Econ HW 4 – Flashcards

The intercept of a budget line measures the a. amount of a good that a consumer will purchase b. maximum amount of a good that a consumer could purchase, given his consumption of some other good c. maximum amount of a good that could be consumed at given prices and income d. minimum amount of a good that could be consumed at given prices and income e.minimum consumption of a good consistent with utility maximization

If food is measured on the horizontal axis of a budget line diagram, and clothing is measured on the vertical axis, the slope of the budget line a. may be positive if the price of clothing is high enough b. may be positive if the price of food is high enough c. may be positive if income is large enough d. equals minus the maximum consumption of food divided by the maximum consumption of clothing e. equals minus the maximum consumption of clothing divided by the maximum consumption of food

Joe spends all of his money on concert tickets and compact disks. The price of a ticket is $20, while the price of a compact disk is $10. If Joe buys 3 tickets and would like to purchase a fourth, his opportunity cost would be a. 1 compact disk b. $20 c. $10 d. 2 compact disks e. 4 compact disks

If the price of good X (on the horizontal axis), increases at the same time that the price of good Y (on the vertical axis) decreases the budget line a. will become flatter b. will become steeper c. could become either steeper or flatter, depending on the sizes of the price changes d. will rotate about its original point of intersection with the horizontal axis e. will shift outward, but not in a parallel fashion

Roger spends all of his money on racquetballs and food. What would happen to Roger's budget line if his income increased by 10 percent, holding prices constant? a. it would shift inward b. it would pivot about the axis for food c. it would pivot about the axis for racquetballs d. nothing would happen to the budget line, since the relative prices for food and racquetballs have not changed e. it would shift outward

The term utility in economics refers to the a. satisfaction received by individuals from consuming goods and services b. real income available to consumers for purchasing goods and services c. relationship between the demand for a product and the supply of a product d. usefulness of a good or service e. slope of the budget line

The principle of diminishing marginal utility refers to the fact that total utility falls as consumption rises. a. True b. False

Which of the following most clearly illustrates the law of diminishing marginal utility? a. the total satisfaction from consuming a good falls as more of the good is consumed b. marginal utility falls as total utility falls c. the quantity of a good demanded falls as price rises d. the additional satisfaction from consuming a good falls as more of the good is consumed e. there is a direct relationship between the price of a good and its total utility

Which of the following is an assumption economists usually make regarding utility? a. all consumers have the same tastes and preferences for a specific good b. total utility eventually decreases as more of a good is consumed c. consumers prefer more of a good to less of a good d. utility is the same as money e. marginal utility tends to rise as consumption rises

The combination of two goods at which total utility is maximized must lie somewhere on the consumer's budget line. a. True b. False

If MUx/Px is less than MUy/Py, then the consumer should consume more of X and less of Y. a. True b. False

The marginal utility per dollar spent on a good represents the a. satisfaction received for each dollar spent on the last unit consumed b. total satisfaction received from consuming a certain number of units c. dollar value of average utility d. change in price due to a one-unit increase in total utility e. price paid for the last unit of utility

Among all the combinations of goods attainable by a consumer facing a budget constraint, the one that maximizes total utility is the one that a. maximizes marginal utility per dollar spent on each good b. maximizes marginal utility per pound, or other physical quantity, of each good c. equates the marginal utilities per dollar spent on each good d. equates the marginal utilities per pound, or other physical quantity, of each good e. drives the marginal utility of each good to zero

If bread costs $1 per pound and meat costs $4 per pound, a consumer whose marginal utility of meat equals 80 utils per pound is maximizing utility only if the marginal utility per pound of bread equals a. 4 utils b. 5 utils c. 10 utils d. 20 utils e. 80 utils

For dessert, Mac has the choice between cheesecake and apple pie. The cheesecake has a marginal utility of 50 and a price of $5, and the apple pie has a marginal utility of 30 and a price of $3. Therefore, Mac should buy a. the cheesecake since the marginal utility is greater b. the apple pie because its price is lower c. two servings of apple pie and no cheesecake d. four servings of cheesecake e. either the apple pie or the cheesecake, it makes no difference

Steak is a normal good. If the price of steak increases, a. the income effect on the demand for steak will reinforce the substitution effect b. the income effect on the supply of steak will, to some extent, offset the substitution effect c. the budget line will rotate outward d. consumers' purchasing power will increase e. the budget line will shift outward

If biscuits are an inferior good for Aster, then if their price falls, she a. will definitely buy more biscuits b. will definitely buy fewer biscuits c. may buy more biscuits d. will buy fewer biscuits if the substitution effect is larger than the income effect e. will buy more biscuits if the substitution effect is larger than the income effect

For a normal good, the a. income effect is greater than 1.0 b. income effect is negative c. substitution effect is zero d. income effect and the substitution effect work in the same direction e. demand curve is horizontal