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Chapter 3: Q3. (page 128)

If Jane is currently willing to trade 4 movie tickets for 1 basketball ticket, then she must like basketball better than movies. True or false? Explain.

Short Answer

Expert verified

True, Jane likes basketball better than movies. This is evident because, despite costlier basketball tickets, she is willing to trade for movie tickets, which gives her the same level of satisfaction.

Step by step solution

01

Utility function and cardinal approach

The concept of utility refers to the numerical score representing a consumer's satisfaction from a market basket. A utility function is represented by a set of indifference curves that assigns a level of utility to each market basket.

A utility function that describes how much one market basket is preferred to another is called a cardinal utility function.

The cardinal utility function attaches numerical values to market baskets that cannot arbitrarily be doubled or tripled without altering the differences between the values of various market baskets.

02

Preference for basketball over movies

If Jane is willing to trade movie tickets for basketball tickets, she must like basketball over movies. The number of movie tickets exchanged for basketball is large, which means that basketball is costlier than movie tickets.

However, Jane is at the same level of satisfaction when she receives one basketball ticket in exchange for four movie tickets. This justifies her love for basketball.

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Most popular questions from this chapter

Consumers in Georgia pay twice as much for avocados as they do for peaches. However, avocados and peaches are the same price in California. If consumers in both states maximize utility, will the marginal rate of substitution of peaches for avocados be the same for consumers in both states? If not, which will be higher?

Debra usually buys a soft drink when she goes to a movie theater, where she has a choice of three sizes: the 8-ounce drink costs \(1.50, the 12-ounce drink \)2.00, and the 16-ounce drink $2.25. Describe the budget constraint that Debra faces when deciding how many ounces of the drink to purchase. (Assume that Debra can costlessly dispose of any of the soft drink that she does not want.

Anne has a job that requires her to travel three out of every four weeks. She has an annual travel budget and can travel either by train or by plane. The airline on which she typically flies has a frequent-traveler program that reduces the cost of her tickets according to the number of miles she has flown in a given year. When she reaches 25,000 miles, the airline will reduce the price of her tickets by 25 percent for the remainder of the year. When she reaches 50,000 miles, the airline will reduce the price by 50 percent for the remainder of the year. Graph Anne鈥檚 budget line, with train miles on the vertical axis and plane miles on the horizontal axis.

Ben allocates his lunch budget between two goods, pizza, and burritos.

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Antonio buys five new college textbooks during his first year at school at a cost of \(80 each. Used books cost only \)50 each. When the bookstore announces that there will be a 10 percent increase in the price of new books and a 5 percent increase in the price of used books, Antonio鈥檚 father offers him $40 extra.

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