Debra travels to Mexico and enjoys burritos and Coronas. The diagram at the right shows her utility-maximizing choices. a. If the budget line is line 1, describe why point A is Debra's utility-maximizing choice. (Select al that apply.) At point A, marginal rate of substitution is equal to the relative prices of the two goods. MUceronas Pcoronas MUurrtos Pouritos At point A, OC. At point A. MUCoronas Pceronas MUgumtos Pourtos line 1 D. At point A MUCoronas Pcoronas MUpumtos Peurtos Coronas b. What event can explain why the budget line moves to line 2? O A. An increase in the price of Coronas O B. A decrease in the price of burritos OC. An increase in the price of burritos D. A decrease in the price of Coronas c. What is the meaning of point B in the figure? Since points A and B share the same indifference curve the change from point A to point B represents the substitution effect when there is a decrease in the price of Coronas d. Suppose Coronas are a normal good for Debra. What does this restriction imply about the location of point C? Is this restriction satisfied in the diagram? O A. Point C would be on the same indifference curve as point A. This is not satisfied O B. Point C would correspond to a larger quantity of Coronas when compared to point A. This is satisfied. O C. Point C would correspond to a smaller quantity of Coronas when compared to point A. This is not satisfied. O D. Point C would be on the same budget line as point A. This is not satisfied
Debra travels to Mexico and enjoys burritos and Coronas. The diagram at the right shows her utility-maximizing choices. a. If the budget line is line 1, describe why point A is Debra's utility-maximizing choice. (Select al that apply.) At point A, marginal rate of substitution is equal to the relative prices of the two goods. MUceronas Pcoronas MUurrtos Pouritos At point A, OC. At point A. MUCoronas Pceronas MUgumtos Pourtos line 1 D. At point A MUCoronas Pcoronas MUpumtos Peurtos Coronas b. What event can explain why the budget line moves to line 2? O A. An increase in the price of Coronas O B. A decrease in the price of burritos OC. An increase in the price of burritos D. A decrease in the price of Coronas c. What is the meaning of point B in the figure? Since points A and B share the same indifference curve the change from point A to point B represents the substitution effect when there is a decrease in the price of Coronas d. Suppose Coronas are a normal good for Debra. What does this restriction imply about the location of point C? Is this restriction satisfied in the diagram? O A. Point C would be on the same indifference curve as point A. This is not satisfied O B. Point C would correspond to a larger quantity of Coronas when compared to point A. This is satisfied. O C. Point C would correspond to a smaller quantity of Coronas when compared to point A. This is not satisfied. O D. Point C would be on the same budget line as point A. This is not satisfied
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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7
Option (d) only
Transcribed Image Text:Debra travels to Mexico and enjoys burritos and Coronas. The diagram at the right shows her utility-maximizing choices.
a. If the budget line is line 1, describe why point A is Debra's utility-maximizing choice. (Select all that apply.)
A. At point A, marginal rate of substitution is equal to the relative prices of the two goods.
S B.
At point A,
MUCoronas Pcoronas
Pburritos
B
MUpurritos
MUpuritos
O C.
At point A
Pcoronas
line 2
MUCoronas
Pburritos
line 1
Coronas
YD.
MUCoronas
MUpurritos
At point A,
Pcoronas
Pburritos
b. What event can explain why the budget line moves to line 2?
O A. An increase in the price of Coronas
O B. A decrease in the price of burritos
O C. An increase in the price of burritos
YD. A decrease in the price of Coronas
c. What is the meaning of point B in the figure?
Since points A and B share the same indifference curve , the change from point A to point B represents the substitution effect when there is a decrease in
the price of Coronas
d. Suppose Coronas are a normal good for Debra. What does this restriction imply about the location of point C? Is this restriction satisfied in the diagram?
O A. Point C would be on the same indifference curve as point A. This is not satisfied.
O B. Point C would correspond to a larger quantity of Coronas when compared to point A. This is satisfied.
O C. Point C would correspond to a smaller quantity of Coronas when compared to point A. This is not satisfied.
O D. Point C would be on the same budget line as point A. This is not satisfied.
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