Chapter 9

Question 1

Graph and identify consumer equilibrium with indifference curves and budget lines

Answer 1

Indifference curve:
a curve that identifies combinations of goods that generate the same utility (See FIgure 9.1 for the graph)

Question 2

Compare consumer equilibrium with indifference curves an budget lines to consumer equilibrium with equal marginal utilities per dollar spent

Answer 2

utility maximization also means that an indifference curve is just tangent to the budget line at that combination of six doughnuts and seven cups of hot chocolate, as shown in Figure 9.3

Question 3

Graph and predict effect of income changes on consumer equilibrium

Answer 3

See Figure 9.4

Question 4

Identify normal and inferior goods on indifference curve/budget line graphs

Question 5

Graph and predict effect of price changes on consumer equilibrium

Answer 5

See Figure 9.7

Question 6

Identify indifference curve/budget line graphs that violate the law of demand

Answer 6

See Figure 9.9

Question 7

Define income and substitution effects

Answer 7

Income effect:
the impact of a change in real income on the quantity demanded

Substitution effect:
the impact of a change in the relative price of a good on the quantity demanded

Question 8

Identify and measure income and substitution effects on indifference curve/budget line graphs

Answer 8

Figure 9.8

Question 9

Distinguish among normal, inferior, and Giffen goods on indifference curve/budget line graphs

Answer 9

Giffen good:
a good that violates the law of demand in that higher prices increase the quantity demanded and lower prices decrease the quantity demanded

Question 10

Define Real Income

Answer 10

Real income:
the value of income in terms of the quantity of goods that income can purchase