Answer the following statements true (T) or false (F)

Question

1. The shape of a demand curve is ultimately determined by the underlying choices about maximizing utility subject to a budget constraint.
2. For someone to determine the labor-leisure choice that will maximize her utility, she must place numerical values on the total and marginal utility that she would receive from every level of income and leisure.
3. The United States has higher rates of domestic savings as a percentage of gross domestic product than do China and Russia.
4. Even though a business pays income taxes based on its accounting profit, whether it is economically successful depends on its economic profit.

Answer 1

1. True
This statement is true. The shape of a demand curve is ultimately determined by the underlying choices about maximizing utility subject to a budget constraint. And while economists may not be able to measure utils, they can certainly measure price and quantity demanded.
2. False
This statement is false. For someone to discover the labor-leisure choice that will maximize her utility, she can compare, in her own mind, whether she would prefer more leisure or more income, given the trade-offs she faces.
3. False
This statement is false. By international standards, Americans do not save a high proportion of their income. U.S. national savings amount to 17% of U.S. GDP. The world average rate of savings is 22%. Russians save 28%, while the Chinese manage to save 51%.
4. True
This statement is true. Even though a business pays income taxes based on its accounting profit, whether it is economically successful depends on its economic profit.