Microeconomics Summer 2011 Problem Set 1 Due on July 28th in class TRUE-FALSE (2’*7=14’) （B）1. If good 1 is measured on the horizontal axis and good 2 is measured on the vertical axis and if the price of good 1 is p1 and the price of good 2 is p2‚ then the slope of the budget line is -p2/p1. a. True b. False （B）2. If all prices double and income triples‚ then the budget line will become steeper. a. True b. False （B）3. If Melody has more classical records than rock and roll
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Topic 6 - The Theory of Consumer Behavior – the theory of utility • The theory of consumer behaviour may be analysed by either utility theory and / or indifference curve analysis. • Note: this course only requires students to be aware of utility theory. Indifference curve analysis is undertaken in year 2 and is not a requirement of this course Basic Principles of the theory of Consumer Behaviour • Consumers are rational optimisers • Consumers seek to maximise total utility • Utility is achieved
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| 5 | _____ | 0 | 6 | 45 | _____ | 7 | 35 | _____ | 8 | _____ | –15 | (a) Graph both the total utility and marginal utility curves together on the same graph. (b) Explain the shape of both of the curves. (c) Identify the point where utility is maximized on both curves. Discuss the reasoning behind each value. Q3 Show an indifference curve by using the data in the table below and indicating X on horizontal axis and Y on vertical axis. (3m) Combinations | Units of X
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by creating as set of contour plots of DM’s implied utility function. Figure 1 plots a set of "indifference curves" assuming a utility function of U = X Y. FIGURE 1 U=X^1Y^1 100 U= 1 U= 8100 U= 6400 U= 4900 U= 3600 U= 2500 Y 60 80 40 U= 1600 U= 900 U= 400 U= 100 0 20 0 20 40 X 1 60 80 100 Marginal Rate of Substitution The slope of the indifference curve is called DM’s Marginal Rate of Substitution (MRS) and provides information with respect to tradeoff’s
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individual’s labour supply. These effects are the same as would be under an increase in the wage rate‚ shown diagrammatically in Figure 2. {draw:frame} Figure 2: Diagram showing the effects of a wage increase The movement around the original indifference curve from A to C is the substitution effect; this arises due the change in price of leisure relative to hours of work‚ holding utility as constant. As the wage rate has increased the opportunity cost of leisure opposed to work has risen. The substitution
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Consider the discussion in the article below on the pricing practices of online travel website Orbitz. Based on discussion and application of the relevant theoretical accounts on this type of pricing policies‚ (1) explain the microeconomic foundations for Orbitz actions‚ and (2) assess their likely sustainability in online retail markets. This essay with address the pricing policies carried out by Orbitz‚ going into detail about the microeconomic foundations for Orbitz actions. This will include
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CONSTRAINT Consumer theory ---- how consumers buy their goods? Economists assume: consumers choose the best bundle of goods they can afford. Two aspects: ----Consumers choose the most preferred goods. ----They are limited by economic condition. The Budget Constraint Consumption bundles: （消费束，商品组合）: a list of numbers of goods and services. X = (x1‚ x2‚ …‚ xn‚) In the case of two goods: good 1 and good 2. Bundle of goods: X = (x1‚ x2) Prices
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1. Explain the behavior of consumer from the point of view of Utility Theory. As consumers‚ we are constantly forced into making choices. They face a variety of goods and services which can be purchased‚ but often are limited by the amount of money with which those purchases can be made. The utility theory‚ also sometimes referred to as the consumer behavior theory‚ is often used to explain the behavior of individual consumers and the amount of satisfaction a consumer derives from the consumption
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property of an indifference curve? Question 5 answers | | An indifference curve is convex to the origin / | | | The consumer is indifferent between any two points on an indifference curve / | | | The marginal rate of substitution diminishes as you move down the indifference curve | / | | As you move from one indifference curve to another indifference curve closer to the origin‚ utility increases | An indifference curve is Question 6
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of apples is 1‚ the price of bananas is 2‚ and Charlie’s income is 40. (a) On the graph below‚ use blue ink to draw Charlie’s budget line. (Use a ruler and try to make this line accurate.) Plot a few points on the indifference curve that gives Charlie a utility of 150 and sketch this curve with red ink. Now plot a few points on
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