1. John spends his entire budget on gasoline and piononos. Draw your budget line under the following conditions A. Their income is $ 80 and a gallon of gasoline and a pionono (both) cost $ 1.60. B. Your income is $ XXXXXXXXXXand the two prices remain the same. C. Your income is $ 80 and a gallon of gas costs $ 2.00 / gallon and a pionono costs $1.60 each. 2. What information gives us an indifference curve about consumer preferences? Based on your answer, explain why it is convex toward the origin. 3. Use the following diagram (showing the indifference map and the consumer budget line) to answer the following questions. The consumer's income (budget) is $ 600. A. The Price of Y is $ ______ while the price of X is $ ______. The consumer must buy _____ units of X and ____ units of Y. In equilibrium the marginal rate of substitution (TMS) is _____. B. If the consumer is buying the combination at point A, the TMS is ________________ (greater, lower) than the price ____________, so the consumer should buy more ______ and less ______ in order to increase their utility. The consumer would not buy some combination on the indifference curve III because ____________________________________________________________________ _____________________________________________________. C. If the consumer is buying the combination at point B, the TMS is ______ Than the ____________ of prices, so the consumer should buy more ______ And less ______ to increase its usefulness. At point B, MU P is XX ____________ (major, minor) than MU P. YY 4. Use the following diagram (showing two budget lines, LR and LZ) to answer the following questions. The consumer budget is $ 720. A. For budget line LR the price of Y is $ ______ while the price of X is $ ______. B. For budget line LM the price of Y is $ ______ and the price of X is $ ______.
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