ECN 5150 - Midterm I

Suppose a consumption bundle contains two normal goods, X & Y, which are complements. If the price of X decreases, which is potentially correct?

could contain more of X, less of Y

Using the indifference curves and price changes, managers can derive the individual consumers _________ curve

demand

A change in a consumer's income changes consumption patterns because changes in income...

expand or contract the budget constraint

Suppose a consumption bundle contains two goods, X & Y, and that the goods are substitutes. If X increases, Y _________

increases

-(Px/Py) represents the ___________ rate of substitution

market

If a consumers income decreases and he now consumes less of BOTH X&Y, then the consumer considers X&Y to be what type of goods?

normal goods

The movement along a given indifference curve due to a change in the relative price of goods is called the ________ effect

substitution

The budget set defines combinations of goods and services.....

that are affordable

Market demand indicates the _______ quantity all consumers would purchase at each possible price

total

Moving along an indifference curve, from one bundle to another, a consumer gains 1 unit of X and gives up 3 units of Y. The marginal rate of substitution is_____________ between goods X and Y

3

Bundle A is preferred to bundle B. Bundle B is preferred to bundle C. If preferences are transitive, then

Bundle A is preferred to bundle C

At the point of consumer equilibrium

MRS = Px/Py

The budget constraint can be given by which of the following expressions

PxX+PyY=M; Y=M/Py-Px/Py*X

If a consumer's income decreases and she now consumes less of good X & more of good Y, X&Y are what type of goods?

X is normal, Y is inferior

An affordable bundle of goods and services yields the most satisfaction is generally referred to as ________ equilibrium

consumer

All affordable goods and services can be represented by which of the following

consumer opportunities

Given a fixed opportunity set that consists of 24 hours, workers will generally try to consume a bundle of labor and leisure that does which of the following?

achieves the highest affordable indifference curve

Economists

are able to model human behavior

When income is constant and the price of good Y, Py decreases what is the effect on the budget line (x on horizontal y on vertical)

budget line rotates clockwise

Since workers substitute between leisure and income, what must firms do to induce workers to give up leisure?

compensate workers

Cash gifts tend to produce a _________ level of utility relative to in kind gifts

higher

Price change alter consumer:

incentives to buy goods, equilibrium consumption bundles, budget constraints

The total effect of a price increase includes

income effect, substitution effect

An increase in the price of good X rotates the budget line, alters the equilibrium bundle, and ....

indicates different quantities demanded at different prices, provides two points on a demand curve

Given fixed prices, when consumer income decreases, the budget line shifts to the __________

left

The income effect reflects the fact that as a price of a good increases, the consumer's....

real income falls

The income effect reflects the fact that as the price of a good increases, the consumers....

real income falls

A BOGO deal...

reduces the price of only the second unit purchased

Points on an indifference curve

show consumption bundles that generate the same amount of satisifaction

Indifference curve analysis is a helpful tool to derive

the demand curve