Question 1

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

Accepted Answer

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 2

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

Accepted Answer

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

Question 3

The most common pattern for marginal utility is ____________________.

Accepted Answer

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

Question 4

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.

Accepted Answer

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

Question 5

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

Accepted Answer

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 6

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:

Accepted Answer

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

Question 7

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

Accepted Answer

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 8

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:

Accepted Answer

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 9

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:

Accepted Answer

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

Question 10

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

Accepted Answer

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 11

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

Accepted Answer

The answer of Briefly describe the choices a household will...

Question 12

-Refer to the above diagram. In this instance:

Accepted Answer

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 13

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:

Accepted Answer

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 14

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:

Accepted Answer

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

Question 15

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

Accepted Answer

The answer of Briefly explain the relevant portions shown in...

Question 16

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

Accepted Answer

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 17

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:

Accepted Answer

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

Question 18

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

Accepted Answer

The answer of Briefly discuss the choices typical to households...

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

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

Exam 6: Consumer Choices