Be as specific as possible and always include explanations that describe your reasoning.

Suppose you're writing a report for local city council members on the economic situation facing consumers. The city council members would like the following questions answered so that they can better understand consumer behavior and the impact of potential policies on the local economy.

1.Consumer purchasing behavior is driven by consumer preferences. The local city council members would like to better understand consumer preferences and the requirements needed to analyze consumer preferences. What does restricting consumer preferences to be transitive mean, and what are the implications of transitivity for consumer indifference curves?

A.What does the Diminishing Marginal Rate of Substitution mean, and what are the implications of a Diminishing Marginal Rate of Substitution for consumer indifference curves?

B.What is the relationship between the Diminishing Marginal Rate of Substitution and the Law of Diminishing Marginal Utility?

2.Consumer budgets are likely to be impacted by changes in market conditions. Along those lines, how do the prices of products factor into the slope of a consumer's budget line?

A. Suppose fast food meals are on the x-axis of the graph for the budget line and movie theater tickets are on the y-axis. If the price of fast food meals decreases, how does this impact the budget line?

B.If consumers'budgets for fast food meals and movie theater tickets increases, how does this impact the budget line?

C.Explain how a gift certificate for fast food meals would impact a consumer's budget line in comparison to a cash gift.

3.The city council members recognize that consumer demand is determine by the Utility Maximizing point, but are unsure of how the Utility Maximizing point is found. Explain the relationship between the budget line and an indifference curve at the Utility Maximizing point and how tangency between two curves factors into this.

4.Now city council members want to make predictions about how changes in consumers' budgets will impact their consumption behavior. If fast food meals and movie theater tickets are both normal goods with fast food meals on the x-axis of the graph and movie theater tickets on the y-axis, explain how an increase in consumers' budgets would impact the consumption of fast food meals and movie theater tickets.

A. Suppose instead that city council members think fast food meals are an inferior good. If consumers' budgets increase, explain what would happen to the consumption of both fast food meals and movie theater tickets.

b.Can fast food meals be an inferior good at all budget levels? What might the relationship between budget and consumption of fast food meals look like?

c. If the local city council is considering giving people gift certificates for fast foodmeals, what considerations about the impact of gift certificates on people's utility should they understand in comparison to an equivalent cash gift?

5.City council members recognize that a change in the price of fast food meals has both a substitution effect and an income effect. How are the substitution effect and income effect different from each other? If fast food meals are an inferior good and the price of these meals decreases, how does this impact the substitution effect and the income effect? What are the potential implications for the total effect of the price increase?

Econ 3310