Consumer Optimum and Price Effects in Economics
61. For 2 chips and 5 sodas to be a combination of goods that maximizes someone’s utility per dollar, the price of chips must be ________ if the price of soda is $1.00.
e. | $3.75 |
62. Joanna is deciding between consuming Good X and Good Y. At her current level of consumption, her marginal utility per dollar for Good X is greater than the marginal utility per dollar for Good Y. To achieve the consumer optimum, Joanna needs to
d. | consume more of Good X or less of Good Y until the marginal utility per dollar for Good X and Good Y is equal. |
63. Peter is deciding between consuming Good X and Good Y. At his current level of consumption, his marginal utility per dollar for Good X is less than the marginal utility per dollar for Good Y. To achieve the consumer optimum, Peter needs to
b. | consume less of Good X or more of Good Y until the marginal utility per dollar for Good X and Good Y is equal. |
64. To reach the consumer optimum for two goods, the
a. | ratio of marginal utility to price for both goods must be equal. |
65. Lower prices
e. | increase the marginal utility per dollar spent and cause consumers to buy more of a good. |
66. Higher prices
a. | lower the marginal utility per dollar spent and cause consumers to buy less of a good. |
67. When a price changes, there are two effects: the ________ effect and the ________effect.
c. | real-income; substitution |
68. The substitution effect
d. | occurs when a consumer buys more of a good as a result of a relative price change. |
69. When a consumer buys more of a good as a result of a relative price change, economists call it
b. | the substitution effect. |
70. The real-income effect
e. | occurs when there is a change in purchasing power as a result of a change in the price of a good. |
71. When there is a change in purchasing power as a result of a change in the price of a good, economists call it
a. | the real-income effect. |
72. The substitution effect and the real-income effect are two effects that happen when
d. | a price changes. |
73. If the price of a good increases, the marginal utility per dollar spent ________ and consumers buy ________ of the good.
d. | decreases; less |
74. If the price of a good decreases, the marginal utility per dollar spent ________ and consumers buy ________ of the good.
e. | increases; more |
75. Lower prices increase the marginal utility per dollar spent and cause consumers to buy more of a good. On the other hand, higher prices lower the marginal utility per dollar spent and cause consumers to buy less of a good. This is a way of restating ________ in terms of marginal utility.
c. | the law of demand |
76. For a consumer, which of the following statements about the real-income effect is true?
a. | It matters only when prices change enough to cause a measurable effect on the purchasing power of a consumer’s income. |
77. Which of the following statements about the real-income effect and the substitution effect is true?
b. | The real-income effect and the substitution effect always exist. |
78. If a decrease in price results in only a small amount in savings, the enhanced purchasing power is effectively
e. | zero. |
79. If the price of attending a soccer game changes from $20 to $25, the marginal utility per dollar spent for the fifth game changes from
c. | 5.00 to 4.00. |
80. If the price of attending a soccer game changes from $25 to $20, the marginal utility per dollar spent for the fifth game changes from
d. | 2.00 to 2.50. |
81. Suppose Annabelle’s favorite ice cream flavor, strawberry, costs $1.50 per cone and chocolate costs $1.00 per cone. If she receives 10 utils when she eats chocolate ice cream, how many additional utils would she need to get from eating strawberry ice cream to make her indifferent between purchasing the two flavors of ice cream?
d. | 5 |
82. Suppose Tamara’s favorite arcade game, PAC-MAN, costs $1 to play and her second-favorite arcade game, Street Fighter, costs 50 cents to play. If she receives 10 utils when she plays Street Fighter, what is the least number of utils she must receive from PAC-MAN to play PAC-MAN over Street Fighter?
e. | 20 |
83. The fact that water, which is essential to life, is inexpensive, whereas diamonds, which do not sustain life, are expensive can be explained by the
b. | diamond–water paradox. |
84. The diamond–water paradox explains why
a. | water, which is essential to life, is inexpensive, whereas diamonds, which do not sustain life, are expensive. |
85. The diamond–water paradox unfairly compares the
c. | amount of marginal utility a person receives from a small quantity of something rare with the marginal utility from a small quantity of something after already consuming a large amount. |
86. One explanation for the existence of the diamond–water paradox is that
b. | people fail to recognize that demand and supply are both equally important in determining the value of a product. |
87. Graphically, total utility can be determined by the amount of
d. | consumer surplus enjoyed from a transaction. |
88. The area that represents total utility is
a. | a. |
89. The marginal utility is represented by the
b. | price P. |
90. Which of the following statements is true?
e. | The total utility of water is greater than the total utility of diamonds. |
91. Which of the following statements is true?
c. | The marginal utility of diamonds is greater than the marginal utility of water. |
92. The product’s total utility in dollars is equal to
a. | $250. |
93. The product’s marginal utility in dollars is equal to
d. | $15. |
94. A(n) ________ represents the various combinations of two goods that yield the same level of satisfaction or utility.
d. | indifference curve |
DIF:EasyREF:Indifference Curves
OBJ:16.4MSC:Remembering
95. Indifference curves visually lead upward to a point called the ________ point.
a. | maximization |
96. Refer to the following figure. Which is the most affordable path to the highest utility
a. | Quadrant I |
97. Budget constraint is the
c. | set of consumption bundles that represents the maximum amount the consumer can afford. |