CH. 10

One reason that consumers and businesses might not act rationally is

they may not realize their actions are inconsistent with their goals.

If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

57 utils

Marv Pilson has $50 worth of groceries in a shopping cart at his local Shop 'n Save. Assume that the marginal utility per dollar of the liter bottles of soft drink in Marv's cart equals 50. The marginal utility per dollar of the boxes of cereal in Marv's cart equals 20. Marv has only $50 to spend, but has not yet paid for his groceries. How can Marv increase his total utility without spending more than $50?

Marv should buy fewer boxes of cereal and more bottles of soft drink.

Which of the following describes the substitution effect of a price change?

The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

The income effect due to a price decrease will result in an increase in the quantity demanded for

a normal good.

Consider the following factors: a.culture b.religion c.customs d.prices e.income Which of the factors above are likely to influence the choices consumers make?

all the factors listed

Firms pay famous individuals to endorse their products because

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.

Sunk costs

are costs that have already been paid and cannot be recaptured in any significant way.

Optimal decisions are made

at the margin.

If the price of lattes, a normal good you enjoy, falls, then

both the income and substitution effects lead you to buy more lattes.

Marginal utility is the

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

The law of diminishing marginal utility states that

he extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.

Economists assume that the goal of consumers is to

make themselves as well off as possible.

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

the income effect.

What is behavioral economics?

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

Which of the following is an experiment which tests whether fairness is important in consumer decision making?

the ultimatum game

A network externality occurs when

the usefulness of a good is affected by how many other people use the good

Consumers have to make tradeoffs in deciding what to consume because

they are limited by a budget constraint.