Microeconomics Chapter 6

Alex has $18 per week in his entertainment budget. He splits his time between going to the movies and renting video games. Each movie costs $6 while each video game rental costs $3. The measured total utility of each of his activities is shown in the table below. What is Alex's utility maximizing point?

1 movie, 4 game rentals

At point U, __________.

P1/P2 = MU1/MU2

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 systematic way of thinking; misguided conclusions

Refer to the diagram above. Which of the following is a true statement?

backward-bending supply curves for labor are not typical in the short run

Marginal utility can:

be positive, negative, or zero

Which of the following is most likely to cause variation in American household spending patterns?

all of the above

The most common pattern for marginal utility is ____________________.

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.

diminishing marginal utility

An inferior good is a product:

for which demand decreases as income increases.

The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.

income effect; higher price

Saving money is a(n) ____________________, because it involves less consumption in the present, but the ability to consume more in the future.

intertemporal choice

The term _________________ refers to the additional utility provided by one additional unit of consumption.

marginal utility

Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found?

the marginal utility per dollar is the same for both goods

Which of the following occurs simultaneously with an income effect?

substitution effect

Economists are able to determine total utility by:

summing up the marginal utilities of each unit consumed.

The marginal utility of two goods changes ______________.

with the quantities consumed.

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

individuals choose based on their preferences

The step-by-step process of finding the choice with highest total utility involves a comparison of the:

marginal utility gained and lost from different choices along the budget constraint.

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 classes

Jay and Jen are married with two children. They are preparing a household budget for the coming year. Based on statistical information for American households, approximately what portion of this family's annual consumption will most likely be budgeted for food and vehicle expenses?

1/3

Refer to the diagram above. What is the significance of the point at the top of the backward bending of the supply curve marked L3?

as wages increase over this range, the quantity of hours worked actually decreases.