Chapter 1. eFigure 4.15
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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Correct! If the price of a pair of socks were to fall, Sarah would be able to purchase more pairs of socks than previously. Accordingly, the intercept on the x-axis (the pairs of socks axis) would increase, pivoting outward, away from the origin.
Incorrect! If the price of a pair of socks were to fall, Sarah would be able to purchase more pairs of socks than previously. Accordingly, the intercept on the x-axis (the pairs of socks axis) would increase, pivoting outward, away from the origin.
Question 1.2
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Correct! At a new price of $4, with an income of $50, Sarah is able to purchase a maximum of $50/$4 =12.5 pairs of socks if she spends her entire income on pairs of socks.
Incorrect! At a new price of $4, with an income of $50, Sarah is able to purchase a maximum of $50/$4 =12.5 pairs of socks if she spends her entire income on pairs of socks.
Question 1.3
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Correct! A decrease in the price of t-shirts will result in a steeper budget constraint as the intercept on the y-axis rises. In like manner, an increase in the price of a pair of socks will result in a steeper budget constraint as the intercept on the x-axis shifts toward the origin. An increase in the price of t-shirts will result in a flatter budget constraint as the intercept on the y-axis shifts toward the origin. Combining this with a decrease in the price of a pair of socks will further flatten the budget constraint as the intercept on the x-axis rises, moving further away from the origin.
Incorrect! A decrease in the price of t-shirts will result in a steeper budget constraint as the intercept on the y-axis rises. In like manner, an increase in the price of a pair of socks will result in a steeper budget constraint as the intercept on the x-axis shifts toward the origin. An increase in the price of t-shirts will result in a flatter budget constraint as the intercept on the y-axis shifts toward the origin. Combining this with a decrease in the price of a pair of socks will further flatten the budget constraint as the intercept on the x-axis rises, moving further away from the origin.
Question 1.4
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Correct! A decrease in the price of t-shirts will result in a steeper budget constraint as the intercept on the y-axis rises. The new intercept on the y-axis will be $50/$2 = 25. Since this point is further from the origin and the intercept on the x-axis has not changed, her budget constraint has become steeper. Sarah is now able to purchase more t-shirts than should could previously. The slope of Sarah’s budget constraint is still equal to rise/run, to –PX/PY. Specifically, the slope of her budget constraint is now -5/2.
Incorrect! A decrease in the price of t-shirts will result in a steeper budget constraint as the intercept on the y-axis rises. The new intercept on the y-axis will be $50/$2 = 25. Since this point is further from the origin and the intercept on the x-axis has not changed, her budget constraint has become steeper. Sarah is now able to purchase more t-shirts than should could previously. The slope of Sarah’s budget constraint is still equal to rise/run, to –PX/PY. Specifically, the slope of her budget constraint is now -5/2.
Question 1.5
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Correct! Sarah’s increase in income allows her to purchase more t-shirts and more pairs of socks, shifting out the intercepts on both axes. The intercept on the x- axis will now be $100/$5 = 20. The intercept on the y-axis will now be $100/$10 = 10. Note that the intercepts on both axes have exactly doubled. Since the prices of t-shirts and pairs of socks have not changed, the slope of her budget constraint has not changed. Given that Sarah has more income, she is able to purchase more than before. This provides her with a larger feasible set than the one she originally had.
Incorrect! Sarah’s increase in income allows her to purchase more t-shirts and more pairs of socks, shifting out the intercepts on both axes. The intercept on the x- axis will now be $100/$5 = 20. The intercept on the y-axis will now be $100/$10 = 10. Note that the intercepts on both axes have exactly doubled. Since the prices of t-shirts and pairs of socks have not changed, the slope of her budget constraint has not changed. Given that Sarah has more income, she is able to purchase more than before. This provides her with a larger feasible set than the one she originally had.