Economics Quiz 6

Which of the following describes a situation where we exhaust our budget on either good A or good B or some combination of both?

(Pa X Qa + Pb X Qb), the budget condition

Suppose you have $10 to buy either onions or breath mints. Onions cost $0.50 each and breath mints cost $1.00. On a graph, onions are on the y-axis and breath mints are on the x-axis. If the price of breath mints increase while the price of onions and your budget stay the same, what happens to the budget line?

The horizontal intercept shifts inward, closer to the origin

Dave bought a pizza, which was divided into five slices. After eating the third slice, he couldn't eat the fourth slice. Applying the law of diminishing marginal utility to this scenario, which of the following statements is true?

The marginal utility derived from the fourth slice is less than the marginal utility derived from the third slice.

Because of diminishing marginal utility, indifference curves are _ to the origin.

convex

Utility maximization implies purchasing goods and services until their marginal utilities per dollar are

equal

Consumers maximize utility when they allocate their limited incomes so that the marginal utility per dollar spent on each of their final choices in a bundle is equal according to the:

equal margin principle

According to the four assumptions about utility maximization, consumers:

have limited incomes, behave rationally, consider prices, can rank their preferences

Utility maximization assumes that consumers attempt to get the most total utility possible out of their limited

income.

A curve that shows the combinations of two products that generate the same amount of total utility or satisfaction is called an _ curve.

indifference

An indifference curve that is farther from the origin

is preferred to one that is closer to the origin

A combination of goods and services that lies outside the budget line:

is unattainable with the current budget at current prices.

The _ of consuming another slice of pizza at a local sports event is the additional satisfaction you will receive by eating that slice.

marginal utility

The additional satisfaction or happiness received from the consumption of an additional unit of a good or service is called

marginal utility

The law of diminishing marginal utility states that the _ utility associated with the consumption of a good or service becomes _ with each additional unit that is consumed in a given time period.

marginal, less

Utility

maximization assumes that consumers attempt to get the maximum total utility possible out of their limited incomes.

Marginal utility may be decreasing when more units are consumed, but as long as marginal utility is _, total utility will increase when another unit is consumed.

positive

Total utility is equal to the:

sum of marginal utilities

A budget line shows

the different combinations of two goods that can be purchased with a given budget and at a known set of prices.

Even though the price per ounce of popcorn is much lower for the largest size at a movie theater, not everyone buys the large bucket of popcorn, because:

the extra utility from the extra popcorn is less than the extra cost to the buyer

Which of the following characterize indifference curves?

they are downward sloping, they do not cross

The total satisfaction or happiness received from the consumption of a good, service, or combination of goods and services refers to the _ utility; whereas the additional satisfaction or happiness received from the consumption of an additional unit of a good or service refers to the _ utility.

total, marginal

Economists measure utility with a unit called the _, which is subjective in nature.

util

The _ associated with the consumption of goods and services is measured in 'utils' by economists.

utility

The _ maximizing bundle of goods and services occurs where the indifference curve is tangent to the budget line.

utility

Suppose tacos cost $3 each and hot dogs cost $2 each. The table below shows the marginal utility that Fred gets from consuming these two goods. Fill in the values that fred gets from consuming these two goods.

Tacos: 5, 4, 3, 2 Hot Dogs: 10, 8, 5 ,3

The table show the total and marginal utilities associated with studying for up to five hours. Fill in the missing values.

100, 170, 55, 280

To maximize utility, if Rob has $10 to spend, he should consume _ hot dogs and _ tacos.

3, 1

Suppose that tacos cost $4 each and hot dogs cost $2 each. The table below shows the marginal utility that Rob gets from consuming these two goods.

4, 3, 2, 1.25 and 9, 7, 4, 3

His total utility on spending $10 will be _ utils.

56