Assignment #4 Review

Preferences are complete

(1) What are the 4 basic assumptions about individual preferences?

Preferences are transitive

(2) What are the 4 basic assumptions about individual preferences?

More is always preferred to less

(3) What are the 4 basic assumptions about individual preferences?

The marginal rate of substitution is constant

(4) What are the 4 basic assumptions about individual preferences?

Transititivity

A consumer says he prefers a Toyota automobile to a Ford and a Ford to a Jeep. He also says he prefers a Jeep to a Toyota. Which basic assumption about preferences does this consumer​ violate? A. More is better than less. B. Transitivity. Your answer is correct. C. Completeness. D. All of the above.

Provide the consumer with the same level of satisfaction

An indifference curve shows all combinations of two goods that: A. provide the consumer with the same level of satisfaction. Your answer is correct. B. the consumer would choose at different prices. C. the consumer would choose at different levels of income. D. cost the same amount of money.

become flatter

Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food falls relative to that of​ clothing, the budget line will A. become steeper or flatter depending on the relationship between prices and income. B. shift outward. C. become steeper. D. become flatter.

Cannot be upward sloping because this violates the assumption that more is better than less, indicating that one of the goods is a "bad"

Can a set of indifference curves be upward​ sloping? If​ so, what would this tell you about the two​ goods? A set of indifference curves A. cannot be upward sloping because this violates the assumption that more is better than​ less, indicating that one of the goods is a​ "bad." Your answer is correct. B. cannot be upward sloping because this violates the assumption of​ transitivity, indicating that one of the goods is a ​"bad​." C. cannot be upward sloping because this violates they the assumption of​ completeness, indicating that one of the goods is a ​"neutral good​." D. cannot be upward sloping because this violates the assumption that more is better than​ less, indicating that one of the goods is a​ "neutral." E. cannot be upward sloping because this violates the assumption of​ transitivity, indicating that preferences are not consistent.

there will be no effect on the budget line

If prices and income in a​ two-good society​ double, what will happen to the budget​ line? A. The slope of the budget line may either increase or decrease. B. Insufficient information is given to determine what effect the change will have on the budget line but we know society is worse off. C. The intercepts of the budget line will decrease. D. The intercepts of the budget line will increase. E. There will be no effect on the budget line.

the assumption of convexity

Indifference curves are convex to the origin because of A. transitivity of consumer preferences. B. the assumption of convexity. Your answer is correct. C. the assumption that more is preferred to less. D. the assumption of completeness. E. none of the above.

are incomplete

Jane is trying to decide which courses to take next semester. She has narrowed down her choice to two​ courses, Econ 1 and Econ 2. Now she is having trouble and cannot decide which of the two courses to take.​ It's not that she is indifferent between the two courses. She just cannot decide. An economist would say that this is an example of preferences that A. violate the assumption that more is preferred to less. B. are not transitive. C. are incomplete. Your answer is correct. D. all of the above.

is decreasing as "x" increases

Measuring​ "y" on the vertical axis and​ "x" on the horizontal​ axis, convexity of indifference curves imply that the magnitude of MRS of​ "y" for​ "x" A. is constant as​ "x" increases. B. is decreasing as​ "x" increases. Your answer is correct. C. is increasing as​ "x" increases. D. cannot be calculated for large levels of​ "x".

all goods are desirable

More is always preferred to less because...

consumers are able to rank all possible baskets

Preferences are complete, which means that...

if bundle A is preferred to bundle B, and bundle B is preferred to bundle C, then bundle A is preferred to bundle C

Preferences are transitive, which means that...

counter-clockwise about the fixed horizontal axis intercept

Suppose a consumer only purchases food and​ clothing, and food is plotted along the horizontal axis of the​ consumer's indifference map. If the price of clothing increases and the price of food and income do not​ change, then the budget line changes by rotating: A. clockwise about the fixed horizontal axis intercept. B. ​counter-clockwise about the fixed vertical axis intercept. C. ​counter-clockwise about the fixed horizontal axis intercept. D. clockwise about the fixed vertical axis intercept. E. none of the above.

the budget line is now convex to (bows in toward) the origin

Suppose you only consume food and​ clothing, and clothing is plotted on the vertical axis.​ Also, you purchase food at a fixed price ​(PF​), but the price of clothing declines as you buy in larger quantities​ (i.e., quantity​ discounts). What does the budget line look like in this​ case? A. The budget line is now concave to​ (bows out​ from) the origin. B. The budget line will not be a straight​ line, but it may be concave or convex. C. The budget line is now convex to​ (bows in​ toward) the origin. D. The budget line is a straight line.

B​ = I/PB − (PA​/PB​)A.

The budget constraint for a consumer who only buys apples​ (A) and bananas​ (B) is: PAA ​+ PBB ​= I where consumer income is​ I, the price of apples is PA​, and the price of bananas is PB. To plot this budget constraint in a figure with apples on the horizontal​ axis, we should use a budget line represented by the​ slope-intercept equation: A. A​ = ​I/PA − ​(PB​/PA​)B. B. B​ = ​I/PB − ​(PA​/PB​)A. C. B​ = −​I/PB​ + ​(PA​/PB​)A. D. A​ = −​I/PA​ + ​(PB​/PA​)B.

Represent the quantity of each good that could be purchased if all of the budget were allocated to that good

The endpoints​ (horizontal and vertical​ intercepts) of the budget line A. represent the quantity of each good that could be purchased if all of the budget were allocated to that good. Your answer is correct. B. indicate the highest level of satisfaction the consumer can achieve. C. measure the rate at which a consumer is willing to trade one good for another. D. measure its slope. E. measure the rate at which one good can be substituted for another.

are shaped as right angles (L)

The indifference curves for two goods that are perfect complements A. are shaped as right angles. Your answer is correct. B. intersect one another. C. are vertical lines. D. are convex. E. have positive slopes.

are downward sloping straight lines

The indifference curves for two goods that are perfect substitutes A. are​ downward-sloping straight lines. Your answer is correct. B. have positive slopes. C. are horizontal lines. D. intersect one another. E. are convex.

indifference curves are straight lines

The marginal rate of substitution is constant, where...

-1/2

The price of coffee is always equal to​ one-half the price of tea. When we plot the budget line for coffee and​ tea, coffee is plotted on the horizontal axis. What is the slope of this budget​ line? A. ​1/2 B. −2 C. 2 D. −1/2

The marginal rate of substitution of one good for another good

The slope of an indifference curve reveals A. that preferences are transitive. B. the ratio of market prices. C. the marginal rate of substitution of one good for another good. Your answer is correct. D. that preferences are complete. E. none of the above.

parallel outward (rightward) shift

To simplify our consumption​ models, suppose U.S. consumers only purchase food and all other goods where food is plotted along the horizontal axis of the indifference map. If the U.S. Congress passes an economic stimulus package that pays​ $300 to each​ person, how does this affect the budget line for each​ consumer? A. Makes the budget line flatter B. Parallel inward​ (leftward) shift C. Parallel outward​ (rightward) shift D. Makes the budget line steeper E. None of the above

All of the above

When different indifference curves are placed in the Cartesian​ plane, A. the result is called an indifference map. B. the curves that occupy a place farther away from the origin yield more utility than curves closer to the origin. C. the curves cannot intersect. D. all of the above.

all of the above

Which of the following will result in a decrease in a​ consumer's purchasing​ power? A. An increase in the price of the good on the horizontal axis B. An increase in the price of the good on the vertical axis C. A decrease in the​ consumer's income D. All of the above