ECON 2000 Chapter : Chapter 5 Outline

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azuremammoth471

15 Mar 2019

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Students often believe the following statements are true. The correct answer is explained after the incorrect statement is presented: the law of demand and the law of diminishing marginal utility are the same. Demand refers to both preferences and ability to pay: the person for whom a good or service has the greatest utility has the greatest desire for more of it. Utilities of one good for many people cannot be compared. Utilities of various goods for one person can be compared. Marginal utility with respect to price, not total utility, is the best indicator of how to make a choice: an expected price change has the same effect as a change in the current price. If prices are expected to rise in the near future, people will demand more of the commodity today in order to beat the rise in price. Demand increases and the quantity demanded will rise.

Related Questions

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

The law of diminishing marginal utility (LODMU) states that:

as more and more of a good is consumed, beyond a point marginal utility will increase at a decreasing rate

the quantity of a good demanded will rise as the price is lowered, holding all other factors constant

the demand for goodwill rise as the price is lowered, holding all other factors constant

if an individual increases consumption of one good, then consumption of other goods must decrease because the individual has a finite income and goods have positive prices

none of the above options are correct

redhedgehog209

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

jadefly405

ECON 2000 Chapter : Chapter 5 Outline

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