Free-Response Review Questions

EM-39

  1. Question

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    Each of the combinations of song and movie downloads shown in the table below give Kathleen an equal level of utility.

    Rubric for FRQ 1 (8 points)

    image

    1 point: Axes labeled “Quantity of songs” and “Quantity of movies”

    1 point: Correctly plotted indifference curve points

    1 point: Negative slope

    1 point: Convex shape

    1 point: Negative slope—yes

    1 point: As more movies are downloaded, there must be fewer song downloads to give Kathleen the same level of utility as before. This trade-off of more of one good for less of another gives the indifference curve a negative slope.

    1 point: Convex shape—no

    1 point: The indifference curve is a straight line with a constant slope, rather than being a convex line with a slope that decreases in absolute value from left to right.

  2. Question

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    Kathleen has $20 to spend on song and movie downloads each week. The price of a song download is $2 and the price of a movie download is $5.

Discussion Starters

  1. Question

    What would it indicate about your preferences for two items if your indifference curves were vertical? Can you think of examples of pairs of items for which this is the case?

  2. Question

    Suppose that on a Saturday afternoon you must divide your time between studying and playing sports, and both activities are free. Could you use a budget constraint and indifference curves to model this decision? Explain your answer.

  3. Question

    Consider the dilemma of how much money to spend now and how much to set aside for the future. Is this another trade-off that could be modeled with a budget constraint and indifference curves? What makes it possible to spend more now than you actually have? If you spend less than you have now, what can you do with your money so that the amount you have to spend in the future grows? What rate associated with these opportunities affects the slope of the budget constraint?