Micro Ch 10 - 2

a.) substitution effect b.) income effect

Cameron receives some utility from consuming a bottle of store-brand soda (an inferior good) but would much rather purchase a name-brand soda (a normal good)... a.) Which effect causes Cameron's quantity demanded of a bottle of store-brand soda to decrease? b.) Which effect causes Cameron's quantity demanded of a bottle of store-brand soda to increase?

a.) Consume fewer than seven peppers and you will be better off b.) The consumption of the sixth pepper

Poppy likes to eat hot peppers... a.) Poppy asks if she should consume seven peppers. What would your advice be? b.) Marginal utility becomes negative with the consumption of which pepper?

1600

The table shows the total utility that Shanka derives from iPod shuffles and Birkenstocks. The price of the iPod shuffle is $50, and the price of the Birkenstocks is $100. Shanka's income is $300. If Shanka buys two iPods and two Birkenstocks, her total utility is _____ utils.

200

The table shows the total utility that Shanka derives from iPod shuffles and Birkenstocks. The price of the iPod shuffle is $50, and the price of the Birkenstocks is $100. Shanka's income is $300. The marginal utility of the second pair of Birkenstocks is:

1.) More 2.) Substitution 3.) Fallen 4.) Normal 5.) Less 6.) Income 7.) Reinforce

10.) In the following situation, describe the substitution effect and the income effect. In which direction does each of these effects move? Why? a.) Ed spends a large portion of his income on his children's education. Because tuition fees rise, one of his children has to withdraw from college. Since education is now relatively __(1)__ expensive than other goods, Ed will buy less of it. This is the __(2)__ effect. At the same time, Ed's purchasing power has __(3)__ , and higher education is __(4)__ good. Ed will,therefore, buy __(5)__ of it due to the __(6)__ effect. The two effects __(7)__ each other.

No, because for a Giffen good, it is an increase in the quantity, not the expenditure, that matters.

12.) Scott finds that the higher the price of orange juice, the more money he spends on orange juice. Does that mean that Scott has discovered a Giffen good?

GRAPH: 20 & 5

4.) Bruno is best friends with Bernie, who shares his love for energy bars and smoothies... The price of an energy bar is $2, the price of a smoothie is $4, and Bernie has $20 of income to spend. a.) Adjust the points in the accompanying graph to illustrate Bernie's budget line.

1.) 32 2.) 8 3.) 6 4.) 3

4b.) Answer the following questions using this information. 1.) What is the marginal utility (MU) of the first smoothie? MU first smoothie : ___utils 2.) What is the marginal utility per dollar (MU/$) of the first smoothie? MU/$ first smoothie : ___utils per dollar 3.) What is the marginal utility (MU) of the 10th energy bar? MU 10th energy bar :___utils 4.) What is the marginal utility per dollar (MU/$) of the 10th energy bar? MU/$ 10th energy bar :____utils per dollar

1.) Right 2.) Movies 3.) The Gym 4.) Movies 5.) The Gym 6.) The Gym 7.) Movies

8.) Anna Jenniferson is an actress who currently spends several hours each week watching movies and going to the gym. On the set of a new movie she meets Damien, the consumer in Problem 7... Damien is __(1)__ Anna should go to __(2)__ more and __(3)__ less. This is because she values __(4)__ twice as much as __(5)__ , but they cost the same. Trading time at __(6)__ for more time at __(7)__ would increase her utility.

income.

A budget constraint requires that the cost of a consumer's consumption bundle be no more than the consumer's:

a.) 140 b.) 705 c.) 2

Cookie Monster loves cookies!... a.) Cookie Monster's marginal utility from the fourth cookie is____units b.) What is Cookie Monster's total utility when he eats 6 cookies?_____units c.) Cookie number __ tastes the best to Cookie Monster.

PRE-CLASS TUTORIAL////////////////////////////////////////// b) 3 cat toys and 4 cat treats

Each month, you have $15 to spend on toys and treats for your cat. Cat toys cost $3 each, and cat treats cost $1.50 each. Which of the following combinations of toys and treats would appear on your budget line?

10

Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. The horizontal intercept for Faruq's budget line is _____ tacos.

