Econ Ch 5 and 6

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

. a measurement of utility

A perfectly elastic supply curve is:

. horizontal.

When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as _________.

. inelastic

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

. price

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

. rise and the equilibrium quantity to stay the same.

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 right.

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve?

1.0

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

3.0

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?

4.25

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

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

5 units.

__________ is the change in what is on the horizontal axis (quantity) divided by the change in what is on the vertical axis (price).

Elasticity

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

Marginal utility can

be positive, negative, or zero

. When demand is inelastic:

consumers are not very responsive to changes in price.

The most common pattern for marginal utility is ____________________.

diminishing marginal utility

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

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

each of the above will cause a variation

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

elastic

Supply is said to be ____________ when the quantity supplied is very responsive to changes in price.

elastic

Youth smoking seems to be more __________ than adult smoking—that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.

elastic

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

elastic.

The government wants to make medicare benefits available to more people, but to achieve this goal, it needs to make cuts in the existing medicare budget. The two areas where they are considering cuts are non-essential elective surgery and 6-12 month mental health care programs. Applying the concept of diminishing marginal utility, the budget cuts should be made for spending on:

elective surgery due to its lower marginal return rate.

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

equal to infinity

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

fall and the equilibrium quantity to stay the same.

An inferior good is a product:

for which demand decreases as income increases.

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 longer the time period considered, the more the elasticity of supply tends to:

increase

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

increase the quantity exchanged but result in no change in the price.

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:

increasing the price of game tickets because demand is inelastic.

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

individuals choose based on their preferences.

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

inelastic

Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves.

inelastic; elastic

Saving money is a(n) ____________________, because it involves less consumption in the present, but the ability to consume more in the future.

intertemporal choice

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

is maximizing utility.

. 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:

macaroni is an inferior good and price elasticity of supply is infinite.

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.

Approximately what portion of annual consumption is typically spent by American households on shelter?

one-third

Jay and Jen are married with two children. They are preparing a household budget for the coming year. Based on statistical information for American households, approximately what portion of this family's annual consumption will most likely be budgeted for food and vehicle expenses?

one-third

The elasticity of supply is defined as the ________ change in quantity supplied divided by the _______ change in price.

percentage; percentage

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

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

The price elasticity of demand measures the:

responsiveness of quantity demanded to a change in price.

. 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

Economists are able to determine total utility by:

summing up the marginal utilities of each unit consumed.

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

Price elasticity of demand is defined as:

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

If cola and iced tea are good substitutes for consumers, then it is likely that:

their cross price elasticities are greater than zero.

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

total revenue will decrease.

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

total utility rises, but marginal utility falls.

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

unit elastic

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

utility.

The marginal utility of two goods changes ______________.

with the quantities consumed