Deck 6: Consumer Choices

Question 1

Refer to the diagram above. What is the significance of the point marked L1 at the bottom upward-sloping portion of the individual labor supply 2) curve?

A) as wages increase over this range, the quantity of hours worked also increases.
B) as wages increase over this range, the quantity of hours worked changes very little.
C) as wages increase over this range, the quantity of hours worked actually decreases.
D) as wages increase of this range, the quantity of hours worked is inelastic.

Answer 1

as wages increase over this range, the quantity of hours worked also increases.

Question 2

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?

A) 0 movies, 8 yoga classes
B) 1 movie, 5 yoga classes
C) 2 movies, 2 yoga classes
D) 3 movies, 0 yoga classes

Answer 2

1 movie, 5 yoga classes

Question 3

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

A) one-fourth
B) one-half
C) one-quarter
D) one-third

Answer 3

one-third

Question 4

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?

A) as wages increase over this range, the quantity of hours worked also increases.
B) as wages increase over this range, the quantity of hours worked changes very little.
C) as wages increase of this range, the quantity of hours worked is more inelastic.
D) as wages increase over this range, the quantity of hours worked actually decreases.

Question 5

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.

A) diminishing marginal utility
B) marginal utility pattern
C) marginal income utility
D) decreasing marginal utility

Question 6

How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices of Americans?

A) Consumer Spending Survey
B) Consumer Income Budget Survey
C) Consumer Expenditure Survey
D) Consumer Income Survey

Question 7

Refer to the above diagram. In this instance:

A) the BC line is diagonal because the amount spent on both goods is less or equal to income.
B) the consumer will find that every point along the I3 line is outside the budget constraint.
C) the consumer will find the highest utility where x and y just touch the I2 line.
D) all of the above and the consumer can choose any point on or below the budget constraint line BC.

Question 8

In microeconomic terms, the ability of a good or a service to satisfy wants is called:

A) opportunity cost.
B) utility.
C) utility maximization.
D) profit potential.

Question 9

When Marietta chooses to only purchase a combination of goods that lie within her budget line, she:

A) is decreasing utility.
B) is maximizing utility.
C) likely has negative savings.
D) must reduce the quantity.

Question 10

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

A) substitution effect; lower price
B) intertemporal budget; higher price
C) income effect; higher price
D) intertemporal budget; lower price

Question 11

When economists attempt to predict the spending patterns of U.S. households, they will typically view the _____________________ as a primary determining factor that influences the individual consumption choices that each will make.

A) income level of each household
B) national average spending level
C) national average savings level
D) nation's perennial political debate

Question 12

Which of the following occurs simultaneously with an income effect?

A) backward-bending supply curve
B) Giffen good effect
C) preferences effect
D) substitution effect

Question 13

Economists are able to determine total utility by:

A) multiplying the marginal utility of the first unit consumed by the number of units consumed.
B) multiplying the marginal utility of the last unit consumed by the number of units consumed.
C) multiplying the marginal utility of the last unit consumed by the unit price.
D) summing up the marginal utilities of each unit consumed.

Question 14

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?

A) one-fourth
B) one-third
C) one-quarter
D) two-thirds

Question 15

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.

A) income effect
B) substitution effect
C) backward-bending supply curve
D) preferences effect

Question 16

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) one budget constraint theory; unrealistic possibilities
B) a systematic way of thinking; misguided conclusions
C) two budget constraint theories; misguided possibilities
D) systematic consumption choices; unrealistic conclusions

Question 17

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

A) differing levels of family income
B) geographical location of households
C) each household's personal preferences
D) each of the above will cause a variation

Question 18

Refer to the budget line shown in the diagram above. At point U, __________.

A) P1/P2 = MU1/MU2
B) pizza is an inferior product
C) P2/P1 = MU2/MU1
D) roses are an inferior product

Question 19

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

A) utility
B) marginal utility
C) added utility
D) Giffen utility

Question 20

Marginal utility can:

A) be positive or negative, but not zero
B) decrease, but not become negative
C) be positive, negative, or zero
D) increase positively, but not negatively

Question 21

Jed's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Jed knows that 2 pizzas and 4 burgers will give him a utility of 8. At his utility-maximizing point, Jed's utility is:

A) 4
B) 8
C) 6
D) 10

Question 22

The government wants to make medicare benefits available to more people, but to achieve this goal, it needs to make cuts in the existing medicare budget. The two areas where they are considering cuts are non-essential elective surgery and 6-12 month mental health care programs. Applying the concept of diminishing marginal utility, the budget cuts should be made for spending on:

A) mental health therapy due to its higher marginal return rate.
B) elective surgery due to its lower marginal return rate.
C) both programs, which have the same marginal return rate.
D) neither can be compared by measuring marginal utility.

