Week 5 Consumer Choice

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:

400

Refer to the diagram below. In this instance:

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

Which of the following is most likely to cause variation in American household spending patterns?

Each of the above will cause a variation

Decreasing marginal utility 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.

False

During a severe recession, the government issued food stamps that could only be used to acquire food to a greater number of families. The budget line graph shows food on the horizontal axis and everything else on the vertical axis. The government expects that issuing the food stamps will cause each family's budget constraint line to shift to the left.

False, shifts to the right

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

Marginal Utility

Income effect describes a situation where a higher price causes a reduction in the buying power of income, even though actual income has not changed.

True

The Intertemporal choice budget constraint show the tradeoff between present and future consumption.

True

The substitution effect 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.

True

The theoretical model of the intertemporal budget constraint for the U.S economy as a whole suggests that the most common pattern seems to be that the quantity of savings doesn't adjust much to changes in the rate of return.

True

When Marietta chooses to only purchase a combination of goods that lie within her budget line, she:

is maximizing utility

Josh's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Josh knows that 2 pizza and 4 burgers will give him a utility of 8. What is Josh's utility-maximizing point?

2 pizzas and 4 burgers

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

Full-time workers