16. Suppose that there are only two goods, books and coffee. Justine gets utility from both books and cof- fee, but her indifference curves between them are concave rather than convex to the origin. a. Draw a set of indifference curves for Justine. b. What do these particular indifference curves tell you about Justine's marginal rate of substitution between books and coffee? c. What will Justine's utility-maximizing bundle b. look like? (Hint: Assume some level of income for Justine and some prices for books and coffee, then draw a budget constraint.) C. d. Compare your answer to (b) to real-world behaviors. Does the comparison shed any light d. on why economists generally assume convex preferences? * 17. Chrissy spends her income on fishing lures (L) and gui- tar picks (G). Lures are priced at $2, while a package e. of guitar picks costs $1. Assume that Chrissy has $30 to spend and her utility function can be represented as 20. Che U(L,G) = 105 Go5. For this utility function, MU, = sub 0.51 05Go-5 and MUG = 0.5105G 05 wha3. In this problem, you are asked to consider cases in which \"more is not better." For each of the following scenarios, draw an appropriate indifference map over different combinations of Brussels sprouts (I) and broccoli (y). Hint: First determine the preference direction and whether the indifference curves are positively or negatively sloped don't expect the indifference curves to look like those depicted in class. The preference direction, i.e., the direction in which the ant \"would like to go," cuts across indifference curves, that is, it is 'perpendicular\" to the indifference curves, or the indifference curves have the \"opposite\" slope. To determine the sign of the slope directly, start at an arbitrary point {on any indifference curve}, reduce the amount of :r and ask whether y would have to increase or decrease in order for the person to return to the same indifference curve, i.e., to be indifferent between the original bundle and the new bundle. a. I like Brussels sprouts, but I don't like broccoli {Brussels sprouts are a good and broccoli is a bad.) 1}. I don't like Brussels sprouts or broccoli. Problems (Soluband to problems mariged * appear at the burck al this book. Problems adapted to one calculon is availabin grains it 1. Which assumption about consumer preferences does by three different consumers (Auon, Barbara, and each of the following individuals violate? Camina), holding everything else constant: a. Adam likes basketball more than football; Auon Football more than baseball; and baseball more Barbara Camina than basketball. b. Christina prefers prune juice to orange juice but 02 cannot decide how she feels about grapefruit juice. Blake likes superhero comic books but prefers 5 comic books to 10 comic books. 54 2. By assumption, individual preferences must be tran- sitive so that if A is preferred to B, and B is preferred to C. then A is preferred to C. Suppose that Marsha, 175 24 Jan, and Cindy individually have transitive prefer- ences over three goods: oranges, apples, and pears. Compute the marginal utility of X for each of the If Marsha, Jan, and Cindy were to vote on whether three consumers at each level of X. to name oranges, apples, or pears the "fruit of the b. Based on the data in the table, can you tell month," show that it is possible the preferences for whether any of these consumers are violating any the group might not be transitive. of the standard assumptions about preferences? 3. Draw two indifference curves for each of the follow- c. Is it possible that any of these three consumers ing pairs of goods. Put the quantity of the first good have the same preferences, and that columns for the on the horizontal axis and the quantity of the second three consumers differ only because of the arbitrary good on the vertical axis. units that are used to measure utility? Explain Paul likes pencils and pens, but does not care $6. A consumer's utility function is given by U= XY. which he writes with. where MU, = F and MU, = X. Rhonda likes carrots and dislikes broccoli. a. What is the utility derived from 1 unit of X and Emily likes hip-hop ITunes downloads and 2 units of Y? What is the utility derived from doesn't care about heavy metal downloads. 2 units of X and I unit of 1? What is the utility d. Michael only likes dress shirts and cufflinks in 1 derived from 5 units of X and 2 units of Y? to 2 proportions. b. How does the consumer rank the following E. Carlene likes pizza and shoes. bundles? *4. Suppose that John is indifferent between consuming Bundle Quantity of I Quantity of F bundle A, which consists of 4 apples and 1 peach, and bundle B, which consists of 4 peaches and A 2 2 1 apple. If John were given the choice between bun- dle A and bundle C, which contained 3 peaches and 2 apples, which should be pick? (Hint: Draw an 1 5 indifference curve or two.) 3 2 5. The following table displays the total utility ((X ) that 3 comesponds to the number of units of X consumedVERTICAL AXIS HORIZONTAL AXIS The horizontal axis of the aggregate demand and aggregate supply model measures the overall The aggregate curve shows the quantity of output that households, firms, the government, and foreign customers want to buy at each price level Grade It Now Save & Continue D Continue without saving1 PAT 1948 YEAH Source: "Current-dollar and Real GDP," Bureau of Economics Analysis, last modified May 1, 13, accessed May 15, 13, http://www.bea.gowational/alw/gdplevaxis. Notice that real GDP trends upward over time but experiences ups and downs in the short run. A period of declining real GDP, such as the blue-shaded period in 1948, Is known as True or False: Small ups and downs in real GDP follow a consistent, predictable pattern. True O False Which of the following probably occurred as the U.S. economy experienced declining real GDP in 1948? Check all that apply. Total real Income declined. Corporate profits declined. The unemployment rate increased. Car sales Increased. Grade It Now Save & Continue Continue without saving