Chapter 1. eFigure 5.1

Animated Graph
A Consumer's Indifference Curves
true
true
You must read each slide, and complete any questions on the slide, in sequence.

Question 1.1

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100
Correct! The slope of the budget constraint is equal to the ratio of the price of the two goods. In this problem neither of the prices changed. The only change observed is an increase in Evan’s income. Accordingly, the ratio of prices is unchanged, as is the slope of the budget constraint. The change in Evan’s income will, however, change the amount of each good that he can afford, so the intercepts on each of the axis will increase.
Incorrect! The slope of the budget constraint is equal to the ratio of the price of the two goods. In this problem neither of the prices changed. The only change observed is an increase in Evan’s income. Accordingly, the ratio of prices is unchanged, as is the slope of the budget constraint. The change in Evan’s income will, however, change the amount of each good that he can afford, so the intercepts on each of the axis will increase.

Question 1.2

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100
Correct! The slope of Evan’s budget constraint is the ratio of the prices of the two goods. The intercept on the fancy meals axis is (Income/Pfancymeals) while the intercept on the vacations axis is (Income/Pvacations). The ratio is therefore equal to: (Income/Pvacations) / (Income/Pfancymeals) which simplifies to (1/Pvacations) / (1/Pfancymeals) = (Pfancymeals) / (Pvacations).
Incorrect! The slope of Evan’s budget constraint is the ratio of the prices of the two goods. The intercept on the fancy meals axis is (Income/Pfancymeals) while the intercept on the vacations axis is (Income/Pvacations). The ratio is therefore equal to: (Income/Pvacations) / (Income/Pfancymeals) which simplifies to (1/Pvacations) / (1/Pfancymeals) = (Pfancymeals) / (Pvacations).

Question 1.3

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100
Correct! We do not know how sensitive Evan is to changes in prices, since prices have not changed in this example. Therefore, we know that statement (a) is false. Given that the only change we are considering is a change in income, the proportion Evan spends on each good is determined by the relative prices of the two goods, which have not changed. Accordingly, statement (c) is true. While these proportions (before and after the income change) are constant, we do not know that they are equal. Accordingly, we cannot conclude the Evan’s additional spending on vacations is equal to his additional spending on fancy meals, and statement (b) is false.
Incorrect! We do not know how sensitive Evan is to changes in prices, since prices have not changed in this example. Therefore, we know that statement (a) is false. Given that the only change we are considering is a change in income, the proportion Evan spends on each good is determined by the relative prices of the two goods, which have not changed. Accordingly, statement (c) is true. While these proportions (before and after the income change) are constant, we do not know that they are equal. Accordingly, we cannot conclude the Evan’s additional spending on vacations is equal to his additional spending on fancy meals, and statement (b) is false.