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ECON 201 Lecture Notes - Lecture 6: Marginal Utility, Marginal Product, Legal Personality

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silvergiraffe603
18 May 2016
School
Drexel University
Department
Economics
Course
ECON 201
Professor
Andrew J Gellert

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Document Summary

Utility is a scientific concept used in economics to explain how rational consumers divide their resources among the commodities and services that give them satisfaction. In the theory of demand, we assume that people maximize their utility, which means that they choose the bundle of consumption goods that they most prefer. Denotes the additional utility you get from the consumption of an additional unit of commodity. Law of diminishing marginal utility: states that the amount of extra or marginal utility declines as a person consumes more and more of a good. Fundamental condition of maximum satisfaction or utility is the equimarginal principle. Measurable utility that people feel or experience when consuming goods or services. Consumers need only to determine only their preference ranking of bundles of commodities. Things we can rank in order, but for which there is no measure of quantitative difference between the situations.

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Related Questions

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

  consumer happiness
  utility
  a happiness index
  a satisfaction index

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

  positive.
  zero.
  negative.
  none of these.

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?

  MUa/ Pa = MUb/ Pb
  MUa/ Ph =MUb/ Pa
  Pa/ MUa = Pb/ MUb
  MUa x Pa = MUbxPb

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 isn’t a noticeable change in purchasing power

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

  diamond-carbon
  diamond-water
  diamond-life
  water-utility

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 consumer’s 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.

1. Due to the law of diminishing marginal utility, _____.

a. the marginal utility curve is upward sloping

b. when marginal utility becomes positive, total utility declines

c. when marginal utility becomes negative, total utility increases

d. marginal utility is zero when total utility is zero

e. the first unit of a product offers more satisfaction than the last unit of the same product

 

2. True or False. If a product has an elastic demand, it means that consumers are relatively insensitive to a change in the price of the product. 

 

3. If one were to plot the data with utility on the vertical axis and quantity of the good on the horizontal axis:

a. the total utility curve would begin to decline after the second unit of the good.

b. the marginal utility curve would intersect the horizontal axis at the second unit of the good.

c. the total utility curve would rise from the first unit to the fifth unit.

d. the marginal utility curve would intersect the horizontal axis at the third unit of the good.

e. the marginal utility curve would begin to decline after the third unit of the good.

4. If the average variable cost of a firm is falling, then the:

a. marginal cost must be falling.

b. average fixed cost must be rising.

c. marginal cost lies below the average variable cost.

d. marginal cost must be rising.

e. marginal cost lies above the average variable cost.

 

5. According to economic theory, the difference between the long run and the short run is:

a. the ability for a firm to vary all resources

b. about two years

c. about two months

d. not relevant for executive decision-makers

e. strictly theoretical so that in practice there is no difference between them

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.