Problem
Text Book: "Study Guide to Principles of Microeconomics" by Joseph Stiglitz.
Chapter 6: Household Behavior and Consumer Choice hapter objectives.
1. Draw and explain the meaning of a budget constraint diagram, given price and income data. Indicate the constraints on a household's consumption choices and relate these to the concept of the opportunity set.
2. Distinguish between total utility and marginal utility.
3. State the law of diminishing marginal utility. State the utility. maximizing rule in words and mathematically, and analyze how the consumer would respond to disequilibrium situations.
4. Relate the utility. maximizing rule to the diamond water paradox.
5. Explain why the concept of utility is useful in demand analysis Distinguish between the income effect and the substitution effect and explain their role in the theory of household behavior.
7. Analyze the shape of the labor-supply curve using the income and substitution effects.
8. Explain why indifference curves are negatively sloped and cannot intersect.
9. Derive a demand curve using indifference curve analysis
BRAIN TEASER: Your brain teaser in this chapter is to explain a classic economics puzzle-the diamond water paradox. Why is it that diamonds, which, for most of us, have little practical use, are vahued much more highly than water, which is essential for life? The solution is offered in the textbook see if you can puzzle it out before the textbook covers it on p. 119.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.