Page 843 - Krugmans Economics for AP Text Book_Neat

4. If the quantity of good X is measured on the horizontal axis and 5. If the quantity of good X is again measured on the
the quantity of good Y is measured on the vertical axis, the horizontal axis and the quantity of good Y is measured
marginal rate of substitution is equal to on the vertical axis, which of the following is true? The
optimal consumption bundle is found where
ΔQ X Section 14 Appendix
a. .
ΔQ Y MU X = P X
a. .
MU Y P Y
b. MU X .
MU Y b. the slope of the indifference curve equals the slope of
the budget line.
c. P X .
P Y c. the indifference curve is tangent to the budget line.
d. the ratio of the slope of the budget line and the slope of the d. MU X = MU Y .
P X P Y
indifference curve.
e. all of the above are true.
e. 1 at the optimal level of consumption.
Tackle the Test: Free-Response Questions

1. Each of the combinations of iPod song downloads and DVD
1 point: Axes labeled “Quantity of songs” and “Quantity of DVDs”
rentals shown in the table below give Kathleen an equal level of
utility. 1 point: Correctly plotted indifference curve points
Quantity of songs Quantity of DVDs
1 point: Negative slope
0 8
1 6 1 point: Convex shape
2 4 1 point: Negative slope—yes
3 2
4 0 1 point: As more DVDs are rented, there must be fewer song downloads to give
Kathleen the same level of utility as before. This trade-off of more of one good
a. Graph Kathleen’s indifference curve.
for less of another gives the indifference curve a negative slope.
b. Economists believe that the individual indifference curves
for ordinary goods exhibit what two properties? 1 point: Convex shape—no
c. Does Kathleen’s indifference curve exhibit the two
1 point: The indifference curve is a straight line with a constant slope, rather than
properties from part b? Explain. being a convex line with a slope that decreases in absolute value from left to right.

Answer (8 points) 2. Kathleen has $20 to spend on iPod song downloads and DVD
rentals each week. The price of an iPod song download is $2
Quantity and the price of a DVD rental is $5.
of songs a. Graph Kathleen’s budget line.
4 b. Suppose all of Kathleen’s indifference curves have the same
shape and slope as the one in Question 1. How many song
3 downloads and DVD rentals will Kathleen purchase to
maximize her utility? Explain.
2

1

0 1 2 3 4 5 6 7 8
Quantity of DVDs

module 80 Appendix 801