Jawaban chapter 5

CHAPTER 5

HOUSEHOLD BEHAVIOR AND CONSUMER CHOICE

I. MULTIPLE CHOICES

1. B

2. C

3. A

4. B

5. C

6. B

7. C

8. B

9. C

10. D

II. MATCHING QUESTIONS

1. F

2. J

3. E

4. G

5. H

6. B

7. D

8. A

9. C

10. I

III. TRUE-FALSE

1. F; The change in price of other product will determine the household demand to shifting.

2. F; Labor supply curve is a diagram that shows the quantity of labor supplied at different wage rate.

3. T

4. F; Substitution effect states that when wage increases, the leisure time will decrease.

5. F; the marginal utility comes from the last unit consumed.

6. T

7. F; The labor supply curves will slopes downward when the income effect outweighs the substitution effect

8. T

9. T

10. T

IV. ESSAY

1. Confronted with the choice between two alternative combination of goods and services, A and B, a consumer will respond in one of three ways

- A is prefer over B

- B is prefer over A

- A and B is indifferent, they liked equally

2. a. Budget constraint is the limits imposed on household choices by income, wealth, and product prices.

Equation: Px . X + Py. Y = I

X = quantity of X consumed

Y = quantity of Y consumed

Px = price of good X

Py = price of good Y

I = household income

a. When X=0 when Y=0

8 Y = 480 3 X = 480

Y = 60 X = 160

3. We should choose the point B because at point B we use all the income that we have to buy goods and services which means efficient. It’s different with point A and C. At point A, the maximum condition is unreached because there is a residual budget that we don’t use. Point B is unattainable because we have not enough money to consume at that point.

4. The law of diminishing marginal utility states that the more of any one good consumed in a given period, the less satisfaction generated by consuming each additional unit of the same good.

5. Marginal Rate of Substitution (MRS) is the ratio at which household is willing to substitutes one good (X) for another good (Y).

MRS = MUx/MUy

MRS equal to 5 means a household would be willing to trade five units of Y for one additional unit of X.

6. This paradox states that: “The things with the greatest value in use frequently have little or no value in exchange, and the things with the greatest value in exchange frequently have little or no value in use.”

There are two main points in this theory which are value in use and value in exchange. The very useful thing in our life frequently have little value in exchange such as water because it need a little sacrifice ,easy reflecting in low cost of production, to produce. Vice versa, the less useful thing frequently has large value in exchange, such as diamond because of it need large sacrifice or high cost of production to produce.

7. The substitution effect and income effect when price of X decreases:

- Normal goods

SE: price of Y become relative more expensive, quantity demanded of X increase

IE: purchasing power increase, quantity demanded of X increase

SE and IE go in same direction

Conclusion: quantity demanded of X increase

- Inferior goods

SE: price of Y become relative more expensive, quantity demanded of X increase

IE: purchasing power increase , quantity demanded of X decrease

SE and IE in opposite directionàSE > IE

Conclusion: quantity demanded of X increase

- Giffen goods

SE: price of Y become relative more expensive, quantity demanded of X increase

IE: purchasing power increase , quantity demanded of X decrease

SE and IE in opposite directionàSE <>

Conclusion: quantity demanded of X decrease

Slice of bread consumed	Total utility	Marginal Utility
1	10	-
2	20	10
3	26	6
4	29	3
5	30	0

a. Yes, the data consistent with the law of diminishing marginal utility because when we consume one more and more slice of bread, the additional satisfaction decrease and we have stop to consume in the fourth slice because we will get no more additional satisfaction and if we consume more, even it will cause the negative marginal utility.

9. Substitution effect: The increases in wage means that leisure is more expensive, which causes the household substitute other goods for leisure. It means lower quantity demanded of leisure and higher quantity supplied of labor.

Income effect: The increases in wage will cause the household better off because they will earn higher income and lead to higher demand for leisure. It means quantity supplied of labor will decrease.

If the substitution effect is greater than the income effect, the wage increase will increase labor supply which suggests that the labor supply curve slopes upward (a). But, if the income effect is greater than substitution effect, a higher wage will lead labor supply to decrease which suggest that the labor supply curve slope downward (b).