ECO: Chapter 6 Practice

Jane has $500 a week to spend on clothing and food. The price of clothing is $25 and the price of food is $10. Jane spends her entire income when she purchases ________ units of clothing and ________ units of food.

12; 20

Richard is consuming X and Y so that MU x/P x = 6 and MU y/P y = 10. To maximize utility, Richard should

consume less X & more Y

The law of diminishing marginal utility implies

demand curve always slope downward & to the right

The law of ________ refers to a consumer's decrease in additional satisfaction as she consumes more and more units of a good.

diminishing marginal utility

Diminishing marginal utility sets in after the ________ soda per day

first

The diamond/water paradox states that the things with the ________ value in use frequently have ________ value in exchange

greatest; little or no

Assume leisure is a normal good. The substitution effect of a wage decrease implies a ________ demand for leisure and a ________ labor supply

higher, lower

The lower the market price of water, the ________ the ________ surplus.

higher; consumer

For Matthew, the marginal utility of the 9th soda in a day is positive and the marginal utility of the 10th soda in a day is zero. This

implies that at a zero price Matthew's demand curve will intersect the quantity axis at 10

Assuming that leisure is a normal good, if an individual's labor supply curve is backward bending, then the

income effect outweighs the substitution effect at higher wages

Price decreases will ________ a household's choice set

increase

Assume leisure is an inferior good instead of a normal good. The income effect of a wage increase will lead to a ________ demand for leisure and a ________ labor supply.

lower, higher

Assume leisure is a normal good. The substitution effect of a wage increase implies a ________ demand for leisure and a ________ labor supply.

lower;higher

Kathy eats five slices of pizza on a Saturday night but admits each slice of pizza doesn't taste as good as the previous one. This suggests that for Kathy the

marginal utility of a slice of pizza is positive but decreasing

The utility-maximizing rule can be stated in words in the following way: A person will maximize utility when the ________ is equalized across products

marginal utility per dollar spent

Gordon's opportunity cost of one hour of leisure is

$10

Assume Tom is on budget constraint AC. If the price of a hamburger is $5, Tom's monthly income is

$100

Assume Mr. Lingle is on budget constraint AC. If the price of a gardenburger is $5, Mr. Lingle's monthly income is

$200

Sue is maximizing her utility. Her MUx/Px = 10 and MUy = 40. Then the price of Y must be

$4

Ted has $600 a week to spend on food (f ) and clothing (c ). The price of food is $5 and the price of clothing is $30. What is the equation for Ted's budget constraint?

$5 x Food + $30 x Clothing = $600

On which of the following goods would a price change have the largest income effect?

A car

If the price of a soda is $2, the price of a hamburger is $6, and George has $14 of income, George's utility maximizing combination of sodas and hamburgers per day is

4 sodas & 1 hamburger

The total utility of five hamburgers per day is

80

Jane has $500 a week to spend on clothing and food. The price of clothing is $25 and the price of food is $10. The clothing and food pairs in Jane's choice set include ________ units of clothing and ________ units of food.

8; 30

If MUx/Px > MUy/Py, then

Spending a dollar less on X and a dollar more on Y increases utility.

The law of diminishing marginal utility refers to

a consumer's decrease in additional satisfaction as she consumes more and more units of a good

Marginal utility is the

additional satisfaction gained by the consumption one more unit of a good

Marginal utility is the ________ satisfaction gained by consuming ________ of a good.

additional; one more unit

The marginal utility of the first cup of coffee that Tom drinks in the morning is worth $2.00. The marginal utility of the 9th cup of coffee he drinks is positive while the marginal utility of the 10th cup of coffee he drinks in the morning is worth $0. This implies that at a price of $0, Tom would drink

at most 10 cups of coffee per morning

Kathleen likes avocado and crab dip. After eating avocado and crab dip with four crackers, she switches to cheese with crackers. We can conclude that

at this point cheese & crackers have a higher marginal utility per dollar spent than that of avocado & crab dip w/ crackers

Bill's budget constraint was originally CD. If his new budget constraint is EF, then his income

increased

Assume that a store is giving hamburgers and sodas away for free. Consumers can have as many sodas and hamburgers as they want, but the food has to be consumed one unit at a time. If George has already had one soda and two hamburgers, then George

is indifferent b/w consuming the 2nd soda or the 3rd hamburger

The current price of a turkey sandwich is $6. If Kyle is currently buying five turkey sandwiches a week, he ________ maximizing utility because the marginal utility ________ than its price

is not; gained from the 5th sandwich is greater

The current price of a turkey sandwich is $4. If Kyle is currently buying seven turkey sandwiches a week, he ________ maximizing utility because the marginal utility ________ than its

is not; gained from the 7th sandwich is greater

The current price of a turkey sandwich is $6. If Kyle is currently buying nine turkey sandwiches a week, he ________ maximizing utility because the marginal utility ________ than its price

is not; gained from the 9th sandwich is less

Utility

is the satisfaction yielded by the consumption of a good or service

Kyle would increase his consumption of turkey sandwiches from 7 to 9 per week if their price fell from $6 to $4. This illustrates the idea of

law of diminishing marginal utility

If the price of a normal good rises, the income effect will result in households buying ________ of the good and the substitution effect will result in households buying ________ of the good.

less;less

Jon is consuming X and Y so that MU x/P x = 8 and MU y/P y = 4. To maximize utility, he should consume

more X & less Y

Assuming that charitable giving is a normal good, the income effect of a decrease in personal tax rates should lead to

more giving because households would have more disposable income

If the price of an inferior good rises, the income effect will result in households buying ________ of the good and the substitution effect will result in households buying ________ of the good

more; less

If the price of a normal good falls, the income effect will result in households buying ________ of the good and the substitution effect will result in households buying ________ of the good.

more; more

A price change would have the smallest income effect on a

pack of chewing gum

Along budget constraint AB, the price of good X is $10 and the price of good Y is $12. If the price of X increases to $15, the budget constraint will

pivot in at point B

The law of diminishing marginal utility is effective when marginal utility is ________.

positive & decreasing

The law of diminishing marginal utility

refers to the decrease in total satisfaction as more units of a good are consumed

The real cost of a car is its opportunity cost. Opportunity cost is determined by

relative price

Michael can buy either pizzas or submarine sandwiches. If the prices of pizzas and submarine sandwiches fall by half and so does Michael's money income, we can conclude that Michael's budget constraint will

remain unchanged

Carlos can buy either sushi or eggrolls. If the prices of sushi and eggrolls triple and Carlos's money income doubles, we can deduce that Carlos's budget constraint will

shift in but remain parallel to the old one

If a household's income is cut in half, its budget constraint will

shift in parallel to the old one

If a household's income is doubled, its budget constraint will

shift out parallel to the old one

If MU x/P x < MU y/P y, then

spending a dollar less on X, & spending a dollar more on Y increases utility

A fall in the price of 7-UP that causes a household to shift its purchasing pattern away from Sprite and toward 7-UP is the ________ effect of a price change.

substitution

A rise in the price of Pepsi that causes a household to shift its purchasing pattern toward Coke and away from Pepsi is the ________ effect of a price change.

substitution

A fall in the price of Pepsi that causes a household to shift its purchasing pattern away from substitutes and toward Pepsi is the

substitution effect of a price change

Assuming that leisure is a normal good, if an individual's labor supply curve is upward sloping, then the

substitution effect outweighs the income effect at higher wages

The ratio of the marginal utility of coffee to the marginal utility of donuts is four for an individual maximizing utility. This implies that

the coffee to donuts price ratio is four to one

Juanita is spending her entire income on goods X and Y. Her marginal utility from the last unit of X is 50 and the marginal utility from the last unit of Y that she consumes is 100. Juanita's utility is only maximized if

the price of good Y is twice that of good X

Ellen is spending her entire income on goods X and Y. Her marginal utility from the last units of X and Y that she consumes is 25. Ellen's utility is only maximized if

the prices of X and Y are the same.

For normal goods,

the substitution and income effects of a price decrease will both increase the quantity of the good demanded

For inferior goods,

the substitution effect of a price increase will decrease the quantity of the good demanded while the income effect of a price increase will increase the quantity of the good demanded.

If the substitution effect of a wage change outweighs the income effect of a wage change, the labor-supply curve is

upward sloping