Question

In: Economics

1. The "endowment effect" suggest that we will fight harder to get what we do not...

1. The "endowment effect" suggest that we will fight harder to get what we do not have than we will to keep what we have in our possession already.
   True
   False
2. Heterodox economics suggests that the hyper-rational nexus of individual consumer behavior may be challenged and ultimately indicates that "fairness" may play into our decision making.
   True
   False
3. The idea that we spend ten dollars found differently than ten dollars hard-earned is indicative of (would support) the hyper-rational decision making model of consumer behavior.
   True
   False
4. A consumer who is rational equates the "marginal utility per dollar" for all goods consumed.
   True
   False
5. By definition, 'indifference curves' cannot cross (intersect).
   True
   False
6. If we increase the budget constraint from $10 to $40 and the budget is being fully allocated between goods where the price of the "Y" good is $2.00 per unit and the price of the "X" good is $4.00 per unit--we would expect the "relative price of good X" to increase. [NOTE: The "Relative Price of Good X would be solved as: $X / $Y (which is the "slope of the Income Constraint)]."
   True
   False
7. If the 'absolute price' (the ticket price) of good "X" DECREASES--we would expect to see the "relative price of good X" to INCREASE.
   True
   False
8. All market baskets--bundles of goods containing the same "total utility" are said to be on the same indifference curve.
   True
   False
9. From the "tangent solution" to the "budget constraint--indifference curve model" we solve: Px/Py = MUx/MUy (indicating that the relative price of good "X" is equal to the MRS) and from this solution we can prove that the MUx/Px = MUy/Py (indicating that the "utils per dollar X" = "utils per dollar Y") and the consumer will be maximizing their total utility given both the objective and subjective constraints on their behavior.
   True
   False
10. A "util" is clearly defined and easily measured in empirical economics as all individuals experience the world similarly.
   True
   False
12. The income elasticity coefficient for an "inferior good" is always positive.
   True
   False
13. The value or magnitude of the "price elasticity of demand coefficient" (Ed) is measured (solved) as the coefficient of "slope" of the relevant demand curve.
   True
   False
14. The cross elasticity of demand coefficient is "less than zero" for complement goods like film and cameras.
   True
   False
15. We would expect the "cross elasticity of demand" coefficient to be positive between Pepsi and Dr. Pepper.
   True
   False

Solutions

Expert Solution

1). False. The endowment effect suggests that people will fight harder or value things more that is owned by them

2). True. Heterodox economics suggests that an individual might not always act in the interest of maximizing his utility, which is often referred to as "rationality" under orthodox economics. Under Heterodox economics, an individual might act according to the societal choices.

3). False. This is because a hyper-rational gives utmost importance to "logic" and "rationality" and does not care about the "emotions". Thus, it will not matter to him if he found the money or hard-earned it, a ten dollar note is equally valuable to him.

4). True. For a rational person, MUx/Px = MUy/Py = MUz/Pz

5). True. This is because it is then it will violate the basic laws of utility. It is not possible for an indifference curve which is to the right of a particular indifference curve to ever represent a value which equals the indifference curve which is to the left of it. Because, if they do interest, the basic definition of the indifference curve will be challenged.

6). False. The relative price remains the same. This is because a parallel shift in the budget line is observed in this scenario of increased income.

7). False. This is because relative price of X is X/Y, and if X decreases, then it is obvious that X/Y will also decrease, and hence the relative price will decrease.

8). True. This is because an indifference curve depicts all bundles of goods available in a market providing equal utility. Every indifference curve shows a unique level of total utility.

9). True.

10) False. A util will be very difficult to define in the real world as a particular commodity might be of different value to each and every individual.

11). False. This is because, for an increase in income levels, the demand for inferior goods will reduce.

12). True. This is because both elasticity and slope of a demand curve showcase that for a given change in price, the quantity demanded changes accordingly(more than or less than proportion)

13). True. The cross-price elasticity of a complementary good is negative. This is because, for an increase in the price of one commodity(film), the quantity demanded of the complementary good(camera) will reduce.

14). True. This is because both Pepsi and Dr. Pepper are both substitute goods.

15).


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