Chapter 1. eFigure 5.7

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

Question 1.1

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100
Correct! In order to maximize her utility and reach the highest possible indifference curve, Caroline will exhaust her budget and consume at a point on her budget constraint. In essence, we assume she receives no utility from “savings” and thus spends her entire budget on grape juice and Mountain Dew.
Incorrect! In order to maximize her utility and reach the highest possible indifference curve, Caroline will exhaust her budget and consume at a point on her budget constraint. In essence, we assume she receives no utility from “savings” and thus spends her entire budget on grape juice and Mountain Dew.

Question 1.2

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100
Correct! The demand curve represents the relationship between price and quantity, describing how quantity demanded changes at each of many prices. The only change considered is that of the price of the good. The other variables mentioned are among those held constant, according to our assumption of ceteris paribus. They influence Caroline’s demand for grape juice and changing one of those variables would shift where it is located.
Incorrect! The demand curve represents the relationship between price and quantity, describing how quantity demanded changes at each of many prices. The only change considered is that of the price of the good. The other variables mentioned are among those held constant, according to our assumption of ceteris paribus. They influence Caroline’s demand for grape juice and changing one of those variables would shift where it is located.

Question 1.3

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100
Correct! The increase in the price of grape juice shifts Caroline’s budget constraint in, along the grape juice axis. Accordingly, her budget set is smaller and the tangency with the highest indifference curve occurs at a smaller quantity of grape juice. Her preferences have not changed across the two indifference curves, U2 and U3. The difference between the two indifference curves is the level of total utility attained.
Incorrect! The increase in the price of grape juice shifts Caroline’s budget constraint in, along the grape juice axis. Accordingly, her budget set is smaller and the tangency with the highest indifference curve occurs at a smaller quantity of grape juice. Her preferences have not changed across the two indifference curves, U2 and U3. The difference between the two indifference curves is the level of total utility attained.