ECON 1000 Chapter Notes - Chapter 8: Marginal Utility, Indifference Curve, Real Income

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Consumption choices are limited by income and by prices. Budget line shows the limits to a household"s consumption choices. Relative prices: price of one good divided by the price of another good. A change in income (y) changes real income if px and py remain constant. The budget line shifts leftward or rightward, but its slope does not change. Diminishing marginal utility explains why demand curves slope downward (are negatively sloped). A consumer"s preferences can be represented by indifference curves. Indifference curve: a line that shows combinations of goods that yield the same level of utility. The consumer prefers any point on the indifference curve to any point below. The consumer is indifferent between different points on the curve. If there"s a few indifference curves on the same chart, the consumer prefers a point on the curve that"s more to the right hand side. Mrs is represented by the slope of the indifference curves.

Related Questions

1. Assume Joseph spends his entire income on X and Y, and his indifference curves have the usual convex shape. If Joseph maximizes his utility, then:

a. he spends his entire available income.

b. there are other bundles that are preferred at the current price ratio

c. the slope of his indifference curve is greater than the slope of his budget line

d. the slope of his indifference curve is smaller than the slope of his budget line

2. The long-run price elasticity of demand for a product is generally___the short-run elasticity for the same product.

a. lower than

b. equal to

c. higher than

d. not comparable to

3. Assume the demand function for skincare products is given by Q = 1,000-20P+5i. if P=$25 and i=$1,000 currently, then:

a. skincare products are a normal good

b. the elasticity of demand is equal to 11

c. skincare products are interior

d. the price is too high

graymosquito823

budget line

marginal utility

complete property of preferences

market demand

consumption bundle

substitution effect

Giffen good

total effect

income effect

transitive property of preferences

indifference curves

utility

the marginal rate of substitution

utility function

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

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.

ECON 1000 Chapter Notes - Chapter 8: Marginal Utility, Indifference Curve, Real Income

ECON 1000 Full Course Notes

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