WORK IT OUT/////////////////////////////////////////////// 20 ; 8 ; 6 ; 4

Find Brenda's total utility and use that information to calculate her marginal utility (MU) from bagels as she goes from consuming 0 bagel to 1 bagel, from 1 bagel to 2 bagels, from 2 bagels to 3 bagels, and from 3 bagels to 4 bagels. Assume she consumes two cups of coffee. ~ MU first bagel ~ MU second bagel ~ MU third bagel ~ MU fourth bagel

Negative

The budget line has a(n) _____ slope.

Higher consumption will always lead to higher utility

To say that you can't have too much of a good thing means that, for any good that you enjoy (for example, pizza):

At a maximum

When marginal utility is zero, total utility is:

quantity change due to the fact that the consumer will substitute relatively cheaper goods in place of more expensive ones.

When the price of a good changes, the substitution effect is the amount of the:

The price of pizzas decreases, so Lucy buys more pizzas and fewer hamburgers.

Which of the following best describes the substitution effect of a price decrease?

the marginal utility of one tub of yogurt divided by the price of the yogurt tub

Which value BEST describes the amount of utility that is gained by spending an additional dollar on yogurt?

the marginal utility per dollar spent on boots is greater than the marginal utility per dollar spent on gloves.

Antonio derives more utility from spending an additional dollar on boots than on gloves. We can assume that:

50 ; 0

(Scenario: Tom's Budget Constraint) Use Scenario: Tom's Budget Constraint. The combination of _____ music downloads and _____ movies lies ON Tom's budget line. Tom is trying to decide how to allocate his $50 budget for music downloads and online movie streaming when the price of a music download is $1 and the price of a movie is $5.

1 ; 6

(Table: Marginal Utility per Dollar II) Use Table: Marginal Utility per Dollar II. If Manuel has $18 to spend on potatoes and clams, then the utility-maximizing combination is _____ pound(s) of clams and _____ pound(s) of potatoes.

4 ; 152

(Table: Optimal Choice of Milk and Honey) Use Table: Optimal Choice of Milk and Honey. The price of milk is $2 per gallon, and the price of honey is $4 per jar. Hal's income is $16. If he spends all of his income on honey, the most he can buy is _____ jars, and his total utility will be _____.

sixth

(Table: The Utility of Macaroni and Cheese) Use Table: The Utility of Macaroni and Cheese. Carmen loves eating macaroni and cheese on Thanksgiving. Carmen's marginal utility from eating macaroni becomes negative at the _____ serving.

150

13.) Margo's marginal utility of one dance lesson is 100 utils per lesson. Her marginal utility of a new pair of dance shoes is 300 utils per pair. The price of a dance lesson is $50 per lesson. She currently spends all her income, and she buys her optimal consumption bundle. What is the price of a pair of dance shoes? A pair of dance shoes costs $___.

END OF CHAPTER//////////////////////////////////////// a.) On b.) Below c.) Above

3.) Bruno can spend his income on two different goods: smoothies and energy bars. For each of the following three situations, decide if the given consumption bundle is within Bruno's consumption possibilities by determining whether it is on, below, or above his budget line. a.) Smoothies cost $2 each, and energy bars cost $3 each. Bruno has income of $60. He is considering a consumption bundle containing 15 smoothies and 10 energy bars. This bundle is _____ Bruno's budget line. b.) Smoothies cost $2 each, and energy bars cost $5 each. Bruno has income of $110. He is considering a consumption bundle containing 20 smoothies and 10 energy bars. This bundle is _____ Bruno's budget line. c.) Smoothies cost $3 each, and energy bars cost $10 each. Bruno has income of $50. He is considering a consumption bundle containing 10 smoothies and 3 energy bars. This bundle is _____ Bruno's budget line.

200

Assume that the marginal utilities for the first three units of a good consumed are 200, 150, and 125, respectively. The total utility for the first unit is:

a.) Is not ; Buy more sweaters and fewer sneakers. b.) Is ; Not change her purchases. c.) Is not ; Buy more of both goods.

