Reference: Ref 10-2 (Table: Bundles of X and Y) Look at the table Bundles of X a

Question

Reference: Ref 10-2

(Table: Bundles of X and Y) Look at the table Bundles of X and Y. A consumer can choose among combinations of goods X and Y. The table documents several bundles of X and Y and the utility produced by those combinations. Given this information, it can be said that:

A. bundles A and B are on the same indifference curve.

B. bundles A and C are on the same indifference curve.

C. bundle D is on the highest indifference curve.

D. bundle C is on the highest indifference curve and bundles A and B are on the lowest indifference curve.

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Reference: Ref 10-17

(Figure: Consumer Equilibrium II) Look at the figure Consumer Equilibrium II. Assume Ashyra currently consumes at point G. Given the budget constraint shown, Ashyra would be able to realize more total utility by choosing point ________, all other things held equal.

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Reference: Ref 10-11

(Figure: Income and Substitution Effects) Look at the figure Income and Substitution Effects. Carlos is originally consuming his optimal consumption bundle at point A in the figure when the price of gasoline falls. The dashed line tangent to I1 shows a hypothetical budget line reflecting:

the income and substitution effects.

the new relative prices of gasoline in terms of cell phone minutes and a change in income to keep Carlos on the original indifference curve.

the new relative prices of gasoline in terms of cell phone minutes and a change in income to allow Carlos to reach an indifference curve higher than I1.

the original income, original price of cell phone minutes, and the new price of gasoline.

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Explanation / Answer

1. option A, because indifference curves show various combination of x and y for a given level of utility .

2.option D ,because utility is maximum where budget constraint is tangent to the indifference curve.

3. Option B. because while calculating income and substitution effect we find the income needed to stay on the same indifference curve which we do by making a pivot line.

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