ECN 104 Chapter Notes - Chapter 7-12: Marginal Utility, Indifference Curve, Budget Constraint

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14 Feb 2018

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Economic problem of consumers: limited income, unlimited wants, budget line provides options, consumers have different preferences of bundles on the budget line. Marginal utility and demand: marginal utility rapidly falls for each successive unit, considerable drop in price will cause increase in quantity demanded, inversely related downwards sloping. 1: marginal utility/price = marginal utility per dollar, at each step, spend where mu/$ is highest. In general, if mu/$ is unequal, spending should be allocated: away from the good where mu/$ is lower, towards the good where mu/$ is higher, mu of product a = mu of product b. Deriving the demand curve: relationship between price and quantity demanded. Substitution effect: when the price of oranges fall, there is a substitution of now cheaper oranges, po down more oranges, less apples. Increase in real income increases consumption of both apples and oranges: po down, income up more oranges, less apples.

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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

1. If marginal utility is negative, total utility is

a. Positive

b. Negative

c. Decreasing

d. Constant

e. Increasing

2. If utility-maximizing consumers face identical prices, they will have identical

a. Marginal utilities for each good

b. Ratio of marginal utilities for each good

c. Preferences

d. Ratios of total utilities for each good

e. Total utilities for each good

3. The substitution effect

a. Always increases quantity demanded of a good whose relative price has fallen

b. Is opposite in sign to the income effect for all normal goods

c. Is opposite in sign to the income effect for all normal goods

d. May cause demand curves to be upward sloping

e. Is always dominated by the income effect for normal goods

4. Demand curves for normal goods slope downward because

a. The substitution effect of a price change is greater than the income effect

b. Substitution and income effects work in the same direction

c. The income effect is always greater than the substitution effect

d. The income effect is always less than the substitution effect

e. None of the above

5. The idea that a consumer derives less additional satisfaction from consuming successive units of a good is called

a. Diminishing consumer surplus

b. The paradox of value

c. Diminishing marginal utility

d. Diminishing total value of consumption

e. Diminishing total utility

indigolocust149

Suppose all consumers are maximizing utility with convex indifference curves. All face the same prices, and are perfectly rational. According to microeconomic models, at the maximization bundle they should

A. All have the same marginal rate of substitution

B. All buy more of the least expensive good

C. All end up with the same bundle of goods

D. All have the same level of satisfaction

Consider an indifference map with food on the vertical axis and shelter on the horizontal axis.

If a consumer is willing to give up 3 units of food in exchange for 1 unit of shelter and food is priced at $5 per unit and shelter at $10 per unit, then the consumer is:

A. Purchasing too much food for utility maximization

B. Purchasing too much shelter for utility maximization

C. Purchasing just the right amount of each good for utility maximization

D. Purchasing less than the budget would allow

If a consumer with convex indifference curves moves along her budget line, closer and closer to the horizontal axis, as she is moving:

		A. The marginal utility she gets from good Y declines.
		B. The marginal utility she gets from good X declines.
		C. The marginal utility she gets from good X increases.
		D. The price ratio of the two goods changes.

ECN 104 Chapter Notes - Chapter 7-12: Marginal Utility, Indifference Curve, Budget Constraint

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