5.) For each of the following situations, decide whether the bundle that Lakshani is considering is optimal or not. If it is not optimal, how could Lakshani improve her overall level of utility?... a.) Lakshani has $200 to spend on sneakers and sweaters. Sneakers cost $50 per pair, and sweaters cost $20 each. Lakshani ____ maximizing her utility. She should ____. b.) Lakshani has $5 to spend on pens and pencils. Each pen costs $0.50 and each pencil costs $0.10. Lakshani _____maximizing her utility. She should ____. c.) Lakshani has $50 per season to spend on tickets to football games and tickets to soccer games. Lakshani ____ maximizing her utility. She should _____.

Purchase more of the now less expensive good

According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:

2 Book and 30 Pencils

Adam has a monthly income of $20 that can be spent on books (B) and pencils (P). The price of a book is $5 and the price of a pencil is $0.50. Which bundle of books and pencils is NOT affordable for Adam?

2

Amy has $12 to spend on food. Tacos cost $2 each and pizzas cost $6 each. If she spends all of her money on pizzas, she can buy _____ pizzas.

Change the slope of the budget line

An increase in a consumer's income will NOT:

Brenda's total utility is highest when she consumers 2 bagels and 2 cups of coffee.

Brenda now has to make a decision about how many bagels and how much coffee to have for breakfast. She has $8 of income to spend on bagels and coffee. Bagels cost $2 each and coffee costs $2 per cup. Which of the following combinations provides Brenda with the highest total utility and is within her budget?

Relatively price-elastic

If, because of a price change, both the income and substitution effects are strong for a normal good, this segment of the demand curve must be:

decreasing.

If Frank's utility from listening to one hour of Dave Mathews is 20; two hours, 30; and three hours, 35, Frank's marginal utility for each additional hour of listening to Dave Mathews is:

increase.

If the price of a good decreases, its marginal utility per dollar will:

Decrease

If the price of a good increases, its marginal utility per dollar will:

Substitution effect

If the price of coffee cups falls and the consumer decides to buy more coffee cups solely because they are less expensive, this describes the:

Greater than zero

If total utility is rising as more salsa is consumed, we can definitely say that marginal utility is:

c) No, the marginal utility per dollar from golf was higher than that for fishing.

Jon enjoys fishing (which costs $20) and golf (which costs $30). Last month, Jon fished four times and golfed twice. The last fishing outing provided Jon a marginal utility of 50, and the last round of golf provided a marginal utility of 120. Did Jon maximize his utility according to the utility maximization rule?

6

Jordan has $16 to spend on entertainment this week. It costs $4 to go to a movie and $2 to rent a video. If Jordan goes to 1 movie, she can rent _____ videos.

GRAPH: 40 & 160 Only Kimiko knows; the question does not provide enough information.

Kimiko is planning a party to celebrate her birthday... Which good will Kimiko buy more of?

GRAPH: (BC) 20 & 5 Unaffordable: B D H Affordable and exhausts Maria's budget: C E Affordable with money left over: A F G

Maria is in school learning to be a welder. She spends long hours studying (and drinking coffee) and long hours practicing in the hot, dirty shop (and therefore takes frequent showers)... ~ Unaffordable ~ Affordable and exhausts Maria's budget ~ Affordable with money left over

HOMEWORK////////////////////////////////////////////// a.) Marginal Utility b.) Diminishing Marginal Utility c.) Negative Marginal Utility d.) Utility

Match the terms listed with their definition. a.) The extra satisfaction a person obtains from consuming one more unit of a good or service b.) When the consumption of an additional unit of a good or service provides the person with a smaller increase in satisfaction than previous units c.) When the consumption of an additional unit of a good or service makes a person worse off d.) The satisfaction experienced from consuming a good or service

$ 720 GRAPH: 4 Unicycles

Mauricio has a circus act that involves monkeys on unicycles... What is Mauricio's budget for monkeys and unicycles? Mauricio's budget: $

GRAPH: (A) 6 (B) 8

Mauricio has a circus act, and he has a budget of $720 to spend on monkeys and unicycles. The cost of a unicycle is $120, and the cost of a monkey is $90. Please graph Mauricio's budget constraint on the graph.

a.) A fire truck b.) MUx/Px = MUy/Py

Miles is three years old and his grandparents have given him money to spend at the toy store as a birthday present... a.) If Miles buys only one toy, which should he buy to maximize his utility? b.) Which relationship between marginal utility (MU) and price (P) indicates that a consumer is maximizing his or her utility regarding spending on two goods?

