Econ test 2

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:

$50

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

Which of the following would be classified as a positive externality?

converting a derelict empty lot to a public vegetable garden

Marginal utility can:

be positive, negative, or zero

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 the most appropriate response of public policy to a negative externality like pollution?

find ways to account for the social costs of the negative externality in economic decisions

An individual who wants others to pay for public goods, but plans to use those goods for their own purposes, is often referred to as a _________________

free rider

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

When economists attempt to predict the spending patterns of U.S. households, they will typically view the __________________________ as a primary determining factor that influences the individual consumption choices that each will make.

income level of each household

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

is maximizing utility.

Once it's patent application has been accepted, a firm is able to earn ________ on its product, which ___________________________________ .

monopoly profits; offers an incentive for research and development to take place

When it is costly or impossible to exclude someone who hasn't paid to use a particular good from using it, then that good is classified as being

nonexcludable

In order for a good to be classified as ______________ , when one person uses the good, others are also able to use it.

nonrivalrous

Which of the following would most likely be identified as being the ultimate goal of public policies that pertain to technology?

to encourage a stream of invention that benefits the whole of society.

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

total utility rises, but marginal utility falls.

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

utility

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

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

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

For a positive externality, _________________________ than the social benefits.

private benefits of an action are less

For a negative externality, the __________________________ than the costs imposed on society as a whole.

private costs of an action are less

If large numbers of individuals choose to behave as free riders,

the public good may never be provided.

There is a skating rink in your city that is open to anybody to use at any time. They even provide skates for people who don't own any. This is an example of a good that is

rivalrous and nonexcludable

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.

Cathy can take either of two separate roads to drive to work. The first is a lightly used new toll road that is rarely congested. The second road is a local road with no tolls, but it is often congested and has many potholes. In this instance, the toll road is

rivalrous and nonexcludable

The marginal utility of two goods changes ___________

with the quantities consumed