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Chapter 6: Problem 8
"If a good is inferior, a rise in its price will cause people to buy more of it, thus violating the law of demand." True or false? Explain.
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[Uses the Indifference Curve Approach] a. Draw a budget line for Rafaella, who has a weekly income of \(\$ 30 .\) Assume that she buys chicken and eggs, and that chicken costs \(\$ 5\) per pound while eggs cost \(\$ 1\) each. Add an indifference curve for Rafaella that is tangent to her budget line at the combination of 4 pounds of chicken and 10 eggs. b. Draw a new budget line for Rafaella, if the price of chicken falls to \(\$ 3\) per pound. Assume that Rafaella views chicken and eggs as substitutes. What will happen to her chicken consumption? What will happen to her egg consumption?
Which of the following descriptions of consumer behavior violates the assumption of rational preferences? Explain briefly. a. Joseph is confused: He doesn't know whether he'd prefer to take a job now or go to college full-time. b. Brenda likes mustard on her pasta, in spite of the fact that pasta is not meant to be eaten with mustard. c. Brewster says, "I'd rather see an action movie than a romantic comedy, and I'd rather see a romantic comedy than a foreign film. But given the choice, I think I'd rather see a foreign film than an action movie."
Suppose that 1,000 people in a market each have the same monthly demand curve for bottled water, given by the equation \(Q^{D}=100-25 P,\) where \(P\) is the price for a 12 -ounce bottle in dollars. a. How many bottles would be demanded in the entire market if the price is \(\$ 1 ?\) b. How many bottles would be demanded in the entire market if the price is \(\$ 2 ?\) c. Provide an equation for the market demand curve, showing how the market quantity demanded by all 1,000 consumers depends on the price.
Three people have the following individual demand schedules for Count Chocula cereal that show how many boxes each would purchase monthly at different prices: $$\begin{array}{cccc} \text { Price } & \text { Person 1 } & \text { Person 2 } & \text { Person 3 } \\\ \hline \$ 5.00 & 0 & 1 & 2 \\ \$ 4.50 & 0 & 2 & 3 \\ \$ 4.00 & 0 & 3 & 4 \\ \$ 3.50 & 1 & 3 & 5 \end{array}$$ a. What is the market demand schedule for this cereal? (Assume that these three people are the only buyers.) Draw the market demand curve. b. Why might the three people have different demand schedules?
What would happen to the market demand curve for polyester suits, an inferior good, if consumers' incomes rose?
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