QUIZ Q's////////////////////////////////////////////////////////////////////// higher; higher

On a sparsely populated island, an additional minute of high-speed Internet service would have a _____ marginal utility than in New York City, while in New York City, quiet evenings would carry a _____ marginal utility than on a deserted island.

a.) 6 b.) 6 c.) 4

Refer to the total utility curve in the accompanying graph to answer the questions. a.) Utility is maximized when how many units of the good are consumed?____units b.) How many units can be consumed before marginal utility becomes negative?____units c.) How many units can be consumed before diminishing marginal utility sets in?___units

$2

Sasha buys a cold soda and a slice of pizza. The marginal utility from a soda is 40, and the price of the soda is $1. The marginal utility from a slice of pizza is 80. Assume Sasha is successfully maximizing his utility. If this is the case, we know the price of a slice of pizza must be:

a.) 0.90 b.) Yes, Joe should choose fewer smoothies and more apps. c.) 281.30

Suppose that Joe consumes smoothies and apps. The price of smoothies is $5 per unit and the price of apps is $10 per unit... a.) Calculate the marginal utility per dollar of going from eight to nine apps. utils/$ b.) To increase total utility without increasing spending, should Joe change the amount of consumption of either good? c.) What is the total utility at the optimal consumption bundle?

4 ; 8

Suppose that Sam allocates his income between milk and cereal... As this is his optimal consumption bundle, Sam should purchase___gallons of milk and ___boxes of cereal

consumers must give up some of one good to buy more of another.

The budget line has a negative slope because:

D

The graph shows a budget line and some consumption bundles. Which bundle is affordable but does not use all of the consumer's income?

Shift in toward the origin

The graph shows different combinations of sun tan lotion and cowboy hats that Fred can buy. If Fred's income decreases, the budget line will:

rotate out keeping the vertical intercept the same.

The graph shows different combinations of sun tan lotion and cowboy hats that Fred can buy. If the price of cowboy hats decreases, the budget line will:

rotate out keeping the horizontal intercept the same.

The graph shows different combinations of sun tan lotion and cowboy hats that Fred can buy. If the price of lotion increases, the budget line will:

a.) Burritos has decreased b.) Point B

The graph shows two budget lines (BL 1 and BL 2) and four consumption points of tacos and burritos (A, B, C, and D)... a.) If a consumer goes from BL 1 to BL 2, then the price of b.) If burritos are a Giffen good, a consumer will move from point A to which other point as the budget line changes from BL 1 to BL 2?

a.) D b.) F

The graph shows two budget lines and six consumption points (A, B, C, D, E, and F) for Pepsi and Dr Pepper... Assume that the consumer, Fred, attempts to maximize his utility and exhausts his budget on the two goods. a.) If Fred's income increases, the movement from point A to point ____ is consistent with Pepsi being a normal good and Dr Pepper being an inferior good. b.) If Fred's income increases, the movement from point A to point ____ is consistent with Dr Pepper being a normal good and Pepsi being an inferior good.

additional utility gained by spending one more dollar on that good or service.

The marginal utility per dollar spent on a good is the:

300

The table shows Carol's total utility from consuming cowboy hats and suntan lotion. Carol has $24 to spend. Hats cost $12 each and a bottle of suntan lotion costs $6. If Carol buys one bottle of suntan lotion, her total utility is _____ utils.

50

The table shows Carol's total utility from consuming cowboy hats and suntan lotion. Carol has $24 to spend. Hats cost $12 each and a bottle of suntan lotion costs $6. The marginal utility per dollar of the first bottle of suntan lotion is:

maximizes total utility given the budget constraint.

The optimal consumption bundle is the one that:

has the highest total utility of all affordable bundles.

