People’s rankings of activities are sometimes described in terms of their “priorities.” For example, some students claim that getting good grades takes priority over watching television or dating. Does this ranking mean they never engage in the latter activities and spend all their time studying? If people do consume both high-priority and low- priority goods, what do we mean when we say that some goods have higher priorities than others?
Answer to relevant QuestionsExplain how the indifference curve and budget line apparatus are used to derive a consumer’s demand curve. For a demand curve, certain things are held constant. What are they, and how does this approach hold them constant? In the tax-plus-rebate example discussed in the text, suppose that the government adjusts the size of the rebate so that the consumer stays on her initial indifference curve (U2 in Figure 4.4). Show the results in a diagram. ...Assume that Dan’s income–consumption curve for potatoes is a vertical line when potatoes are on the horizontal axis. Show that Dan’s demand curve for potatoes must be downward sloping.In a two-year period, Anna has earnings of $ 6 million this year (year 1) and earnings of $ 10 million next year (year 2). She can borrow or lend at an interest rate of 25 percent. Suppose that Anna decides to borrow $ 1 ...With an excise tax of $ 0.20 per six-pack, Kristine purchases three six- packs of Diet Coke per day. If the government eliminates the excise tax and, instead, requires Kristine to pay $ 0.60 per day as a lump-sum tax (the ...
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