Question 23

The most common pattern for marginal utility is ____________________.

A) diminishing marginal utility
B) a budget constraint model
C) a long-term perspective theoretical model
D) substitute consumption

Question 24

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

A) the marginal utility per dollar is the same for both goods
B) the marginal utility per dollar is controlled by trade-offs
C) the quantities demanded change so total utility rises
D) the demand curves are flatter reducing quantity

Question 25

For lunch, Maria eats only salads or vegetarian burgers. Her weekly food budget is $36. Each salad costs $6 and each vegetarian burger costs $3. When deciding how much of each good to buy, Maria knows that 2 salads and 4 vegetarian burgers will give her a utility of 8. Maria's utility-maximizing point is:

A) 6 salads, 1 vegetarian burger
B) 4 salads, 6 vegetarian burgers
C) 3 salads, 6 vegetarian burgers
D) 2 salads, 8 vegetarian burgers

Question 26

In May and June, Tammy spent all her clothing budget on bathing suits and beach bags. Each bathing suit cost $75. At Tammy's optimal choice, her marginal utility from the last bathing suit purchased is 300 and her marginal utility from the last beach bag purchased is 200. This means that each handbag must cost:

A) $50
B) $25
C) $100
D) $150

Question 27

In terms of microeconomic analysis, what is the function of "utils"?

A) a form of budget constraint
B) applies to changes in income
C) a measurement of utility
D) relates to a consumers original choice

Question 28

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

A) total utility rises, but marginal utility falls.
B) marginal utility increases.
C) total utility decreases, but marginal utility rises.
D) total utility decreases.

Question 29

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

A) budget constraint and low-income housing expenses.
B) marginal utility gained and lost from different choices along the budget constraint.
C) household consumption choice budget and the labor-leisure budget using an utilimometer.
D) various categories of economic proverbial wisdom.

Question 30

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

A) utility cannot be measured by an outside party.
B) utility can be perfectly measured.
C) individuals choose based on their preferences.
D) people make consumption decisions.

Question 31

As a general rule, utility-maximizing choices between consumption goods occur where the:

A) rise in income has created the greatest utility.
B) price ratio and marginal utilities ratio of two goods is equal.
C) higher-income households have the greatest satisfaction.
D) constraints on budget expenditures has fallen substantially.

Question 32

Rick eats only french fries and burgers at his office cafeteria. His weekly lunch budget is $48. Each burger costs $6 and each order of fries costs $3. When deciding how much of each good to buy, Rick knows that 2 burgers and 4 orders of french fries will give him a utility of 8. At his utility-maximizing point, Rick's utility is:

A) 32
B) 48
C) 40
D) 24

Question 33

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?

A) 2 movies, 2 video game rentals
B) 0 movies, 6 video game rentals
C) 5 movies, 7 video game rentals
D) 1 movie, 4 video game rentals

Question 34

Todd is a cattle rancher. In June and July he spent his clothing budget on jeans and cowboy hats. Each pair of jeans cost $50 and each hat cost $100. At Todd's optimal choice, his marginal utility from the last pair of jeans purchased is 200. This means that his marginal utility from the last cowboy hat purchased is:

A) 550
B) 500
C) 450
D) 400

Question 35

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

A) backward-bending supply curves for labor are typical in the short run
B) workers react to higher wages by working more hours in the long run
C) long run reaction to higher wages is an increase in hours worked to gain more income
D) backward-bending supply curves for labor are not typical in the short run

Question 36

The marginal utility of two goods changes ______________.

A) with the quantities consumed
B) for the better, if taxes are imposed
C) if they are intertemporal choices
D) if the mother controls the household budget

Question 37

For lunch, Wendy eats only salads or fruit & yogurt smoothies. Her weekly food budget is $48. Each salad costs $6 and each smoothie costs $3. When deciding how much of each good to buy, Wendy knows that 2 salads and 4 smoothies will give her a utility of 8. What is Wendy's utility-maximizing point?

