Homework 1
George buys 2.5 pounds of hamburger and 2 pounds of chicken per week when hamburger costs $4 per pound and chicken costs $5 per pound, and this bundle of goods costs him $20 per week. What will happen if the price of hamburger drops to $2 per pound and the price of chicken increases to $7.50 per pound? [Not that George's original bundle of hamburger and chicken still costs $20 after these price changes.]
George buys more hamburger and less chicken, and he is better off.
Suppose that Julio is consuming a bundle with less food and more clothing than his utility maximizing bundle. Would this marginal rate of substitution of food for clothing be greater than or less than MRSfc when MRSfc=0.2 at Pf=$2, Pc=$10, I=$50 and U(F,C) = FC? Explain.
If Julio is instead consuming a bundle iwth more food and less clothing than his utility maximizing bundle, then his marginal rate of substitution will be more than 0.20 because he will be consuming a bundle on the indifference curve that is to the left of his satisfaction maximizing bundle.
Suppose that Julio is consuming a bundle with more food and less clothing than his utility maximizing bundle. Would this marginal rate of substitution of food for clothing be greater than or less than MRSfc when MRSfc =0.71 at Pf=$5, Pc=$7, I=$50 and U(F,C) = FC? Explain.
If Julio is instead consuming a bundle with more food and less clothing than his utility maximizing bundle, then his marginal rate of substitution will be less than 0.71 because he will be consuming a bundle of indifference curve that is to the right of his satisfaction maximizing bundle.
Julio receives utility from consuming food (F) and clothing (C) as given by the utility function U(F,C)=FC. In addition, the price of food is $2 per unit, the price of clothing is $10 per unit, and Julio's weekly income is $50. What is Julio's marginal rate of substitution for food for clothing when utility is maximized? Explain.
Julio's marginal rate of substitution equals 0.20, which is the price of food divided by the price of clothing.
Julio receives utility from consuming food (F) and clothing (C) as given by the utility function U(F,C)=FC. In addition, the price of food is $5 per unit, the price of clothing is $7 per unit, and Julio's weekly income is $50. What is Julio's marginal rate of substitution for food for clothing when utility is maximized? Explain.
Julio's marginal rate of substitution equals 0.71, which is the price of food divided by the price of clothing.
Paul consumes only books and DVDs. At his current consumption bundle, his marginal utility from DVDs is 30 and from books is 2. Each DVD costs $10, each book costs $1. How can Paul increase his utility while keeping his total expenditure constant?
Paul could increase utility while keeping total expenditures constant by consuming more DVDs and fewer books.
Paul consumes only books and DVDs. At his current consumption bundle, his marginal utility from DVDs is 30 and from books is 2. Each DVD costs $10, each book costs $1. Is he maximizing his utility? Explain. Let MU(B) be the marginal utility of books, MU(D) be the marginal utility from DVDs, P(B) be the price of books, P(D) be the price of DVDs, and MRS be the marginal rate of substitution.
Paul is not maximizing his utility because MU(B)/P(B) < MU(D)/P(D)
Macroeconomics is the branch of economics that deals with
aggregate economic quantities such as unemployment
The indifference curves for two goods that are perfect substitutes
are downward-sloping straight lines.
The indifference curves associated with two goods that are perfect complements
are shaped as right angles
Why is more always preferred to less in the basic assumption about individual preferences?
because all goods are desirable
What are the four basic assumptions about individual preferences?
complete transitive more is always preferred to less MRSxy is diminishing where indifference curves are convex
If preferences are complete, that means
consumers are able to rank all possible baskets
If preferences are transitive, that means
if bundle A is preferred to bundle B and then bundle B is preferred to bundle C, then bundle A is preferred to bundle C.
The real price of a good is
the "current dollar" price adjusted for inflation. the "constant dollar" price of a good. the nominal price of a good adjusted for inflation.
Microeconomics is the branch of economics that deals with
the behavior of individual investors how economic units interact to form industries
Economics often discusses the concept of marginal analysis. In other words, individuals evaluate the marginal benefit and the marginal cost of continuing to engage in an action. A synonym for 'marginal' is 'additional.' true or false?
true
