Micro Chapter 8

Kim has $24 per week in her entertainment budget. She splits her time between going to the movies and yoga classes. Each movie costs $8 while each yoga class costs $3. The total utility from each of these activities is set out in the table below. What is Kim's total utility maximizing point?

1 movie, 5 yoga classes

Bob budgets $12 a week for entertainment. He splits his time between going to the movies and going to the gym. Each movie costs $3 and each session at the gym also costs $3. The total utility from each of these activities is shown in the table below. Bob's utility maximizing point is

1 movie; 3 gym workout sessions

What name is given to the situation when high-wage people can earn so much that they respond to a still-higher wage by working fewer hours?

Backward-bending supply curve for labor

Which of the following characteristics relate to utility?

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

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

An inferior good is a product

for which demand decreases as income increases.

The term Giffen good refers to a theoretical possibility that a higher price for a good could lead to a ____________________, or that a lower price leads to a _______________________

higher quantity demanded; lesser quantity demanded

The key assumption that accompanies the use of numbers for measuring utility is that

individuals choose based on their preferences.

Garth inherited $25,000. He needs to decide now much to spend now and how much to save for later. If he saves the money, he can earn 15% interest on the total before he spends it. Using the information about his marginal utility in the table below, Garth should

spend nothing now and $28,750 in the future

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

total utility rises, but marginal utility falls.

What portion of annual consumption is typically spent by American households on shelter?

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.

What term is used to describe the additional utility provided by one additional unit of consumption?

Marginal utility

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

The marginal utility of two goods changes ______________ .

with the quantities consumed