Question

4. If the price of one of the products associated with indifference curves increases, all else the same, what is the result? Prices will be lower,  The individual is able to get to a lower level of utility. The individual is able to get to about the same level of utility. The individual is able to get to a higher level of utility.

5. If the price of one of the products associated with indifference curves decreases, all else the same, what is the result? Prices will be higher. The individual is able to get to about the same level of utility. The individual is able to get to a lower level of utility. The individual is able to get to a higher level of utility.

6. Which of the following statements best describes how individuals maximize their utility given a constraint? None of these possible answers make sense, This can be shown when the budget constraint is tangent to the lowest indifference curve possible, This can be shown when the budget constraint is tangent to the highest indifference curve well above the constraint, This can be shown when the budget constraint is tangent to the highest indifference curve

7. Whenever marginal benefit is less than marginal cost, the decision maker should do _____ of the activity. less, none, that exact amount, more

Answer 1

4. The initial budget line is AB and the initial indifference curve is IC1 from which it derives a utility level of U1. Now suppose as price of good X increases, the budget line will rotate inward and the new budget line AB’ will be tangent to a lower indifference curve IC2 with respect to which consumer derives utility of U2. Now as IC2 lies lower than IC1, hence IC2 gives lower utility than IC1. This is also true when price of good Y increases. Hence the answer will be:

The individual is able to get to a lower level of utility.

5. The initial budget line is AB and the initial indifference curve is IC1 from which it derives a utility level of U1. Now suppose as price of good X decreases , the budget line will rotate outward and the new budget line AB’ will be tangent to a higher indifference curve IC2 with respect to which consumer derives utility of U2. Now as IC2 lies higher  than IC1, hence IC2 gives higher utility than IC1. This is also true when price of good Y decreases. Hence the answer will be:

The individual is able to get to a higher level of utility.

6, Individual maximises their utility when the given budget line becomes tangent to the highest attainable indifference curve. Hence the answer will be:

This can be shown when the budget constraint is tangent to the highest indifference curve.

7. When Marginal benefit ( MB) < Marginal cost ( MC)

Hence marginal benefit should increase which means that if consumer does less of an activity, then marginal benefit will increase and eventually MB becomes equal to MC.
Hence the answer will be:

The decision maker should do Less.    Of the activity.