Question 19 The graph bellow presents the indifference curves and the budget lin

Question

Question 19 The graph bellow presents the indifference curves and the budget line of Kevin for the consumption of two goods, pizzas and beer Pizza U-30 U1-10 Beer Based on the information provided in the graph, the true statement is A A and B give same utility level of 10 A A and B give same utility level of 10 B, Kevin is indifferent between A and C, where he uses all his income C.The best Kevin can do is to consume C D. A and C give same utility level of 20 E. Kevin will choose D since it gives him higher utility Selacted Answer: Sunday, June 3, 2018 10:57:44 PM EDT

Explanation / Answer

Question 10

Based on the information provided in the graph the true statement is

A. A and B give same utility level of 10

Explanation:- Because indifference curve is a curve having several locus of points, each representing a combination of two different goods, which yields equal level of satisfaction. So here Kevin can have either combination A or B because both of this combination are on indifference curve U1 which gives equal satisfaction of 10.

C. The best Kevin can do is to consume C

Explanation:- because at this level Kevin gets maximum satisfaction out of its limited budget, Kevin operates at indifference curve U2, which yields maximum satisfaction of 20. Because at C combination, the budget line is tangent with the indifference curve U2 and at C level of combination the slope of the budget line is equal with the slope of the indifference curve, i.e., slope of the price line = MRS

Question 18

Demand is more elastic for an item for which few substitute are available (TRUE)

Explanation:- if a commodity is having more substitutes, then increase in price of that goods may leads to use of its substitute by the consumers, hence its demand is relatively more elastic.

Demand is more elastic for an item which represents a relatively large part of a person’s total budget (FALSE)

Explanation:- demand is less elastic for an expensive item because the consumer purchases them infrequently and they are durable very often like car, television, apartment.

Price increases cause a decrease in a households choice set (TRUE)

Explanation:- increase in price leads to decrease in the value of money, so with a constant income household is forced to limit its choice set and focuses more on necessities.

Homogeneous products are distinguishable from each other (FALSE)

Explanation:- homogeneous products are products with equal shape, size, quality, colour and taste, hence they are not distinguishable.

Question 16

Answer Option D: BD

Explanation:- as per the figure Molly’s budget constraint is AD, if the price of CDs decreases, then CDs are more cheaper than earlier and that leads to accrues or increase in real income of Molly, so with the increase real income Molly could buy more of CD as a result the new budget constraint is BD

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