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.

Accepted Answer

The point marked L1 on the upward-sloping portion of the individual labor supply curve signifies that as wages increase, individuals are incentivized to work more hours, hence the quantity of hours worked also increases. This is a characteristic behavior of the labor supply curve where, initially, higher wages encourage more work effort.

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

Accepted Answer

B

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

Accepted Answer

American households typically spend about one-third of their annual consumption on shelter, making it one of the largest expenses for most families.

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.

Accepted Answer

The point at the top of the backward bending supply curve (L3) signifies a level of wages at which further increases in wages lead to a decrease in the quantity of hours worked. This is because individuals may choose to work fewer hours, valuing their leisure time more as their income becomes sufficiently high.

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

Accepted Answer

The term "diminishing marginal utility" refers to the economic principle that as a person consumes more units of a good, the additional satisfaction or utility gained from consuming each additional unit decreases.

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

Accepted Answer

The U.S. Bureau of Labor Statistics gathers information on the typical consumption choices of Americans through the Consumer Expenditure Survey, which collects information on the buying habits of American consumers, including data on their expenditures, income, and consumer unit (families and single consumers) characteristics.

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.

Accepted Answer

The correct answer is D because it encompasses all the statements accurately. The BC line represents the budget constraint, indicating the combinations of goods that can be purchased with a given income. Points along the I3 line are outside the budget constraint, meaning they represent combinations of goods that are unaffordable with the consumer's income. The highest utility is achieved where the indifference curve (like I2) just touches the budget constraint, indicating the most preferred combination of goods within the budget. Additionally, the consumer can indeed choose any point on or below the budget constraint line BC, as these points represent affordable combinations of goods.

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.

Accepted Answer

Utility is the term used in microeconomics to describe the satisfaction or usefulness obtained from consuming goods and services.

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.

Accepted Answer

Marietta is maximizing utility by choosing a combination of goods within her budget line, as this indicates she is selecting the best possible mix of goods that she can afford, aiming to achieve the highest satisfaction or utility given her budget constraints.

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

Accepted Answer

The term "income effect" describes a situation where a higher price causes a reduction in the buying power of income, even though actual income has not changed. This concept is part of consumer theory in economics, which analyzes how changes in relative prices and income affect consumer choices and behaviors.

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

Accepted Answer

Income level of each household is a primary determining factor in predicting spending patterns because it directly affects the financial capacity for consumption and savings within a household.

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

Accepted Answer

The income effect occurs when a change in the price of a good affects the purchasing power of a consumer, leading to a change in the quantity demanded for that good or others. Simultaneously, the substitution effect occurs, which is the change in consumption patterns due to a change in the relative prices of goods, making consumers substitute away from more expensive goods towards cheaper ones.

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.

Accepted Answer

Total utility is determined by summing up the marginal utilities of each unit consumed, reflecting the total satisfaction received from consuming a certain quantity of a good or service.

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

Accepted Answer

On average, American households spend about one-third of their annual consumption on food and vehicle expenses combined.

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

Accepted Answer

The substitution effect occurs when consumers adjust their consumption of different goods in response to changes in relative prices, substituting away from goods that have become relatively more expensive towards goods that have become relatively cheaper.

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

Accepted Answer

Economic theory provides a systematic way of thinking about economic events and responses, helping to prevent misguided conclusions about how households will respond to changes in prices or incomes.

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

Accepted Answer

Each factor listed - differing levels of family income, geographical location, and personal preferences - significantly influences household spending patterns. Income levels affect purchasing power, geographical location can impact the cost of living and available goods/services, and personal preferences guide specific spending choices.

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

Accepted Answer

At point U on the budget line, the consumer is maximizing utility, which occurs when the ratio of the prices (P1/P2) equals the ratio of the marginal utilities (MU1/MU2).

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

Accepted Answer

Marginal utility is the term used to describe the additional satisfaction or utility that a consumer receives from consuming one more unit of a good or service.

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

Accepted Answer

Marginal utility can indeed be positive, negative, or zero. Positive marginal utility occurs when consuming an additional unit of a good increases overall satisfaction, negative marginal utility occurs when consuming an additional unit decreases overall satisfaction, and zero marginal utility occurs when an additional unit of consumption does not change overall satisfaction.

Quiz 6: Consumer Choices

-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?

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?

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

-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?

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.

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

-Refer to the above diagram. In this instance:

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

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

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

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.

Which of the following occurs simultaneously with an income effect?

Economists are able to determine total utility by:

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?

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.

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.

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

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

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

Marginal utility can: