Explain the four assumptions on which the theory of consumer choice is based. Select one of these assumptions and explain what would happen if this assumption did not hold true
What will be an ideal response?
It is assumed that more is better. If more is not always better, the indifference curves would eventually have a positive slope. A diminishing marginal rate of substitution is assumed. If this assumption did not hold true, indifference curves would not be convex to the origin. Consumers can rank bundles so that they identify one bundle as being preferred to another or that they are indifferent between bundles. The last assumption is one of rationality. If consumers could not rank bundles or if consumers were not rational, it would be impossible to identify the point of utility maximization.
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You notice that when the inflation rate increases, the interest rate tends to increase. This observation indicates that
A) there might be false causality between inflation and the interest rate. B) higher inflation rates must cause a higher interest rate. C) a scatter diagram of the inflation rate and the interest rate will show a positive relationshi
Refer to the information provided in Figure 2.5 below to answer the question(s) that follow.
Figure 2.5Refer to Figure 2.5. The economy is currently at Point A. The opportunity cost of moving from Point A to Point B is the
A. 30 LCD televisions that must be forgone to produce 60 additional OLED televisions. B. 90 LCD televisions that must be forgone to produce 20 additional OLED televisions. C. 30 LCD televisions that must be forgone to produce 20 additional OLED televisions. D. 120 LCD televisions that must be forgone to produce 40 additional OLED televisions.
Sam has two jobs, one for the winter and one for the summer. In the winter, he works as a lift attendant at a ski resort where he earns $13 per hour. During the summer, he drives a tour bus around the ski resort, earning $11 per hour. If Sam takes fewer hours of leisure in the winter than in the summer, we can assume that his labor supply curve for the range of earnings in this example
a. is horizontal. b. is vertical. c. is upward sloping. d. has a backward-sloping portion.
Rent seeking refers to unproductive activity in the pursuit of profit.
Answer the following statement true (T) or false (F)