chapter 6

kim has $22 per week in her entertainment budget. she splits her time between going to the movies and yoga classes. each movie costs $10 while each yoga class costs $6. the total ultimate from each of these activities is set out in the table below. what is kim's total utility maximizing point?

1 movie, 2 yoga classes

look at the figure budget lines for tea and scones. for months now, agnes has had $20 per month to spend on tea and scones. the price of each cup of tea and each scone is $1. which of the charts shows what will happen to her budget line if her income increases to $25?

A

look at the figure budget lines for tea and scones. for months now, agnes has had $20 per month to spend on tea and scones. the price of each cup of tea and each scone is $1. which of the charts shows what will happen to her budget line if the price of a cup of tea falls to $0.50?

D

jorge understands that he has maximized his total utility because he is on his budget constraint line and:

MU cameras / P cameras = MU coffee / P coffee

the term _ is used to describe the common pattern whereby each marginal unit of a consumed food provides less of an addition to utility than the previous unit.

diminishing marginal utility

an inferior good is a good:

for which demand decreases when income increases

when economists attempt to predict the spending patterns of U.S. households, they will typically view the _ as a primary determining factor that influences the individual consumption choices that each will make.

income level of each household

the principle of diminishing marginal utility means that when sarah eats pizza, her satisfaction from the second slice of pizza is probably _ that from the first.

less than

Assume that diminishing marginal utility applies to both dish soap and floor wax and that Minh is spending all of her income. If Minh purchases a combination of dish soap and floor wax such that MU dish soap/ / P dish soap= 50 and MUfloor wax tickets/ / Pfloor wax = 60, to maximize utility, Minh should buy _____ dish soap and _____ floor wax.

less; more

when a $1 loss of money pains an individual 2.25 time more than a $1 gain in money, we refer to this as _.

loss aversion

the term _ refers to the additional utility provided by one additional unit of consumption.

marginal utility

the step-by-step process of finding the choice with highest total utility involves a comparison of the:

marginal utility gained and lost from different choices along the budget constraint.

A decrease in consumer preference for a product, other things being equal, will cause:

market demand to shift to the left.

suppose you earn $50 working at the ice cream shop for 5 hours. on your way home, you find $50 next to a garbage can. you are excited for the extra money and decide to spend it on new shoes as soon as you can, whereas you are saving your paychecks to pay off your credit card debt. this scenario of viewing money differently is an example of _.

mental accounting

look at the table the utility of pecan rolls. marginal utility begins to diminish at the _ roll.

second

economists are able to determine total utility by:

summing up the marginal utilities of each unit consumed.

the typical pattern revealed in a budget constraint model shows that as the quantity consumed rises,

total utility rises, but marginal utility falls.

as a general rule, utility-maximizing choices between consumption goods occur where the:

price ratio and marginal utilities ratio of two goods is equal.

According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:

purchase more of the now less expensive good.

what best describes the income effect?

the idea that a higher price means the buying power has been reduced

behavioral economists seek to enrich our understanding of decision-making by integrating _ into economics.

the insights of psychology

which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found?

the marginal utility per dollar is the same for both goods

what effect is at play when faced with a change in price of a good, a consumer has an incentive to consume less of the good with a higher price and more of the good with a lower price?

substitution effect

look at the table The Utility of Pecan Rolls. the marginal utility for the second roll is:

15

the purpose of behavioral economics is to determine why:

People make decisions that appear to be irrational