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35 True/False questions

  1. The ______ of a price change always moves quantity demanded in the opposite direction to the price change. When the price of a good decrease, the substitution effect works to increase quantity demanded; when price increases, the substation effect works to decrease quantity demanded.showing that Max's responses to price changes obey the law of demand.

          

  2. A consumer's ____________ identifies which combinations of goods and services can afford with a limited budget, at given prices.Budget constraint

          

  3. Once the satiation point is reached then what happens?Preferences that satisfy two conditions: 1. Any two alternatives can be compared, and one is preferred or else the two are valued equally, and 2. The comparisons are logically consistent or transitive.

          

  4. If Py is the price of the good on the vertical axis and Px is the price of the good on the horizontal axis, then....Both its slope and one of ties intercepts will change.

          

  5. When the price of a good changes, the budget line rotates:showing that Max's responses to price changes obey the law of demand.

          

  6. In making decisions about spending, we must all face two facts of economic life:If this condition is not satisfied, the consumer will be better off consuming more of one and less of the other good in a pair.

          

  7. An increase in income will shift the budget line upward (and rightward). A decrease in income will shift the budget line downward (and leftward).These shifts are parallel: CHanges in income do not affect the budget line's slope.

          

  8. If a price decreases, the drop in the price of concerts rotates Max's budget line rightward...showing that Max's responses to price changes obey the law of demand.

          

  9. What is marginal utility?The change in total utility an individual obtains from consuming an additional unit of a good or service. Marginial utility is the change in utility an individual enjoys from consuming an additional unit of a good.

          

  10. The substitution effect is also important from a theoretical perspective: It is the main factor responsible for the law of demand.Yep.

          

  11. A FALL IN THE PRICE OF CONCERTS increases the quantity demanded---showing that Max's responses to price changes obey the law of demand.

          

  12. As she eats more and more ice cream cones in a given week, her marginal utility from another cone declines. We call this is _________.As consumption of a good or derive increases, marginal utility decreases.

          

  13. What is the income effect?THe income effect of a price change wrists from a change in purchasing power over both goods. A drop in price increases total purchasing power, while a rise in price decreases total purchasing power. As the price of a good decreases, the consumers' purchasing power increases, causing a change in quantity demanded for the good.

          

  14. One common denominator-- and a critical assumption behind consumer theory-- is that people have ______.The consumer will turn down the product.

          

  15. What is utility?A quantitative measure of pleasure or satisfaction obtained from consuming goods and services.

          

  16. A rise in income-- with no change in prices-- leads a new quantity demanded for each good.Whether a particular good is normal or inferior demanded depends on the individual's preferences, as represented by the marginal utilities for each good, at each pint along his budget line.

          

  17. On the budget line, one cannot afford any combination ___________ of this line.The consumer will turn down the product.

          

  18. What is the substitution effect?As the price of a good falls, the consumer substitutes that good in place of other goods whose prices have not changed.

          

  19. Marginal utility treats consumers as striving to maximize their utility- a quantitative measure of the consumer's well-being or satisfaction.Yep.

          

  20. These "givens"-- the price of the goods and the consumer's income-- are always assumed constant as we move along the budget line.Both its slope and one of ties intercepts will change.

          

  21. If an increase in income (with prices held constant) increases in the quantity of a good demanded, the good is ______.showing that Max's responses to price changes obey the law of demand.

          

  22. Marginal utility is equal to what?The change in total utility

          

  23. Another feature of preferences:Preferences that satisfy two conditions: 1. Any two alternatives can be compared, and one is preferred or else the two are valued equally, and 2. The comparisons are logically consistent or transitive.

          

  24. What is the law of diminishing marginal utility?The change in total utility an individual obtains from consuming an additional unit of a good or service. Marginial utility is the change in utility an individual enjoys from consuming an additional unit of a good.

          

  25. It must be true that MUx/Px= MUy/Py for any pair of goods x and y.As consumption of a good or derive increases, marginal utility decreases.

          

  26. The consumer will always choose a point on the budget line, rather than a point below it.Yep.

          

  27. The relative price of a concert, the opportunity cost of another concert, and the slope of the budget line all have the same ____________.showing that Max's responses to price changes obey the law of demand.

          

  28. Although utility increase every time one consumes more of a good, the additional ultiity that one derives from each successive cone gets smaller and smaller as one gets more of that good.The Marginal Utility Approach

          

  29. A utility-maximizing consumer will choose the point on the budget line where marginal utility per dollar is the same for both goods (MUx/Px= MUy/PyYep.

          

  30. What is the graphical representation of a budget constraint, showing the maximum affordable quantity of one good for given amounts of another good?As consumption of a good or derive increases, marginal utility decreases.

          

  31. What is budget constraint?The change in total utility an individual obtains from consuming an additional unit of a good or service. Marginial utility is the change in utility an individual enjoys from consuming an additional unit of a good.

          

  32. When the price of movie falls, the budget line rotates _______; that is, the vertical intercept moves higher.Outward

          

  33. The budget line therefore, serves as a border between those combinations that are affordable and those that are not.Yep.

          

  34. What are rational preferences?Preferences that satisfy two conditions: 1. Any two alternatives can be compared, and one is preferred or else the two are valued equally, and 2. The comparisons are logically consistent or transitive.

          

  35. If we divide on money price by another money price, we get what is called a ___________, the price of one good relative to the other.Relative price