True or false.  A change in prices or income can alter preferences and thus the indifference curves can shift.

Present a budget line and a budget set for the consumer of two good X and Y, where the consumer has an income of $3,000 per month. Assume the price of X is 2 and the price of Y is 6. Suppose the price of Y decreases to 4. Show how your budget line changes and use your diagram to explain why the price decrease will make the consumer better off. Add at least two indifference curves, using them to show how the decrease in price will change the optimal choice, assuming the law of demand holds for good Y.

A college student has two options for meals: eating at the dining hall for $6 per meal, or eating a Cup O’ Soup for $1.50 per meal. His weekly food budget is $60.    Draw the budget constraint showing the trade-off between dining hall meals and Cups O’ Soup. Assuming that he spends equal amounts on both goods, draw an indifference curve showing the optimum choice. Label the optimum as point A.   Suppose the price of a Cup O’ Soup now rises to $2. Using your diagram from part (a), show the consequences of this change in price. Assume that our student now spends only 30 percent of his income on dining hall meals. Label the new optimum as point B.   What happened to the quantity of Cups O’ Soup consumed as a result of this price change? What does this result say about the income and substitution effects? Explain.

We claimed in the text that if preferences were monotonic, then a diag-onal line through the origin would intersect each indifference curve exactly once. Can you prove this rigorously? (Hint: what would happen if itintersected some indifference curve twice?)

Alex has a monthly budget of $72 to spend on commuter train trips and organic pasta. Each train trip costs $12; each box of pasta costs $6. Alex's preferences for train travel and pasta are represented by the indifference map on the following page. a. Determine which line (L1, L2, L*, or L**) represents Alex's budget constraint. b. Find their utility-maximizing bundle (E1, E2, e*, or e**). How many train trips will Alex take? Suppose the state government establishes a program to subsidize public transportation for commuters, such that each train trip now costs Alex $6. c. Determine which line (L1, L2, L*, or L**) represents Alex's new budget constraint. d. Find their new utility-maximizing bundle (E1, E2, e*, or e**). Determine how many train trips Alex will now take. e. Find the size and direction (positive or negative) of the substitution effect for train trips. As part of your answer, state the starting quantity and ending quantity of train trips that represent this effect. f. Find…

Suppose that the only items you consume are bread and wine. If the price of bread were to increase tomorrow, and if simultaneously your income were to increase by just enough so that you were equally as happy tomorrow as today, what would happen to the level of your consumption of bread ? Illustrate your answer with indifference curves

There are two shows on Netflix that Jeff can watch, Show 1 and Show 2. Where x₁ measures the number of episodes watched of Show 1 and x2 measures the number of episodes watched of Show 2, Jeff's preferences can be represented by u(x₁, x₂) = x² + ax. Jeff has 8 hours available for watching Netflix today. Each episode of Show 1 lasts 30 minutes, while each episode of Show 2 lasts one hour. Draw an indifference curve for Jeff, then answer the following questions. If rounding is needed, please round to 3 decimal places. a) When a = 2, Jeff optimally watches_ episodes of Show 1..... (fill in the blank) b)... and he watches episodes of Show 2. (fill in the blank) c) When a = 6, Jeff optimally watches_ episodes of Show 1..... (fill in the blank) d) ... and he watches. episodes of Show 2. (fill in the blank)

Explain the consumer’s Preferences and the Indifference Curve

What are indifference curves?

Why is the slope of an indifference curve convex? Which is the best indifference curve?