Econ- Assignment 4

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: A) $50 B) $25 C) $100 D) $150

A) $50

The most common pattern for marginal utility is ____________. A) Diminishing marginal utility B) A budget constraint model C) A long-term perspective theoretical model D) Substitute consumption

A) 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. A) Diminishing marginal utility B) Marginal utility pattern C) Marginal income utility D) Increasing marginal utility

A) Diminishing marginal utility

The typical pattern revealed in a budget constraint model shows that as the quantity consumed rises: A) Total utility rises, but marginal utility falls. B) Marginal utility increases. C) Total utility decreases, but marginal utility rises. D) Total utility decreases.

A) Total utility rises, but marginal utility falls.

The marginal utility of two goods changes ____________. A) With the quantities consumed B) For the better, if taxes are imposed C) If they are intertemporal choices D) If the mother controls the household budget

A) With the quantities consumed

Janie works for an accounting firm. Her wage increased from $30 per hour to $40 per hour. She can work up to 50 hours each week. The table below shows her utility from different levels of leisure and income. Before her raise, if Janie decreases her hours of work from 30 to 20 hours per week, the marginal utility gain from having more leisure is (See assignment for table): A) 29 B) 21 C) 13 D) 7

B) 21

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) One budget constraint theory; unrealistic possibilities B) A systematic way of thinking; misguided conclusions C) Two budget constraint theories; misguided possibilities D) Systematic consumption choices; unrealistic conclusions

B) A systematic way of thinking; misguided conclusions

What is meant by income effect? A) The common pattern that many people save little or borrow heavily early in life, save more in the middle of life, and then draw upon their accumulated savings later in life. B) The additional utility provided by one additional unit of consumption. C) A change in price affects the buying power of income, with a higher price meaning that the buying power of income has been reduced, so that there is usually an incentive to buy less, and a lower price meaning that the buying power of income has been increased, so that there is usually an incentive to buy more. D) The common pattern that each marginal unit of a good consumed provides less of an addition to utility than the previous unit.

C) A change in price affects the buying power of income, with a higher price meaning that the buying power of income has been reduced, so that there is usually an incentive to buy less, and a lower price meaning that the buying power of income has been increased, so that there is usually an incentive to buy more.

In terms of microeconomic analysis, what is the function of "utils"? A) A form of budget constraint B) Applies to changes in income C) A measurement of utility D) Relates to a consumers original choice

C) A measurement of utility

Marginal utility can: A) Be positive or negative, but not zero B) Decrease, but not become negative C) Be positive, negative, or zero D) Increase positively, but not negatively

C) Be positive, negative, or zero

What term is used to describe the construct of utility maximization which describes all of the combinations of goods and services that the consumer can afford? A) Marginal utility B) Income effect C) Budget constraint framework D) Diminishing marginal utility

C) Budget constraint framework

The term ____________ describes a situation where a ____________ causes a reduction in the buying power of income, even though actual income has not changed. A) Substitution effect; lower price B) Intertemporal budget; higher price C) Income effect; higher price D) Intertemporal budget; lower price

C) Income effect; higher price

The key assumption that accompanies the use of numbers for measuring utility is that: A) Utility cannot be measured by an outside party. B) Utility can be perfectly measured. C) Individuals choose based on their subjective preferences. D) People make consumption decisions.

C) Individuals choose based on their subjective preferences.

George, Jerry, Elaine, and Kosmo are seated in a restaurant figuring out what to order.Carrot cakes cost $2 and pickles cost $1 each. George declares he would like to get three carrot cakes and four pickles. Jerry suggests, why not get two carrot cakes and six pickles, since the marginal utility of carrot cakes diminishes more rapidly. Kosmo says George should order no carrot cakes and 10 pickles, or else 5 carrot cakes and no pickles. George responds that with 10 pickles or 5 cakes, the marginal utility of the last one would be very low. "But the total utility would be greater," says Kosmo. Elaine says that George should get the quantities where the marginal utility of the next cake is double the marginal utility of the next pickle. "You're wrong," says Jerry. "The marginal utility of the cake should equal the marginal utility of the pickle." You are seated in the next table and they ask you what they should do. For rational consumer choice: A) George should heed Jerry's advice and get the quantity where the marginal utility of the last pickle equals the marginal utility of the last carrot cake. B) George should heed Kosmo's advice and use total, not marginal, utility. C) George should just forget about utilities and order randomly, since there is really no way to calculate how to get the most utility for the money. D) George should heed Elaine's advice and get that amount for which the marginal utility divided by the price is equal for the carrot cake and the pickle. E) George should ignore all the advice and just go with his feelings.

D) George should heed Elaine's advice and get that amount for which the marginal utility divided by the price is equal for the carrot cake and the pickle.

Which of the following occurs simultaneously with an income effect? A) Backward-bending supply curve B) Giffen good effect C) Preferences effect D) Substitution effect

D) Substitution effect

Economists are able to determine total utility by: A) Multiplying the marginal utility of the first unit consumed by the number of units consumed. B) Multiplying the marginal utility of the last unit consumed by the number of units consumed. C) Multiplying the marginal utility of the last unit consumed by the unit price. D) Summing up the marginal utilities of each unit consumed.

D) Summing up the marginal utilities of each unit consumed.

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. A) Income effect B) Substitution effect C) Backward-bending supply curve D) Preferences effect

B) Substitution effect

Which of the following characteristics relate to utility? A) The common pattern that each marginal unit of a good consumed provides more of an addition to utility than the previous unit. B) The level of satisfaction or pleasure that people receive from their choices. C) The situation when high-wage people can earn so much that they respond to a still-higher wage by working fewer hours. D) The theoretical but unrealistic possibility that a higher price for a good could lead to a higher quantity demanded (or a lower price leads to a lesser quantity demanded).

B) The level of satisfaction or pleasure that people receive from their choices.

A consumer will maximize utility when: A) The marginal utility of each good is equal, regardless of price. B) The marginal utility each good relative to its price is equal to that of all other goods being purchased. C) The total utility of each good relative to price is equal. D) The marginal utility of each good is equal to its marginal cost. e.marginal utility minus the opportunity costs are equal for all goods.

B) The marginal utility each good relative to its price is equal to that of all other goods being purchased.

In microeconomic terms, the ability of a good or a service to satisfy wants is called: A) Opportunity cost. B) Utility. C) Utility maximization. D) Profit potential.

B) Utility.