A) 1 salad, 14 smoothies
B) 6 salads, 4 smoothies
C) 5 salads, 6 smoothies
D) 4 salads, 8 smoothies

Question 38

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:

A) 3 movies; 3 gym workout sessions
B) 4 movies; 0 gym workout sessions
C) 4 movies; 2 gym workout sessions
D) 1 movie; 5 gym workout sessions

Question 39

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, then 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:

A) spend $5,000 now and $22,250 in the future
B) spend nothing now and $28,750 in the future
C) spend $15,000 now and $13,500 in the future
D) spend $10,000 now and $16,750 in the future

Question 40

Josh's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Josh knows that 2 pizzas and 4 burgers will give him a utility of 8. What is Josh's utility-maximizing point?

A) 0 pizzas, 8 burgers
B) 3 pizzas, 2 burgers
C) 2 pizzas, 4 burgers
D) 4 pizzas, 1 burger

Question 41

Substitution and income effects of a change in price of a good may be used to explain the:

A) direct relationship between price and quantity purchased.
B) inverse relationship between price and quantity demanded.
C) direct relationship between price and quantity supplied.
D) direct relationship between income and demand.

Question 42

An inferior good is a product:

A) for which demand increases as income increases.
B) for which there is no demand.
C) for which demand decreases as income increases.
D) that has an upward sloping demand curve.

Question 43

Troy has a part-time job in a book store to help pay for his college. He can work up to 30 hours each week at his job, which pays $9 per hour. The table below shows his utility from different levels of leisure and income. Troy currently works 20 hours per week. If he decides to work 30 hours instead, his marginal utility gain from the additional income is ____.

A) 12
B) 6
C) 3
D) 9

Question 44

Molly attends college and works part-time job as a telemarketer. She can work up to 40 hours each week at her job, which pays $8 per hour. The table below shows her utility from different levels of leisure and income. Molly is currently working 20 hours per week. If she decides to work 30 hours instead, then her marginal utility loss from having less leisure is:

A) 18
B) 34
C) 3
D) 6

Question 45

The _________________ budget constraint shows the tradeoff between present and future consumption.

A) inflation
B) utility-maximizing
C) intertemporal choice
D) time-value of money

Question 46

Terry attends college and works part-time job in a drug store. She can work up to 40 hours each week, and is paid $9 per hour. The table below shows her utility from different levels of leisure and income. If Terry decides to work 20 hours per week, her total utility from both leisure and income would be:

A) 142
B) 115
C) 110
D) 179

Question 47

The theoretical model of the intertemporal budget constraint for the U.S. economy as a whole suggests that the most common pattern seems to be that:

A) the quantity of savings automatically adjusts to changes in the rate of return.
B) the quantity of savings doesn't adjust much to changes in the rate of return.
C) the result of a higher rate of return is a higher quantity of saving.
D) the result of a lower rate of return is a lower quantity of saving.

Question 48

Mark's annual after tax income earnings are $50,000. His $40,000, 3-year CD is maturing in the near future and he is planning to spend the interest on a 6 week holiday after that. His investments can earn a total of 10% before he starts his trip. If Mark's "present consumption" is the time he spends working and his "future consumption" is his trip, his optimal choice from the table below is to:

A) spend $50,000 now and consume nothing in the future
B) spend nothing now and consume $77,000 in the future.
C) spend $10,000 now and consume $44,000 in the future.
D) spend $20,000 now and consume $33,000 in the future

Question 49

Even with wage increases, the supply curve of labor is most often inelastic for which of the following?

A) part-time workers
B) full-time workers
C) lawyers
D) massage therapists

Question 50

Bruce works for a large bank. His wage increased from $30 per hour to $40 per hour. He can work up to 50 hours each week. The table below shows her utility from different levels of leisure and income. If Bruce decides to increase his weekly hours of work from 10 to 20 hours after his raise, the marginal utility loss from having less leisure is:

A) 8
B) 27
C) 21
D) 15

Question 51

The government distributes food stamps that can only be used to acquire food to low-income families. The budget line graph will show food on the horizontal axis and everything else on the vertical axis. After receiving food stamps, Ted's family is able to consume the same amount of food. The new consumption point for Ted's family will be:

A) on the new budget line, directly above the old consumption point.
B) on the new budget line, above and to the right of the old consumption point.
C) on the new budget line, directly to the right of the old consumption point.
D) remain precisely the same as the old consumption point.

