Principles of Economics- Mankiw (5th) 475

Principles of Economics- Mankiw (5th) 475 - CHAPTER 21 THE...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 21 THE THEORY OF CONSUMER CHOICE 489 2. Draw a consumer’s indifference curves for wine and cheese. Describe and explain four properties of these indifference curves. 3. Pick a point on an indifference curve for wine and cheese and show the marginal rate of substitution. What does the marginal rate of substitution tell us? 4. Show a consumer’s budget constraint and indifference curves for wine and cheese. Show the optimal consumption choice. If the price of wine is $3 a glass and the price of cheese is $6 a pound, what is the marginal rate of substitution at this optimum? 5. A person who consumes wine and cheese gets a raise, so his income increases from $3,000 to $4,000. Show what happens if both wine and cheese are normal goods. Now show what happens if cheese is an inferior good. 6. The price of cheese rises from $6 to $10 a pound, while the price of wine remains $3 a glass. For a consumer with a constant income of $3,000, show what happens to consumption of wine and cheese. Decompose the
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

Ask a homework question - tutors are online