ECN 104 Lecture Notes - Lecture 8: Marginal Utility, Budget Constraint, Demand Curve

15 views3 pages

ivoryeagle238

13 Oct 2016

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Introductory to microeconomics- week 8 (consumer choice and utility maximization) Answer: usually not, different consumer will have different preference. The benefit or satisfaction from the consumption of goods and services. Marginal utility: extra satisfaction from consuming one more unit. Total utility depends on the level of consumption. More consumption generally gives more total utility (up to certain limit) Marginal utility is usually positive, but it diminishes as the quantity consumed increases. Gains in satisfaction decline as additional units are consumed. Marginal utility falls rapidly for each successive unit. It will take a considerable drop in price to cause an increase in quantity demanded. So the quantity demanded and price are inversely related, that is, demand curve is downward-slopping. A consumer exhibits rational behaviour when he/she wants to get the most out of his/her money. To maximize the total utility from the goods/services consumed. They know the marginal utility form successive units of various products.

Related Questions

1. Economists use ____________ as a measure of the relative level of satisfaction when someone consumes a good or service.

2. Sue likes brownies. However, Sue notices that the more brownies she eats the less satisfaction she receives from each extra brownie. We can say that Sue is experiencing ___________________ from each extra brownie.

sugar sickness

total utility

diminishing marginal utility

increasing marginal utility

3. When total utility is maximized, the marginal utility will be

4. Consider Dirk and Lee. They are both eating pizza. Which of the following statements is true regarding their satisfaction and utility?

Dirk and Lee both receive 10 utils from eating pizza.

Dirk and Lee both receive the same level of satisfaction from eating pizza.

Dirk gets more twice as much satisfaction as Lee from eating pizza.

It is difficult to determine because the utility is subjective.

5. For many products, the total utility curve is

strictly increasing because of increasing marginal utility.

strictly decreasing because of diminishing marginal utility.

increasing initially because of increasing marginal utility, but eventually decreases.

increasing initially at a decreasing rate because of diminishing marginal utility but eventually decreases.

6. When consumers get the biggest bang for the buck, we say they

used the loudest gun in hunting season.

reached a consumer optimum.

minimized consumer satisfaction.

maximized marginal utility.

7. By choosing to consume at the consumer optimum, consumers will

maximize their total utility.

minimize their total utility.

maximize the amount they spend on each good.

minimize the amount they spend on each good.

8. A consumer is in equilibrium when consuming two goods when which of the following holds?

MU_a/ P_a = MU_b/ P_b

MU_a/ P_h =MU_b/ P_a

P_a/ MU_a = P_b/ MU_b

MU_a x P_a = MU_bxP_b

9. If the marginal utility of good 1 is 15 and its price is $3, and the marginal utility of good 2 is 12, and its price is $4, then the consumer

has achieved a consumer optimum.

should increase his or her consumption of good 1.

should increase his or her consumption of good 2.

should decrease his or her consumption of good 1.

10.Suppose the price of an iPod decrease and the price of HD TVs remains the same; what noticeable effect(s) occur(s)?

the substitution effect only

the real-income effect only

the substitution effect and real-income effect, if there is a noticeable change in purchasing power

the substitution effect and real-income effect, if there isnât a noticeable change in purchasing power

11. The ______________ paradox was described by Adam Smith in 1776.

12. What is the key to solving the diamond-water paradox?

more water and fewer diamonds

marginal utility

total utility

consumer demand

13. When solving the diamond-water paradox we notice that the marginal utility of

diamonds are equal to the marginal utility of water.

diamonds are greater than the marginal utility of water.

diamonds are less than the marginal utility of water.

water is equal to its price, and therefore lower than the marginal utility of diamonds.

14. The consumer surplus for water is

greater than that for diamonds because water is nonessential.

greater than that for diamonds because water is essential.

less than that for diamonds because water is nonessential.

less than that for diamonds because water is essential.

15. Suppose a consumer consumes only diamonds and water, and the price of diamonds increases. All else being equal, a consumerâs marginal utility for diamonds

decreases and the marginal utility for water stays the same.

increases and the marginal utility for water decreases.

decreases and the marginal utility for water increases.

increases and the marginal utility for water stays the same.

tansnake161

budget line

marginal utility

complete property of preferences

market demand

consumption bundle

substitution effect

Giffen good

total effect

income effect

transitive property of preferences

indifference curves

utility

the marginal rate of substitution

utility function

1.	_____	The satisfaction or benefit that consumers receive from consuming goods or services.
2.	________________ _	A particular combination of specific quantities of goods or services
3.	________________ _	Consumers can rank all conceivable bundles of goods or services
4.	_____	If A is preferred to B, and B is preferred to C, then A is always preferred to C.
5.	_____	Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services.
6.	_____	A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.
7.	_____	The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.
8.	_____	The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.
9.	_____	The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.
10.	_____	The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.
11.	_____	The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.
12.	________________ _	The sum of the substitution and income effects.
13.	_____	A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.
14.	_____	A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.

blushwildebeest943

When deciding consumption levels of more than one good, the utility-maximizing rule states that you are maximizing utility when

		the marginal utility o two goods are equal
		the marginal utility of two goods are zero
		the ratio of marginal utility to price of two goods is zero
		the ratio of marginal utility to price for the two goods are equal

10 points

QUESTION 2

My brother says the law of diminishing marginal utility is nonsense because he is way happier after his sixth beer than after his first one. Pick the best response.

		He has a point, maybe this is something behavioral economists should take a look at.
		True, but marginal utility refers only to the utility gained (or lost) by drinking that last beer, not to his total utility
		There are always exceptions, but in general this law will hold.
		True, but the law of diminishing marginal utility is really just saying that eventually he will prefer a glass of wine to another beer.

10 points

QUESTION 3

Frank spends $75 on 10 magazines and 25 newspapers. The magazines cost $5 each and the newspapers cost $2.50 each. Suppose that his marginal utility from the final magazine is 10 utils while his marginal utility from the final newspaper is also 10 utils. According to the utility-maximizing rule, Frank should:

		Reallocate spending from magazines to newspapers
		Reallocate spending from newspapers to magazines
		Be satisfied because he is already maximizing his total utility
		None of the above

10 points

QUESTION 4

Marginal utility can be:

		Positive, negative, or zero
		Decreasing but not negative
		Positive or negative, but not zero
		Positive, but not negative

10 points

QUESTION 5

In economics, a product provides utility if it:

is useful

violates the law of demand

takes more and more resources to produce successive units of it

satisfies consumer wants

Which of the following is true of an indifference curve?

		Along an indifference curve utility is fixed.
		If a consumer is rational then indifference curves may cross.
		Indifference curves further from the origin are associated with lower levels of utility than those that are closer to the origin.
		Because they are indifference curves, microeconomics students should be indifferent towards them.

ECN 104 Lecture Notes - Lecture 8: Marginal Utility, Budget Constraint, Demand Curve

Document Summary

Get access

Related Documents

ECN 104 Lecture Notes - Lecture 10: Marginal Utility, Budget Constraint, Indifference Curve

ECN 104 Chapter Notes - Chapter 10: Giffen Good, Tangent, Inferior Good

ECN 104 Lecture Notes - Lecture 8: Marginal Utility, Demand Curve

Related Questions