ from the true cost-of-living index? The CPI
represents the true cost of living increase because the proportions of the goods consumed do not change.
What is the effect of a 50% income tax on Dale's budget line and opportunity set? A 50% income tax
shifts the budget line inward, decreasing the opportunity set.
Suppose that Boston consumers pay twice as much for avocados as for tangerines, whereas San Diego consumers pay half as much for avocados as for tangerines. Assuming that consumers maximize their utility, which city's consumers have a higher marginal rate of substitution of avocados for tangerines? Explain your answer. If Boston consumers pay relatively more for avocados than San Diego consumers, then (in absolute value) the marginal rate of substitution (MRS) of avocados for tangerines for consumers in Boston when maximizing utility is
smaller because MRS equals the ratio of prices.
Economists use the term salience in behavioral economic as a reference to:
something that is striking or obvious.
the indifference might be ____ , implying that he is willing in general to sacrifice a lot of other goods to be able to give a little bit to charity.
steep
Perfect substitutes are represented by ______ indifference curves, while imperfect substitutes are represented by ______ indifference curves.
straight-line. ; convex-curved
The results of the study by Stevenson and Wolfers (2013) discussed in the Application, "You Can't Have Too Much Money," provides empirical evidence that ___ the more-is-better property.
supports
West Virginians who live near the border with other states can shop on either side of the border. If they buy food in West Virginia, their total cost is the price of the food plus the tax. If they buy across the border in states that do not tax food, the total cost is the price plus the cost due to the extra travel. Tosun and Skidmore (2007) found that West Virginian food sales dropped 8% in border counties when a 6% sales tax on food was imposed. Explain why. Part 2 Food sales in West Virginia dropped 8% in border counties when it (West Virginia) added a 6% sales tax on food because
the cost of food became greater in West Virginia than across the state border.
If a relatively wealthy person spends more on food than a poor person, and then receives food stamps, would the wealthy person be more likely to have a tangency at a point such as f in the figure to the right, where an increase in income has little or no effect on food expenditures compared to bundle c, than a tangency at a point such as d? Part 2 Let L1 be the wealthy person's initial budget line, let L2 (kinked violet line) be the wealthy person's budget line with food stamps that are only redeemable for food, and let L3 be the budget line the wealthy person's would have if given an additional amount of income equal to the dollar value of the food stamps. Part 3 If the relatively wealthy person spends more on food than a poor person, and then receives food stamps, the wealthy person would be more likely to have a tangency at a point such as f if
the income elasticity of demand for food falls as income rises.
Originally, Julia could work as many hours as she wanted at a wage of w. She chose to work 8 hours per day. Then, her employer told her that, in the future, she may work as many hours as she wants up to a maximum of 10 hours per day (and she can find no additional part-time job). How does her optimal choice between leisure and goods change? Does this change hurt her? Given that she is now allowed to work no more than a maximum of 10 hours per day, Julia's optimal choice between leisure (or work hours) and goods _________ With the hours constraint, Julia _____
will not change because heremployer's constraint is not binding. ; is equally well off because she can work the same number of hours.
Helen views raspberries and blackberries as perfect complements. Initially, she buys 5 pints of each this month. Suppose that the price of raspberries falls while the price of blackberries rises such that the bundle of five pints of each lies on her budget line. Does her optimal bundle change? Explain. Part 2 After the price changes, Helen's optimal bundle
will remain unchanged because she'll continue to consume raspberries and blackberries in equal proportions.
The United Kingdom has a drinking problem. British per-capita consumption of alcohol rose 19% between 1980 and 2007, compared with a 13% decline in other developed countries. Worried about excessive drinking among young people, the British government increased the tax on beer by 42% from 2008 to 2012. Does a specific tax substantially reduce the equilibrium quantity of alcohol? Answer in terms of the slopes of the demand and supply curves. Assume the demand curve is downward sloping and the tax is paid by consumers. A specific tax on consumers
will substantially reduce the equilibrium quantity of alcohol if the supply is relatively horizontal.
Sanghoon has a utility function over audiobooks, A, and movie downloads, M, given by U=AM. Linh has a utility function given by U=AM.
Sanghoon's utility function is a monotonic transformation of Linh's utility function.
