QUESTION 21

1. The slope of a consumer's indifference curve represents

		A. the tradeoff in the market between the two goods.
		B. the tradeoff in the consumer's mind betwen the two goods.
		C. the total utility of the two goods.
		D. the price ratio of the two goods.

1 points

QUESTION 22

1. The slope of the consumer's budget line represents

		A. the tradeoff in the market betwen the two goods.
		B. the tradeoff in the consumer's mind between the two goods.
		C. the total income if the consumer.
		D. the total utility of the consumer.

1 points

QUESTION 23

1. Explain the important properties of signaling between two potential adversaries.

Define carefully everything you discuss.

Explain communication, information, and signals.

Use the toad story to explain the application of signaling theory.

Does flying an American flag in your front yard after the 9/11 attacks signal that you are patriotic? Explain.

QUESTION 248 points

1. A headache-prone consumer has two goods to choose from, extra-strength Tylenol and regular-strength aspirin. Let "y" denote the number of tablets of extra-strength Tylenol, and let "x" denote the number of aspirin tablets. The formula for the consumer's utility function is

U = x + 2y.

a) Define the marginal utility of X with words. Describe with words, and/or write down the algebraic expression for the marginal utility of X.

b) What is the value of the marginal utility of x?

c) Define the marginal utility of Y with words. Describe with words, and/or write down the algebraic expression for the marginal utility of Y.

d) What is the value of the marginal utility of Y?

e) Define the marginal rate of substitution with words and/or an algebraic expression.

f) What is the value of the marginal rate of substitution?

g) We want to get an idea of how indifference curves look. Let's start by thinking about one of these indifference curves--the one associated with utility equal to 4.

Use words to describe a graph, of the indifference curve associated with utility equal to 4.

What is the equation for this indifference curve?

h) Suppose that extra-strength Tylenol costs 50 cents per tablet, and aspirin costs 50 cents per tablet too. Suppose that the consumer has $2.00 to spend. Write down the equation for the consumer's budget constraint and explain what it means in words.

i) On a separate piece of paper put the indifference curves together with the budget constraint to find the consumer's utility maximizing choice of aspirin and extra-strength Tylenol.

Describe that outcome with words here.

How many aspirin does he consume?

How many extra-strength Tylenol's?

What is the value of the consumer's utility when he chooses his optimal bundle?

QUESTION 25

1. Explain the difference between giving someone $100 in cash, versus giving that same person $100 in food.

Will a recipient's utility improve differently with one transfer versus the other?

For example, will one method improve the recipient's well being more than the other method? Why? What causes the difference?

Are there people (with standard utility functions) whose utility would improve the same amount regardless of the method? If so, what characteristic do these people have that makes it so that the type of payment (cash vs. food) does not matter?

Refer to indifference curve and budget line analysis to answer the question.