Question 52

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

A) budget constraint
B) intertemporal choice
C) risk premium
D) opportunity cost

Question 53

Louisa works for a hedge fund company. Her wage increased from $30 per hour to $40 per hour. She can work up to 50 hours each week. The table below shows her utility from different levels of leisure and income. Louisa decided to increase her hours of work from 10 to 20 hours per week after receiving her raise. As a result, her marginal utility gain from having more income will now be:

A) 74
B) 36
C) 13
D) 12

Question 54

A decrease in consumer preference for a product, other things being equal, will cause:

A) a decrease in supply.
B) market demand to shift to the left.
C) market demand to shift to the right.
D) quantity demanded is not a price function.

Question 55

Aleah is an electrical engineer. Her wage increased from $30 per hour to $40 per hour. She can work up to 50 hours each week. The table below shows her utility from different levels of leisure and income. If Aleah decreased her hours of work from 30 to 20 hours per week before her raise, the marginal utility loss from having less income is:

A) 23
B) 56
C) 19
D) 100

Question 56

In the U.S., the amount in savings contributed to IRAs rose from $239 billion in 1992 to $3,667 billion by 2005, while overall savings actually dropped from low to lower. Evidence suggests that, in the economy as a whole, increased savings in these retirement accounts:

A) are the negative result of a change in wage levels and a higher work effort.
B) the result of personal preferences and intertemporal budget constraints.
C) are being offset by negative savings or less savings in other kinds of accounts.
D) the result of a higher interest rates and preferences about present consumption.

Question 57

During a severe recession, the government issued food stamps that could only be used to acquire food to a greater number of families. The budget line graph shows food on the horizontal axis and everything else on the vertical axis. The government expects that issuing the food stamps will cause each family's budget constraint line to:

A) pivot out along the horizontal axis.
B) pivot out along the vertical axis.
C) shift to the left.
D) shift to the right.

Question 58

Janie works for an accounting firm. Her wage increased from $30 per hour to $40 per hour. She can work up to 50 hours each week. The table below shows her utility from different levels of leisure and income. Before her raise, if Janie decreases her hours of work from 30 to 20 hours per week, the marginal utility gain from having more leisure is:

A) 29
B) 21
C) 13
D) 7

Question 59

Larry attends college and works part-time job in a grocery store. He can work up to 30 hours each week at his job, which pays $9 per hour. The table below shows his utility from different levels of leisure and income. Larry's utility maximizing choice is to work for:

A) 2.5
B) 15
C) 20
D) 10

Question 60

Celia works as an articling student with a large law firm. Her wage increased from $30 per hour to $40 per hour. She can work up to 50 hours each week. The table below shows her utility from different levels of leisure and income. If Celia continues to work 50 hours per week after her raise, the raise will increase her utility by:

A) 3
B) 4
C) 12
D) 32

Question 61

Briefly describe the choices a household will choose along a labor-leisure budge constraint and the results of those choices.

Question 62

Briefly explain what the economic analysis of household consumption behavior is based on. Do economists judge household utility?

Question 63

Briefly discuss how greater consumption of a good affects utility.

Question 64

What does the budget constraint framework suggest when income rises?

Question 65

What does the budget constraint framework suggest when price changes? Include a brief explanation of what the results of price changes will depend on.

Question 66

Briefly describe how the utility-maximizing choice on a consumption budget constraint can be found.

Question 67

Briefly explain why a graph is used in a budget constraint model between two goods and include a description of how the graph would appear. Explain the significance of the budget constraint line and how the marginal utility of the two goods changes. How would a sensible economizer choose based on marginal comparison between one good and another that costs twice as much?

Question 68

Briefly explain the relevant portions shown in a backward sloping labor supply curve. How are the various possibilities derived?

Question 69

Briefly discuss how a higher rate or return or a higher interest rate affects the choices typical to households with respect to intertemporal budget constraint.

Question 70

Briefly discuss the choices typical to households with respect to intertemporal budget constraint.