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ECN 101 Chapter Notes - Chapter 7: Status Quo Bias, Prospect Theory, Status Quo

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School
Ryerson University
Department
Economics
Course
ECN 101
Professor
Tom Barbiero

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Document Summary

As a consumer increases consumption of a good or service, the. A change in the price of a product changes a consumer"s real income (purchasing. A firm will purchase more of an input whose relative price has declined and use less. The total amount of satisfaction derived from the consumption of a single product or a. The extra utility a consumer obtains from the consumption of one additional unit of a. Human behaviour based on comparison of marginal costs and marginal benefits; The limit that a consumer"s income (and the prices that must be paid for goods and. To obtain the greatest utility, the consumer should allocate money income so. The combination of goods purchased that maximizes total utility by applying the law of diminishing marginal utility: marginal utility obtained from each additional unit of the good or service decreases. Rational behaviour : behaviour designed to maximize total utility.

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Related Questions

1.When Kelly Ziegenfuss buys five units of a particular good or service, __________.

a.she has no consumer surplus

b.she has a consumer surplus

c.there is no way of knowing whether she has a consumersurplus

2.Lauren Elise Ballard would be maximizing her total utility when__________.

a.she had a consumer surplus

b.her marginal utility was zero

c.her marginal utility was equal to her total utility

d.she had no consumer surplus

3.Which statement is true?

a.Most people have the same utility schedules.

b.Most people enjoy a consumer surplus for at least some of thethings they buy.

c.We will consume additional units of a product until our consumersurplus is zero.

d.The utility of a product is measured by its usefulness.

4.Which statement is false?

a.The water-diamond paradox can be resolved with the help of the law of diminishing marginal utility.

b.We will consume a service when its marginal utility is equal toits price.

c.The law of diminishing marginal utility has little validity today.

d.None is false.

5.As Keith Collins buys more and more of any good or service, his__________.

a.total utility and marginal utility both decline

b.total utility and marginal utility both rise

c.total utility rises and marginal utility declines

d.total utility declines and marginal utility rises

6.Doug Horn will buy more and more of a good or service until__________.

a.marginal utility is greater than price

b.price is greater than marginal utility

c.price is equal to marginal utility

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.

3. Amy is shopping at a dollar store. She is currently buying 5 bracelets that cost $1 each and 4 sodas that cost $1 each. The table below indicates the marginal utility she obtains when she purchases this combination.

Quantity

Price per Unit

MU per unit

Bracelets

5

$1

30

Sodas

4

$1

40

A consumer maximizes utility when the last dollar spent on any good generates the same satisfaction as the last dollar spent on every other good. Is this consumer maximizing her utility?

If not, should she consume more bracelets or more sodas? Explain.

Answer the following assuming that one more bracelet is purchased and one less soda is consumed:

Recall the law of diminishing marginal utility. What happens to the Marginal Utility of bracelets and the Marginal Utility of soda?

What happens to the Total Utility received?

What happens to the total dollars spent?