The optimal consumption bundle:

1 ; 2

The price of bagels increases to $4, but the price of coffee remains at $2 per cup. Which bundle is her optimal bundle assuming she still has $8 of income? _____bagel(s) _____cup(s) of coffee

40

The price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag. You have $10 to spend on both goods. The maximum number of bags of peanuts that you can purchase is:

LEARNING CURVE/////////////////////////////////////////////// utility function.

The relationship between the total utility generated and a consumer's consumption bundle is known as a:

2

The table shows Carol's total utility from consuming cowboy hats and suntan lotion. Carol has $24 to spend. Hats cost $12 each and a bottle of suntan lotion costs $6. If Carol buys 1 hat, she can buy _____ bottles of suntan lotion.

False

The table shows Carol's total utility from consuming cowboy hats and suntan lotion. Carol has $24 to spend. Hats cost $12 each and a bottle of suntan lotion costs $6. True or False: If Carol buys 1 bottle of suntan lotion, she has maximized her total utility. This is _____.

True

The table shows Carol's total utility from consuming cowboy hats and suntan lotion. Carol has $24 to spend. Hats cost $12 each and a bottle of suntan lotion costs $6. True or False: If Carol buys two bottles of suntan lotion and one hat, she has maximized her total utility. This is _____.

4

The table shows Carol's total utility from consuming cowboy hats and suntan lotion. Carol has $36 to spend. Hats cost $12 each and a bottle of suntan lotion costs $6. If Carol buys 1 hat, she can buy _____ bottles of suntan lotion.

3

The table shows marginal and total utilities for various quantities of exercise for Mike. Mike's marginal utility of the fifth hour of exercise is _____ utils.

7

The table shows marginal and total utilities for various quantities of exercise for Mike. Mike's marginal utility of the first hour of exercise is _____ utils.

5

The table shows marginal and total utilities for various quantities of exercise for Mike. Mike's marginal utility of the third hour of exercise is:

13

The table shows marginal and total utilities for various quantities of exercise for Mike. Mike's total utility in the second hour of exercise is:

500

The table shows the total utility that Shanka derives from iPod shuffles and Birkenstocks. The price of the iPod shuffle is $50, and the price of the Birkenstocks is $100. Shanka's income is $300. If Shanka buys one iPod, her total utility is _____ utils.

250

The table shows the total utility that Shanka derives from iPod shuffles and Birkenstocks. The price of the iPod shuffle is $50, and the price of the Birkenstocks is $100. Shanka's income is $300. If Shanka buys one iPod, she will have $_____ left to spend.

False

True or False: Producer surplus is a measure of the satisfaction a consumer derives from consuming a good or service. This is _____.

False

True or False: The budget constraint requires that consumer's consumption bundle cannot cost more than their production possibilities. This is _____.

False

True or False: The collection of goods and services consumed by an individual is known as a utility function. This is _____.

Diminishing

Using your answer from question 1, assume Brenda consumes two cups of coffee. Her marginal utility exhibits ____ returns.

1.) Less 2.) Substitution 3.) Increases 4.) A Normal 5.) Income 6.) More 7.) Reinforce

b.) Homer spends much of his monthly income on home mortgage payments. The interest on his adjustable-rate mortgage falls, lowering his mortgage payments, and Homer decides to move to a larger house. The fall in interest rates makes larger homes relatively __(1)__ expensive, and Homer responds by buying a larger house. This is the __(2)__ effect. Since the change in interest rates also __(3)__ his purchasing power, and housing is __(4)__ good, the __(5)__ effect causes Homer to buy __(6)__ of it. The two effects __(7)__ each other.

1.) Income 2.) More 3.) Substitution 4.) Less 5.) Unimportant 6.) Income 7.) Substitution 8.) Income

c.) Pam thinks that Spam is an inferior good. Yet, as the price of Spam rises, she decides to buy less of it. Since Pam considers Spam to be an inferior good, the __(1)__ effect would cause her to buy __(2)__ as its price rises. The __(3)__ effect leads her to buy __(4)__ as Spam becomes relatively more expensive than other goods. Spam is probably an __(5)__ item in her budget, so the __(6)__ effect will be small. Since we know that she buys less Spam, we also know that the __(7)__ effect is larger than the __(8)__ effect.