L11 Econ 1011 Chapter Notes - Chapter 5: Reservation Price, Demand Curve, Economic Surplus

1. Economists use ____________ as a measure of the relative level of satisfaction when someone consumes a good or service.

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.

3. When total utility is maximized, the marginal utility will be

4. Consider Dirk and Lee. They are both eating pizza. Which of the following statements is true regarding their satisfaction and utility?

5. For many products, the total utility curve is

6. When consumers get the biggest bang for the buck, we say they

7. By choosing to consume at the consumer optimum, consumers will

8. A consumer is in equilibrium when consuming two goods when which of the following holds?

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

10.Suppose the price of an iPod decrease and the price of HD TVs remains the same; what noticeable effect(s) occur(s)?

11. The ______________ paradox was described by Adam Smith in 1776.

12. What is the key to solving the diamond-water paradox?

13. When solving the diamond-water paradox we notice that the marginal utility of

14. The consumer surplus for water is

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

1. Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because:

A. luxury cars cost a lot more than non-luxury cars.

B. the total utility of less expensive cars is greater than that of luxury cars.

C. car buyers are irrational.

D. the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars.

2. The labor market is considered as one of the more important markets in an economy because

A. most people typically earn the bulk of their income from wages and salaries.

B. the usual market forces do not hold in the labor market.

C. the labor market does not reach an equilibrium.

D. most people are concerned that wages determined in the labor market are unfair.

3. Table 17-1
Quantity of Labor Output (units)
1 80
2 170
3 240
4 300
5 350
6 390
7 420

Refer to Table 17-1. The marginal product of the fourth unit of labor is

A. 300.

B. 75.

C. 60.

D. 15.

4. Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys:

A. both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased.

B. both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased.

C. four times as many magazines as CDs.

D. four times as many CDs as magazines.

5. Marginal utility is the:

A. average satisfaction received from consuming a product.

B. total satisfaction received from consuming a given number of units of a product.

C. extra satisfaction received from consuming one more unit of a product.

D. satisfaction achieved when a consumer has had enough of a product.

6. What is behavioral economics?

A. the study of how people behave in the face of scarcity

B. the study of how people make decisions at the margin

C. the study of situations in which people act in ways that are not economically rational

D. the study of how people make wealth-maximizing decisions

7. Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If hiring another worker would increase output by three units per hour, then to maximize profits the firm should:

A. not hire an additional worker.

B. hire another worker.

C. not change the number of workers it currently hires.

D. There is not enough information to answer the question.

8. Consumers have to make tradeoffs in deciding what to consume because:

A. they are limited by a budget constraint.

B. there are not enough of all goods produced.

C. not all goods give them the same amount of satisfaction.

D. the prices of goods vary.

9. Table 17-1
Quantity of Labor Output (units)
1 80
2 170
3 240
4 300
5 350
6 390
7 420

Refer to Table 17-1. If the output price is $3, what is the marginal revenue product of the fifth unit of labor?

A. $1,050

B. $360

C. $210

D. $150

10. At low wages, the labor supply curve for most people slopes upward because:

A. as wages increase income also increases unless hours worked decrease.

B. the demand for labor is perfectly elastic at low wages.

C. as wages increase the opportunity cost of leisure increases.

D. the supply of labor is perfectly inelastic at low wages.

11. A negative externality exists if:

A. the marginal social cost of producing a good or service exceeds the private cost.

B. the marginal private cost of producing a good or service exceeds the social cost.

C. there are quantity controls in a market.

D. there are price controls in a market.

1. The marginal product of labor is:

A. equal to the demand for labor.

B. the payment made to workers for their contribution to the output they produce.

C. the change in a firm's revenue as a result of hiring one more worker.

D. the additional output a firm produces as a result of hiring one more worker.

2. What does the phrase "internalizing an external cost" mean?

A. limiting the extent to which domestic firms can outsource production

B. prohibiting economic activities that create externalities

C. finding a way to address cross-border pollution

D. forcing producers to factor into their production costs the cost of the externalities created in the production of their output

3. The highest-valued alternative that must be given up to engage in an activity is the definition of

A. implicit cost

B. opportunity cost.

C. utility.

D. economic sacrifice.

4. What is market failure?

A. It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost.

B. It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.

C. It refers to a breakdown in a market economy because of widespread corruption in government.

D. It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.

5. Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If the last worker hired increases output by three units per hour, then to maximize profits the firm should

A. lay off some of its workers.

B. does not change the number of workers it currently hires.

C. hire additional workers.

D. There is not enough information to answer the question.

6. When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called

A. the deadweight loss effect.

B. the income effect.

C. the substitution effect.

D. the elasticity effect.

7. An externality is

A. a benefit realized by the purchaser of a good or service.

B. a benefit or cost experienced by someone who is not a producer or consumer of a good or service.

C. a cost paid for by the producer of a good or service.

D. anything that is external or not relevant to the production of a good or service.

8. Firms pay famous individuals to endorse their products because

A. apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product. '

B. famous people only consume high-quality products.

C. famous people obviously know what are the best goods and services.

D. the firms are irrational and are wasting advertising expenditures.

9. If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the second candy bar is

A. 25 utility units.

B. 20 utility units.

C. 5 utility units.

D. unknown as more information is needed to determine the answer.

10. When there is a negative externality, the private cost of production ________ the social cost of production.

A. is less than

B. is greater than

C. eliminates

D. is equal to