Economics 101: Budget Constraints and Utility Theory
47 Questions
1 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What does the cardinal utility theory state about utility?

  • Utility increases with price.
  • Utility is measurable and can be added. (correct)
  • Utility is only subjective.
  • Utility cannot be measured.

    • What does a budget constraint represent?

  • The amount of debt a consumer can incur.
  • The total utility from all purchases.
  • A consumer's total income.
  • The limit on consumption bundles a consumer can afford. (correct)

    • If Lisa spends all of her income on movies and soda, what does this imply?

  • She will maximize her happiness.
  • She reaches the limits of her consumption choices. (correct)
  • She will not reach her budget constraint.
  • She will not be able to buy any soda.

    • How much money does Lisa have to spend?

    <p>$40</p> Signup and view all the answers

    What are indivisible goods as characterized in the context?

    <p>Goods that must be bought in whole units.</p> Signup and view all the answers

    What is the price of a movie as given in the context?

    <p>$8</p> Signup and view all the answers

    At which points can Lisa afford to consume based on her budget?

    <p>Any combination along the budget constraint.</p> Signup and view all the answers

    What is the price of soda per case?

    <p>$4</p> Signup and view all the answers

    Which equation validly represents Lisa’s budget equation?

    <p>I = PXX + PYY</p> Signup and view all the answers

    How is the budget constraint visually represented on a graph?

    <p>As a straight line from the intercepts on the axes</p> Signup and view all the answers

    What do the intercepts on the axes indicate in Lisa's budget constraint?

    <p>The maximum quantity of one good if none of the other good is purchased</p> Signup and view all the answers

    Which variable represents Lisa's household income in the budget equation?

    <p>I</p> Signup and view all the answers

    What happens if the prices of goods increase while Lisa's income remains the same?

    <p>Her budget constraint becomes steeper.</p> Signup and view all the answers

    If Lisa spends her entire income on movies, how would this be represented in the budget equation?

    <p>0 + PMQM = I</p> Signup and view all the answers

    What constraint does the budget equation imply about Lisa's consumption choices?

    <p>Her choices are limited to her income.</p> Signup and view all the answers

    What does Lisa prefer regarding points on the indifference curve?

    <p>Points above the indifference curve</p> Signup and view all the answers

    What is a key property of indifference curves?

    <p>They are downward sloping.</p> Signup and view all the answers

    What is the relationship between I1 and I0 in Lisa's preference map?

    <p>I1 is preferred to I0</p> Signup and view all the answers

    What does a relatively steep indifference curve indicate about the marginal rate of substitution (MRS)?

    <p>The MRS is high</p> Signup and view all the answers

    Why is point C preferred over point A?

    <p>C contains more of Good Y and the same amount of Good X.</p> Signup and view all the answers

    What is the marginal rate of substitution (MRS)?

    <p>The amount of one good required to replace another good</p> Signup and view all the answers

    Which of the following statements is true about indifference curves?

    <p>Higher indifference curves are preferred to lower ones.</p> Signup and view all the answers

    If Lisa prefers point J to points C and G, what does this imply about her preferences?

    <p>Point J is on a higher indifference curve than C and G</p> Signup and view all the answers

    What does the transitivity property of consumer preferences imply?

    <p>If A is preferred to B and B is preferred to C, then C is preferred to A.</p> Signup and view all the answers

    Which characteristic prevents indifference curves from crossing?

    <p>The transitivity property of preferences.</p> Signup and view all the answers

    What does it mean if the indifference curve is relatively flat?

    <p>The MRS is low</p> Signup and view all the answers

    What forms a preference map in ordinal utility theory?

    <p>A series of indifference curves</p> Signup and view all the answers

    What does a higher indifference curve represent?

    <p>More quantity of goods.</p> Signup and view all the answers

    What would happen if indifference curves were allowed to cross?

    <p>It would imply inconsistencies in consumer preferences.</p> Signup and view all the answers

    Which statement best describes what happens to Lisa's preferences as indifference curves rise?

    <p>Preferences increase as you move up</p> Signup and view all the answers

    Why are indifference curves bowed inward?

    <p>To represent diminishing marginal rates of substitution.</p> Signup and view all the answers

    What does total utility represent?

    <p>The total benefit derived from consuming goods</p> Signup and view all the answers

    What trend occurs as the quantity of goods consumed increases?

    <p>Marginal utility decreases</p> Signup and view all the answers

    What does the law of diminishing marginal utility state?

    <p>Marginal utility decreases as consumption increases</p> Signup and view all the answers

    If Lisa has one unit of a good, how will she likely use it according to the law of diminishing marginal utility?

    <p>To satisfy her most urgent want</p> Signup and view all the answers

    What occurs when a consumer has two units of a good?

    <p>The second unit will satisfy a less urgent want</p> Signup and view all the answers

    What happens to marginal utility from a good as its quantity consumed increases?

    <p>It decreases</p> Signup and view all the answers

    What is marginal utility defined as?

    <p>The increase in total utility from consuming one additional unit</p> Signup and view all the answers

    What illustrates the impact of the law of diminishing marginal utility?

    <p>Marginal utility diminishes as more units are consumed</p> Signup and view all the answers

    What happens to marginal utility as the number of movies seen in a month increases?

    <p>Marginal utility decreases.</p> Signup and view all the answers

    What does the total utility from soda do as more soda is consumed?

    <p>It increases with additional soda consumption.</p> Signup and view all the answers

    What is the marginal utility of the 6th unit of apples based on the chart?

    <p>-5</p> Signup and view all the answers

    What occurs after the 5th unit of apples is consumed?

    <p>Marginal utility becomes negative.</p> Signup and view all the answers

    When total utility is increasing, what can be said about marginal utility?

    <p>Marginal utility is positive.</p> Signup and view all the answers

    What shapes the total utility curve for Lisa’s consumption of soda?

    <p>The extra total utility from each case of soda.</p> Signup and view all the answers

    What does diminishing marginal utility illustrate in Lisa’s soda consumption?

    <p>Each additional soda consumed adds less utility than the previous one.</p> Signup and view all the answers

    If Lisa consumes 4 units of apples, what is her total utility based on the data?

    <p>50</p> Signup and view all the answers

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser