Chapter 1. eFigure 4.14
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! The intercept on the x-axis is determined by calculating the maximum number of pairs of socks that Sarah can purchase, her income divided by the price of a pair of socks. If the price were to fall, her income would be divided by a smaller number, resulting in an intercept of a larger number of pair of socks. For example, if the price of a pair of socks were $2 instead of $5, the intercept would be I/Px= 50/2 = 25 pairs of socks.
Incorrect. The intercept on the x-axis is determined by calculating the maximum number of pairs of socks that Sarah can purchase, her income divided by the price of a pair of socks. If the price were to fall, her income would be divided by a smaller number, resulting in an intercept of a larger number of pair of socks. For example, if the price of a pair of socks were $2 instead of $5, the intercept would be I/Px= 50/2 = 25 pairs of socks.
Question 1.2
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Correct! The budget constraint is linear because the tradeoff between consuming pairs of socks and t-shirts does not change. Sarah’s consumption possibilities are determined by her budget constraint and the prices of the two goods that she is buying. Since the prices of pairs of socks and t-shirts do not change, the tradeoff does not change and the budget constraint is linear, constant for all combinations of pairs of socks and t-shirts.
Incorrect! The budget constraint is linear because the tradeoff between consuming pairs of socks and t-shirts does not change. Sarah’s consumption possibilities are determined by her budget constraint and the prices of the two goods that she is buying. Since the prices of pairs of socks and t-shirts do not change, the tradeoff does not change and the budget constraint is linear, constant for all combinations of pairs of socks and t-shirts.
Question 1.3
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Correct! Sarah has $50 to spend on t-shirts and pairs of socks. If she purchases 2 t-shirts at $10 each, she has spent $20. That leaves her with $30 to spend on pairs of socks. Given that pairs of sock are priced at $5 per pair, Sarah can afford $30/$5 = 6 pairs of socks.
Incorrect! Sarah has $50 to spend on t-shirts and pairs of socks. If she purchases 2 t-shirts at $10 each, she has spent $20. That leaves her with $30 to spend on pairs of socks. Given that pairs of sock are priced at $5 per pair, Sarah can afford $30/$5 = 6 pairs of socks.
Question 1.4
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Correct! All of the points along Sarah’s budget constraint are characterized as points where her budget is exhausted. For all points below the budget constraint, Sarah is buying combinations of goods that cost less than her entire income. For each of these points, Sarah finds that she has money that is left unspent. We know that the prices of the two goods have not changed since that would change the slope of the budget constraint. We also know that a change in Sarah’s preferences cannot describe these points since Sarah’s preferences are not represented in this graph.
Incorrect! All of the points along Sarah’s budget constraint are characterized as points where her budget is exhausted. For all points below the budget constraint, Sarah is buying combinations of goods that cost less than her entire income. For each of these points, Sarah finds that she has money that is left unspent. We know that the prices of the two goods have not changed since that would change the slope of the budget constraint. We also know that a change in Sarah’s preferences cannot describe these points since Sarah’s preferences are not represented in this graph.