Practice Question for Chapter 4 The theories of consumer behavior PART 1 Answer true or false with a short explanation and use a graph if necessary 1 When two goods are complements, the indifference c.
Practice Question for Chapter The theories of consumer behavior PART 1: Answer true or false with a short explanation and use a graph if necessary When two goods are complements, the indifference curves are L-shaped When two goods are substitutable, the indifference curves are right angles The marginal rate of substitution does not change for perfect substitutes At the optimum, the consumer chooses consumption of the two goods so that the marginal rate of substitution equals the relative price ratio If a consumer wants more of a good when his income rises, economists call it an inferior good If , , , , the consumer should consume more Y and less X PART 2: Exercises Answer the following questions based on the table A consumer can consume the following bundles of apples and bananas when the price of apples is $2 each and the price of bananas is $3 each Apples 12 a How much is this consumer's income? Bananas b Draw a budget constraint given this information Label it BL1 c Construct a new budget constraint showing the change in the price of apples by $1 Label this BL2 d Given the original prices for apples($2) and bananas ($3), construct a new budget constraint if this consumer's income increased to $48 Label this BL3 e Construct a new budget constraint showing the change if the price of rice apples falls to $1 and the price of bananas falls to $1.5 Compare this budget constraint with BL3 Draw indifference curves that reflect the following preferences a Pencils with white erasers and pencils with pink erasers b Left shoes and right shoes c Potatoes and rice Mike has the following utility function: U = 2XY PX = $/unit PY =6$%/ unit Mike’s income is 6000$ a Calculate MUX, MUY MRSXY b Derive the budget function of Mike c What is the optimal consumption bundle of Mike? Calculate his maximum utility in this case d If Mike wants to achieve U = 300, what will be his minimum expenditure?