Chapter 5-6

. In May and June, Tammy spent all her clothing budget on bathing suits and beach bags. Each bathing suit cost $75. At Tammy's optimal choice, her marginal utility from the last bathing suit purchased is 300 and her marginal utility from the last beach bag purchased is 200. This means that each handbag must cost:

A. $50

Bob budgets $12 a week for entertainment. He splits his time between going to the movies and going to the gym. Each movie costs $3 and each session at the gym also costs $3. The total utility from each of these activities is shown in the table below. Bob's utility maximizing point is:

A. 1 movies; 3 gym workout sessions

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

A. Diminishing marginal utility

If the supply curve for a product is horizontal, then the elasticity of supply is:

A. Equal to infinity

If the supply curve for a product is vertical, the the elasticity of supply is:

A. Equal to zero

The Price elasticity of demand for Tickets to local baseball games in estimated to be equal to 0.89. In order to boot Ticket revenues, an economist would advise:

A. Increasing the Price of game tickets because demand in inelastic.

Refer to Figure 5-1. Graph B represents a demand curve that is relatively _______. Total revenue ______ as the Price decreases from $10 to $5.

A. Inelastic, decreases

Refer to the budget line shown in the diagram above. At point U, __________.

A. P1/P2 = MU1/MU2

If the supply curve for aspirin is perfectly elastic, then a reduction in demand will cause the equilibrium price to:

A. Stay the same and the equilibrium quantity to fall

Demand is said to be ...... when the quantity demanded is very responsive to changes in price.

A. elastic

Which of the following is considered to be a tell-tale Signal that the Point. with the highest total utility has been found?

A. marginal utility Per Dollar is the same for both goods

A 25 percent decrease in the Price of breakfast cereal lead to a 20 percent increase in the quantity of cereal demanded. As a result:

A. total revenue Will decrease

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

A. total utility rises, but marginal utility Falls.

Kim has $24 per week in her entertainment budget. She splits her time between going to the movies and yoga classes. Each movie costs $8 while each yoga class costs $3. The total utility from each of these activities is set out in the table below. What is Kim's total utility maximizing point?

B. 1 movie; 5 yoga classes

Billy Bob's Barber shop knows that a 5 percent increase in the Price of their haircut results in a 15 percent decrease in the Number of haircut purchased. What is the elasticity of demand facing Billy Bob's Barber shop?

B. 3.0

If the demand curve is perfectly elastic , then an increase in supply will:

B. Increase the quantity exchange but result in no change in the price

As a General rule, utility-mazimizing choices between consumption goods occur where the:

B. Price ratio and marginal utilities ratio of two good is equal

When demand is inelastic

B. consumers are not very responsive to changes in price.

A 10 percent decrease in the Price of potato chips lead to a 30 percent increase in the quantity of soda demanded. It appears that:

B. cross-price elasticity of demand for soda is -3

Demand is said to be ....... when the quantity demanded is not very responsive to changes in price.

B. inelastic

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

B. 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:

B. market demand to shift to the left

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in sipply will cause the equilibrium price to:

B. rise and the equilibrium quantity to stay the same

The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.

B. substitution effect

Demand is said to be ___________ when the quantity demanded changes at the same proportion as the price.

B. unit elastic

In microeconomic terms, the ability of a good or a service to satisfy wants is called:

B. utility

The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the Price is increases to $40, then one would expect sales to equal:

C. 5 units

A perfectly elastic supply curve is:

C. Horizontal

The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in _____

C. Price

marginal utility can:

C. be positive, negative, or zero

the key assumption that accompanies the use of numbers for measuring utility is that:

C. individual choose based on their preferences

A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the Price of macaroni and cheese . From this Information, we can assume:

C. macaroni is an inferior good and Price elasticity of supply is infinite.

Refer to Figure 5-1. With reference to Graph A, at a Price of $5, total revenue equals:

D. $200

Alex has $18 per week in his entertainment budget. He splits his time between going to the movies and renting video games. Each movie costs $6 while each video game rental costs $3. The measured total utility of each of his activities is shown in the table below. What is Alex's utility maximizing point?

D. 1 movies; 4 video game rentals

Todd is a cattle rancher. In June and July he spent his clothing budget on jeans and cowboy hats. Each pair of jeans cost $50 and each hat cost $100. At Todd's optimal choice, his marginal utility from the last pair of jeans purchased is 200. This means that his marginal utility from the last cowboy hat purchased is:

D. 400

A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:

D. Cross-price elasticity of demand for iced tea is -2

If the supply curve for housing is perfectly inelastic, then a reduction in demand will case the equilibrium price to:

D. all and equilibrium quantity to stay the same.

Refer to the above diagram. In this instance:

D. all of the above and the consumer can choose any point on or below the budget constraint line BC.

Substitution and income effects of a change in price of a good may be used to explain the:

D. direct relationship between income and demand.

Which of the following occurs simultaneously with an income effect?

D. substitution effect

Economists are able to determine total utility by:

D. summing up the marginal utilities of each unit consumed.

price elasticity of demand is defined as:

D. the percentage change in quantity demanded divided by the percentage change in price

Refer to figure 5-1. With reference to Graph A, at a price of $10, total revenue equals:

c. $400

Refer to Figure 5-1. With reference to Graph A, at a Price of $5, total revenue equals:

c. $500

A price cut will increase the total revenue a firm receives if the demand for its product is:

d. elastic