ECO100Y5 Lecture Notes - Lecture 9: Normal Good, Budget Constraint

38 views2 pages

byzantiumfish364

16 Apr 2016

School

Department

Course

Professor

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

sophiapham192 and 37296 others unlocked

ECO100Y5 Full Course Notes

Verified Note

53 documents

Document Summary

Utility is the enjoyment or satisfaction people receive from consuming goods or services. Marginal utility is the additional satisfaction resulting from the consumption of one additional unit of a particular good or service. Law of diminishing utility: the more of a good you consume, the less additional utility you get from that good. Answer: 4 donuts, 3 cups of coffee (44 utils) Consumers want to maximize their utility subject to a budget constraint. Rule of equal marginal utility per dollar: you should spend income to consume goods up until the point that the mu/$ spent on one good is equal to the mu/$ spent on another. Conditions for utility maximization: paper (2: getting the most bang for your buck (most amount of utility compared to price) Constrained by the amount of income that you have: you must be able to afford the bundle. Income and substitution effects from a change in price.

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

1. Total and marginal utility

Alyssa enjoys eating ice cream cones. The following table contains information on Alyssa's utility from ice cream each week.

Fill in the two missing cells of the table.

Ice Cream	Total Utility	Marginal Utility
(Cones)	(Utils)	(Utils per cone)
0	0
0	0	60
1	60	60
1	60	50
2		50
2		40
3	150	40
3	150
4	180
4	180	20
5	200	20
5	200	10
6	210	10
6	210

On the following graph, use the purple points (diamonds symbol) to plot Alyssa's total utility (TU) curve if she consumes zero, one, two, three, four, five, or six cones of ice cream per week.

Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.

0123456240216192168145120967248250TOTAL UTILITY (Utils)ICE CREAM (Cones)

On the following graph, use the blue points (circle symbol) to plot Alyssa's marginal utility (MU) curve from consuming her first six cones of ice cream.

012345680706050403020100MARGINAL UTILITY (Utils)ICE CREAM (Cones)

For Alyssa, increasing her consumption of ice cream results in marginal utility.

rosezebra616

Michael spends all of his income on coffee and donuts. A coffee costs $2.50 and a donut costs $2.00. At his current consumption level, the marginal utility for coffee is 30 utils, and the marginal utility for a donut is 60 utils. Which statement best describes what Michael needs to do to maximize his utility?

Question 1 options:

1)	buy less of both coffee and donuts.

2)	buy less coffee and more donuts.

3)	buy more coffee and less donuts.

4)	spend the same amount on coffee as he does on donuts.

Question 2

What is it called when the marginal utility derived from the last dollar spent on each good is the same across all goods and the last dollar spent uses all of the available budget for the purchase of those goods?

Question 2 options:

1)	the optimal consumption bundle.

2)	the optimal production bundle.

3)	diminishing marginal utility.

4)	optimal point.

Question 3 (1 point)

What does the economic theory of marginal utility infer?

Question 3 options:

1)	consumers naturally know which consumption choices will maximize their utility.

2)	consumers who watch market trends are better at maximizing their utility than are those who do not watch those trends.

3)	one cannot maximize utility without taking an economics class that explains utility theory.

4)	one cannot maximize utility without doing the math of calculating the ratios of marginal utility divided by price.

Question 4

Kate is addicted to chocolate and does not care how much it costs. In fact, she spends more than $20 a week on chocolate. What can be concluded about elasticity in her buying decisions?

Question 4 options:

1)	Her income elasticity of demand for chocolate is equal to one.

2)	Her income elasticity of demand for chocolate is equal to zero.

3)	Her price elasticity of demand for chocolate is equal to one.

4)	Her price elasticity of demand for chocolate is equal to zero.

Save

Question 5 (1 point)

Why does the demand for a good become relatively more elastic?

Question 5 options:

1)	substitutes for the good become more available.

2)	substitutes for the good become less available.

3)	the good becomes more of a necessity.

4)	the time allowed for adjustment is shortened.

