Question

13. In terms of indifference curves, an increase in total utility is represented by a:

	A.	movement upward along an indifference curve.
	B.	shift to the left to a lower indifference curve.
	C.	movement downward along an indifference curve.
	D.	shift to the right to a higher indifference curve.

14. A consumer has a budget of $60 and wishes to purchase both products A and B. The price of product A is $8.42, while the price of product B is $26.32. The marginal utilities of the two products are provided in the table below.

Q	MUA	MUB
1	17	25
2	14	24
3	11	23
4	8	22
5	5	21
6	2	20
7	0	19
8	0	18
9	0	17
10	0	16

The optimal bundle is ____ of product A and ____ of product B.

	A.	5 ; 1
	B.	3 ; 2
	C.	5 ; 2
	D.	4 ; 1
	E.	2 ; 0

Rudolph has a budget of $22 to spend on rice ( R) and chicken nuggets ( N). The price of rice is $4.04 per pound, and the price of chicken nuggets is $3.28 per unit. The table below shows the marginal utilities that the consumer gets from the different quantities of both.

Q	MUR	MUN
1	20	19
2	18	16
3	16	13
4	14	10
5	12	7
6	10	4
7	8	1
8	6	0
9	4	0
10	2	0

What is the optimal bundle of rice and chicken nuggets ( Q_R, Q_N) for Rudolph? ( Q_R, Q_N) =

	A.	(3, 3)
	B.	(4, 4)
	C.	(2, 4)
	D.	(4, 3)
	E.	(4, 2)

Answer 1

Answer to Question 13 :

Option D. Shift to the right to a higher indifference curve.

Reason :

An indifference curve shows combinations of two goods which provide the same utility to a consumer, which means that all the combinations of two goods on one indifference curve will give constant utility to a consumer.

For utility to rise, quantity of either or both of the goods have to rise. As higher utility means higher quantity of goods, the curve will have to shift to accommodate combinations which have more of either or both the goods. This will result in the indifference curve to move to it's right where either or both of the goods will have higher quantities. Hence, Option D is the correct answer.

Option A is incorrect because when an indifference curve moves upwards it means that the quantity of the good assigned to the vertical axis is increasing. This will result in higher utility but is not always the case. This can also happen when the utility derived from good assigned to the vertical axis falls. As the utility falls, the consumer will buy more of the vertical axis good but still the utility will remain same.

Option B is incorrect because at a lower indifference curve the combinations of goods will be lesser and hence, the utility derived will be lower than before.

Option C is incorrect because all points on the indifference curve gives the same level of utility. This means that any movement along the same IC will give constant utility.

NOTE : As per our guidelines, in case of multiple questions without specification as to which question needs to be solved, only the first question is answered.