question archive Please just tell me the correct options for these 5 subquestions of the same ONE question
Please just tell me the correct options for these 5 subquestions of the same ONE question
Subject:EconomicsPrice:3.86 Bought11
Please just tell me the correct options for these 5 subquestions of the same ONE question. You may choose not to give an explanantion:
(1A) What are the main differences between traditional economics and behavioral economics?
- Traditional economics assumes that decision makers are fully informed.
- Behavioral economics does not take as a given that decision makers are rational.
- Traditional economics is mainly theoretical.
(1B) Rick's enjoyment of soda follows the principle of diminishing marginal utility. He calculates his total utility after consuming the first soda at 10, second soda at 15, third soda at 20, and fourth soda at 19. By the fourth soda Rick starts to feel sick. When is Rick's marginal utility maximized?
- When he consumes the fourth soda.
- When he consumes the third soda.
- When he consumes the first soda.
(1C) Along an indifference curve, if the marginal rate of substitution is 3, then the consumer is willing to
- give up 1 unit of the good measured along the vertical axis for 3 units of the good measured along the horizontal axis.
- give up 3 units of the good measured along the vertical axis for 1 unit of the good measured along the horizontal axis.
- pay $3 for one unit of the good measured along the vertical axis.
(1D) As a student Shayla enjoys consuming alphabet soup which is considered an inferior good. After Shayla graduates from college she acquires a job working as a data analyst and her income increases dramatically. What will most likely happen to Shayla's consumption of alphabet soup?
- Shayla would discontinue consuming the soup and start eating steaks.
- Shayla would continue consuming alphabet soup.
- Shayla would discontinue consuming the soup and switch to peanut butter.
(1E) Suppose a consumer moves up and to the left along an indifference curve from point A to point B. If the consumer gives up one unit of X (on the horizontal axis), but only requires a small amount of good Y (on the vertical axis) to compensate, then what can we say about the marginal rate of substitution and the slope of the indifference curve between points A and B?
- The marginal rate of substitution is high and the indifference curve is steep.
- Total utility is increasing.
- The marginal rate of substitution is low and the indifference curve is relatively flat.
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(1A) 2. Behavioural economics does not take as a given that decision makers are rational
(1B) 2. When he consumes the third soda
(1C) 2. give up 3 units of the good measured along the vertical axis for 1 unit of the good measured along the horizontal axis
(1D) 1. Shayla would discontinue consuming the soup and start eating steaks
(1E) 3. The marginal rate of substitution is low and the indifference curve is relatively flat
Step-by-step explanation
(1A) Behavioural Economics incorporates psychology playing a major role in making decisions. According to this branch of economics, if a consumer makes decisions based on their emotions they might not be making a 'rational choice' (that is, a choice in the best of their self-interest). Hence, with decisions being made on a psychological cost & benefit analysis, humans tend to make irrational decisions and hence, rational decision making is not taken as 'given' in behavioural economics.
(1B) Number of Sodas Total Utility Marginal Utility
1 10 -
2 15 5 (15 - 10)
3 20 5 (20 - 15)
4 19 -1 (19 - 20)
As can be seen from the above table, Rick got the highest Marginal Utility when he consumed the third soda. After this point, his Total Utility declined to 19 from 20 (indicating a fall in Marginal Utility as well).
(1C) MRS = (Delta Y/Delta X) where Delta implies change in units of a good.
If MRS = 3, then
(Delta Y/Delta X) = 3/1
That is, to gain a unit of good X the consumer needs to give up 3 units of good Y and vice versa.
(1D) Inferior goods are goods, the demand for which is inversely related to an increase in income. That is, with an increase in money income a consumer shifts towards consumption of better quality goods and hence, the consumption of inferior goods decline.
Example: A shift away from frozen foods towards nutritional vegetables with an increase in income.
Hence, Shayla would tend to shift away from alphabet soup to high quality steak after an increase in her income.
(1E) The slope of an indifference curve is the Marginal Rate of Substitution (MRS).
MRS = (Delta Y/Delta X), where Delta implies change in units of a good.
Here Delta X is given as 1.
And Delta Y is less than 1 (since it is said that small amount of Y is required)
Hence, MRS < 1.
A low MRS implies a flatter slope of a usual convex indifference curve. This flat slope implies more units of a good on the X axis is required to compensate for a good on the Y axis, following the budget constraint with a fixed given income.
