Chapter 21 Questions for Review

Chapter 21 Questions for Review - 1 'sbudgetconstraint....

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Chapter 21 Questions for Review 1. Figure 4 shows the consumer's budget constraint. The intercept on the horizontal  axis shows how much cheese the consumer could buy if she bought only cheese;  with income of \$3,000 and the price of cheese \$6 a pound, she could buy 500  pounds of cheese. The intercept on the vertical axis shows how much wine the  consumer could buy if she bought only wine; with income of \$3,000 and the price of  wine \$3 a glass, she could buy 1,000 glasses of wine. With cheese on the horizontal  axis and wine on the vertical axis, the budget constraint has a slope of -1,000/500 =  -2. Note that if you had put wine on the horizontal axis and cheese on the vertical  axis, the budget constraint would have a slope of -500/1,000 = -1/2. Figure 4

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2. Figure 5 shows a consumer's indifference curves for wine and cheese. Four  properties of these indifference curves are: (1) higher indifference curves are
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Chapter 21 Questions for Review - 1 'sbudgetconstraint....

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