chapter 6-

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?

1 movie, 5 yoga classes

For lunch, Maria eats only salads or vegetarian burgers. Her weekly food budget is $36. Each salad costs $6 and each vegetarian burger costs $3. When deciding how much of each good to buy, Maria knows that 2 salads and 4 vegetarian burgers will give her a utility of 8. Maria's utility-maximizing point is:

3 salads, 6 vegetarian burgers

Rick eats only french fries and burgers at his office cafeteria. His weekly lunch budget is $48. Each burger costs $6 and each order of fries costs $3. When deciding how much of each good to buy, Rick knows that 2 burgers and 4 orders of french fries will give him a utility of 8. At his utility-maximizing point, Rick's utility is:

32

Troy has a part-time job in a book store to help pay for his college. He can work up to 30 hours each week at his job, which pays $9 per hour. The table below shows his utility from different levels of leisure and income. Troy currently works 20 hours per week. If he decides to work 30 hours instead, his marginal utility gain from the additional income is ____.

9

How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices of Americans?

Consumer Expenditure Survey

Refer to the budget line diagram Fig 6-2, below. At point U, __________.

P1/P2 = MU1/MU2

In terms of microeconomic analysis, what is the function of "utils"?

a measurement of utility

Economic theory offers ____________________ about the full range of possible events and responses, which can prevent __________________ about how households will respond to changes in prices or incomes.

a systematic way of thinking; misguided conclusions

In the U.S., the amount in savings contributed to IRAs rose from $239 billion in 1992 to $3,667 billion by 2005, while overall savings actually dropped from low to lower. Evidence suggests that, in the economy as a whole, increased savings in these retirement accounts:

are being offset by negative savings or less savings in other kinds of accounts.

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.

diminishing marginal utility

An inferior good is a product:

for which demand decreases as income increases.

Even with wage increases, the supply curve of labor is most often inelastic for which of the following?

full-time workers

The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.

income effect; higher price

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

individuals choose based on their preferences.

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

market demand to shift to the left.

Mark's annual after tax income earnings are $50,000. His $40,000, 3-year CD is maturing in the near future and he is planning to spend the interest on a 6 week holiday after that. His investments can earn a total of 10% before he starts his trip. If Mark's "present consumption" is the time he spends working and his "future consumption" is his trip, his optimal choice from the table below is to:

spend $10,000 now and consume $44,000 in the future.

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

utility.

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

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

rise in income has created the greatest utility.

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.

substitution effect