Save

Question 6 (1 point)

Assume the price of chicken per pound is $3.49 and that Americans purchase 10 million pounds per chicken every month. If the price of chicken increases to $5.49 per pound, identify what will occur to consumer surplus?

Question 6 options:

1)	consumer surplus increases.

2)	consumer surplus decreases.

3)	consumer surplus creates incentive to save.

4)	consumer surplus creates incentive to spend.

Question 7 (1 point)

What is another name for the difference between the price that consumers are willing to pay for a good and a lower price that they may actually have to pay?

Question 7 options:

profit.

revenue.

3)	consumer utility.

4)	consumer surplus.

Question 8

Adam, Brian, Robert, and Sam all want to attend a football game. The admission price is $48. Adam is willing to pay $59 for the ticket. Brian is willing to pay $39. Robert is willing to pay $45, and Sam is willing to pay $55. Based on this information, who will go to the game?

Question 8 options:

1)	Adam, Brian, Robert, and Sam.

2)	Brian and Robert.

3)	Adam and Sam.

4)	Brian, Robert, and Sam.

Save

Question 9 (1 point)

Lily is willing to pay $10 for one bracelet and $5 for a second. Patty is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, identify what is the total consumer surplus after Lily and Patty make their purchases?

Question 9 options:

Question 10 (1 point)

Manfred is willing to shovel one driveway for $25, a second for $30, and a third for $35. Assume that the market rate for shoveling driveways is $32. How many driveways will Manfred shovel, what will be his total revenue, and what will be his producer surplus?

Question 10 options:

1)	Manfred will shovel two driveways for a total revenue of $64 and his producer surplus will be $9.

2)	Manfred will shovel three driveways for a total revenue of $75 and his producer surplus will be $12.

3)	Manfred will shovel three driveways for a total revenue of $96 and his producer surplus will be $5.

4)	Manfred will shovel four driveways for a total revenue of $125 and his producer surplus will be $18.

Save

Question 11 (1 point)

What would the difference between the price that producers receive and the lower price at which they are willing to sell the good be called?

Question 11 options:

1)	producer shortage.

2)	producer surplus.

3)	consumer shortage.

4)	consumer surplus.

Save

Question 12 (1 point)

What will happen when there is an increase in the price of eBook downloads?

Question 12 options:

1)	It reduces the marginal utility derived from each dollar spent on eBooks.

2)	It reduces the marginal utility derived from each hardcopy book purchased.

3)	There will not be a substitution effect.

4)	There will not be a change in the number of eBooks in the set of consumption possibilities.

Save

Question 13 (1 point)

When is price elasticity of demand utilized to measure how an individual changes the quantity they demand?

Question 13 options:

1)	when supply changes.

2)	when product quality changes.

3)	when marketing changes.

4)	when price changes.

Save

Question 14 (1 point)

Assume Mary consumes only tea and pastries. A cup of tea costs 5 euros and a pastry costs 8 euros. Her weekly income is 450 euros. Mary always drinks 2 cups of tea for every pastry she consumes. What is Maryâs optimal weekly consumption bundle?

Question 14 options:

1)	25 cups of tea and 50 pastries.

2)	50 cups of tea and 25 pastries.

3)	58 cups of tea and 20 pastries.

4)	60 cups of tea and 30 pastries.

Save

Question 15 (1 point)

When is producer surplus a positive value?

Question 15 options:

1)	the price the producer is willing to charge equals the market price.

2)	there is no tax applied to the good.

3)	the price the producer is willing to charge is less than the market price.

4)	the price the producer is willing to charge is greater than the market price.

ECO100Y5 Lecture Notes - Lecture 9: Normal Good, Budget Constraint

ECO100Y5 Full Course Notes

Document Summary

Get access

Related textbook solutions

Principles of Economics

Principles of Macroeconomics

Principles of Microeconomics

Related Documents

ECO100Y5 Lecture Notes - Lecture 4: Indifference Curve, Budget Constraint, Normal Good

ECO100Y5 Chapter Notes - Chapter 6: Demand Curve, Real Income, Relative Price

ECO100Y5 Chapter Notes - Chapter 6: Demand Curve, Real Income, Relative Price

Related Questions