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Unformatted text preview: Chapter 05  Constraints, Choices and Demand !Unexpected End of Formula Chapter 5: Constraints, Choices and Demand Main Concepts and Learning Objectives This chapter focuses on consumer decisions. Consumers maximize utility by considering the affordable options, and then selecting the most preferred bundle. Changes in prices and income impact the set of affordable options that is available to the consumer. The impacts of these changes on consumer purchasing decisions are summarized in demand curves. In addition, the chapter discusses strategies for learning about consumer preferences. Students who have mastered the material presented in this chapter will be able to: • Use budget line / indifference curve graphs to identify the optimal bundle • Use budget line / indifference curve graphs to show the impact of inkind grants, compared with unrestricted cash grants • Use budget line / indifference curve graphs to show how the optimal bundle is impacted by changes in price or income • Use budget line / indifference curve graphs to develop a price consumption curve and a demand curve Multiple Choice Quiz (10 questions) covering main points: 1. Which of the following graphs correctly illustrates Madeline’s set of affordable consumption bundles (from Intext exercise 5.1). a. 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 0.5 1 1.5 2 2.5 3 3.5 B r e a d 51 Chapter 05  Constraints, Choices and Demand b. 1 2 3 4 5 6 7 2 4 6 8 10 12 14 B r e a d c. 0.5 1 1.5 2 2.5 3 3.5 4 4.5 2 4 6 8 10 B r e a d 2. Which of the following options correctly provides the slope and the vertical axis intercept for the first cases detailed in intext exercise 5.2? a. With soup graphed on the horizontal axis, the slope is .25, and the vertical intercept is 80. b. With soup graphed on the horizontal axis, the slope is 4, and the vertical intercept is 80. c. With soup graphed on the horizontal axis, the slope is 4, and the vertical intercept is 20. d. None of the above 3. Consider WorkedOut Problem 5.3 If the price of bread increases to $3, what will happen to Madeline's utility? (Hint: use Table 5.3a , and examine the impact of the price increase on the set of Madeline's feasible options.) a. The maximum possible utility decreases by 3. b. The maximum possible utility increases by 3. c. The maximum possible utility does not change. d. The maximum possible utility decreases by 1. 52 Chapter 05  Constraints, Choices and Demand 4. Referring to Intext Exercise 5.4: how many concert tickets will Natasha choose if the price of concert tickets increases to $25, assuming that the price of films does not change? a. 5.5 b. 6 c. 7.5 d. 9 5. Gary’s parents know that Gary’s car requires a lot of engine oil. Every year, they give Gary a case of oil. They could, of course, have given Gary money, and allowed him to choose whether to purchase engine oil or some other good. The information presented in application 5.1 implies that Gary’s utility might be higher if he received money instead of application 5....
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 Spring '11
 Craig
 Utility, Madeline, c. Natasha, MRSCF

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