Econ Chapter 6
jane has $500 a week to spend on clothing (c) and food (f). the price of clothing is $25 and the price of food is $10. what is the equation for jane's budget constraint
$25 x clothing + $10 x food = $500
ted has $600 a week to spend on clothing (c) and food (f) the price of clothing is $30 and the price of food is $5. what is the equation for Ted's budget constraint
$30 x clothing +$5 x food=$600
sue is maximizing her utlity. her MUx/Px=10 and MUy/Py=40 therefore the price of Y must be
$4
jim has $600 a week to spend on clothing and food. the price of clothing is $30 and the price of food is $5. the clothing and food pairs in jim's choice set include ___ units of clothing and ___units of food
10, 60
jane has $500 a week to spend on clothing and food. the price of clothing is $25 and price of food is $10. jane spends her entire income when she purchases ___ units of clothing and ____ units of food
12, 20
jane has $500 a week to spend on clothing and food. the price of clothing is $25 and the price of food is $10. the clothing and food pairs in jane's choice set include _______ units of clothing and _____ units of food.
8, 30
a utility-maximizing consumer buys so as to make ___ for all pairs of goods
MUx/MUy=PxPy
a consumer satisfies the condition ____ when her indifference curve is just tangent to her budget constraint
MUx/Px=MUy/Py
assume sally is initially in equilibrium and that X and Y are normal goods for her. then the price of X rises. for sally to move to a new equilibrium point her consumption of
X must decrease
the law of diminishing marginal utility refers to
a consumer's decrease in additional satisfaction as she consumes more and more units of a good
marginal utility is the ____ satisfaction by consuming ____ of a good.
additional, one more unit
the marginal utility of the first cup of coffee that tom drinks in the morning is worth $2.00. the marginal utility of the 9th cup of coffee he drinks is positive while the marginal utility of the 10th cup of coffee he drinks in the morning is worth $0. this implies that at a price of $0, tom would drink
at most 10 cups of coffee per morning
Kathleen likes avocado and crab dip. after eating avocado and crap dip with four crackers, she switches to cheese with crackers. we can conclude that
at this point cheese and crackers have a higher marginal utility per dollar spent than that of avocado and crab dip with crackers
for normal goods, the substitution and income effect of a price decrease will
both increase the quantity of the food demanded
a price change would have the largest income effect on a
car
Richard is consuming X and Y so that he is spending his entire income and MUx/Px=6 and MUy/Py=-10 to maximize utility he should
consume less X and more Y
an assumption underlying indifference curve analysis is that MUx/MUy ____ as more of X and less of Y is consumed
decreases
the law of diminishing marginal utility implies that
demand curves always slope downward and to the right
the diamond/water paradox states that things with the ____ value in use frequently have _____ value in exchange
greatest, little or no
assume leisure is a normal good. the substitution effect of a wage decrease implies a ____ demand for leisure and a ____ labor supply
higher, lower
for matthew, the marginal utility of the 9th soda in a day is positive and the marginal utility of the 10th soda in a day is zero. this
implies that at a zero price Matthew's demand curve will intersect the quantity axis at 10
assuming that leisure is a normal good, if an individual's labor supply curve is backward bending, then the
income effect outweighs the substitution effect at higher wages
price decreases will ____ a household's choice set
increase
as you move up an indifference curve, the absolute value of the slope
increases
assume leisure is an inferior good instead of a normal good this income effect of a wage increase will lead o a ____ demand for leisure and ____ labor supply
lower, higher
katy eats five slices of pizza on a Saturday night but admits each slice of pizza doesn't taste as good as the previous one. this suggests that for katy the
marginal utility of a slice of pizza is positive but decreasing
we can state the utility-maximizing rule in words in the following way: a person maximizes utility when she equalizes the ____ across products
marginal utility per dollar spent
jon is consuming X and Y so that he is spending his entire income and MUx/Px=8 an MUy/Py=4. to maximize utility he should consume
more X and less Y
assuming that charitable giving is a normal good, the income effect of a decrease in personal tax rates would lead to
more giving because households would have more disposable income
we derive the demand curve for X from indifference curves and budget constraint by changing the
price of X
a car's real cost is its opportunity cost. opportunity cost is determined by
relative prices
Michael can buy either pizzas or submarine sandwiches. if the prices of pizzas and submarine sandwiches doubles so does Michael's money income, we can conclude that Michael's budget constraint will
remain unchanged
Michael can buy either pizza or submarine sandwiches. if the prices of pizzas and submarine sandwiches double and Michael's money income triples, we can conclude that Michael's budget constraint will
shift out but remain parallel to the old one
if household's income doubles, its budget constraint will
shift out parallel to the old one
if MUx/Px<MUy/Py, then
spending a dollar less on X and a dollar more on Y increases utility
a rise in the price of pepsi that causes a household to shift its purchasing pattern toward Coke and away from pepsi is the _____ effect of a price change
substitution
the ratio of the marginal utility of coffee to the marginal utility of donuts is four for an individual maximizing utility. this implies that
the coffee to donuts price ratio is four to one
harry tells you that he prefers pepsi to coke, coke to 7-up, and 7-up to pepsi. this violates what assumption made when analyzing consumer preferences?
the consumers are rational
the recession of 2008-2009 has resulted in a tight job market, especially for recent college graduates. in a tight job market
the opportunity cost of accepting an unpaid internship is lower than it is when jobs are plentiful
ellen is spending her entire income on good X and Y. her marginal utility from the last units of X and Y that she consumes is 25. Ellen's utility is only maximized if
the price of X and Y are the same
ellie is spending her entire income on goods X and Y. her marginal utility from the last unit of X is 100 and the marginal utility from the last unit of Y that she consumes is 50. ellie's utility is only maximized if
the price of good X is twice that of good Y
jon is consuming X and Y so that he is spending his entire income and Mux/Px=4 and MUy/Py=4 to maximize utility he should consume
the same amount of X and Y since he is already maximizing utility
for inferior goods, the substitution and income effects of a price increase will
the substitution effect will decrease the quantity of the good demanded while the income effect will increase the quantity of the good demanded
total utility is
the total amount of satisfaction yielded by the consumption of a good or service
if the substitution effect of a wage change outweighs the income effect of a wage change, the labor-supply curve is
upward sloping