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ECN 104 Chapter Notes - Chapter 7: Taco, Budget Constraint, Demand Curve

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rubyhound283
10 Dec 2016
School
Ryerson University
Department
Economics
Course
ECN 104
Professor
Emilia Barbu

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Document Summary

The simplest theory of consumer choice rests squarely on the law of diminishing marginal utility. This principle is that added satisfaction declines as a consumer acquires additional units of a given product. Although consumer wants in general may be insatiable, wants for a particular item can be satisfied. In a specific span of time over which consumers" tastes remain unchanged, consumers can get as much of a particular good or service as they can afford. But the more of that product they obtain, the less they still want more of it. A product has utility if it can satisfy a want: utility is a want-satisfying power. The utility of a good or service is the satisfaction or pleasure one gets from consuming it. This concept"s got 3 characteristics: utility and usefulness are not synonymous. Paintings by picasso may offer great utility to art connoisseurs but are useless functionally: utility is subjective.

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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.

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.