Econ Chapter 7 Study Guide

Refer to the data. The value for X is

15

The theory of consumer behavior assumes that

consumers behave rationally, attempting to maximize their satisfaction.

The fact that most medical care purchases are financed through insurance

increases the amount of health care consumed by reducing the price of additional units of care.

Marginal utility can be

positive, negative, or zero.

"Essential" water is cheaper than "nonessential" diamonds because

the supply of water is great relative to demand and the supply of diamonds is small relative to demand.

The theory of consumer behavior assumes that consumers attempt to maximize

total utility.

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K. If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing

4 units of J and 5 units of K.

Refer to the data. The value for Y is

45

Refer to the diagram. Total utility is at a maximum at _____ units of X.

6

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is

8 units of utility.

Refer to data. Marginal utility becomes negative beginning with the

fourth unit.

Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth

has a higher "marginal utility-to-price ratio" for the hockey game than for the play.

If the price of product X rises, then the resulting decline in the amount purchased will

increase the marginal utility of the last unit consumed of this good.

Refer to the diagram. Total utility

increases at a diminishing rate, reaches a maximum, and then declines.

To maximize utility, a consumer should allocate money income so that the

marginal utility obtained from the last dollar spent on each product is the same.

A consumer who has a limited budget will maximize utility or satisfaction when the

ratios of the marginal utility of each product purchased divided by its price are equal.

A product has utility if it

satisfies consumer wants.

Total utility may be determined by

summing the marginal utilities of each unit consumed.

Refer to the data. The value for Z is

-5

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18. What level of total utility does the rational consumer realize in equilibrium?

51 utils

The utility of a good or service

is the satisfaction or pleasure one gets from consuming it.

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy

more of X and/or less of Y.

Refer to the diagram. The marginal utility of the third unit of X is

4

The marginal utility of the last unit of apples consumed is 12, and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?

$6 and $4

If the prices of X and Y are $2 and $4 per unit, respectively, and this consumer has $10 in income to spend, to maximize total utility, this consumer should buy

1 unit of X and 2 units of Y.

Refer to the diagram. The total utility yielded by 4 units of X is

17

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18. How many units of the two products will the rational consumer purchase?

2 of L and 3 of M

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K. If the consumer's money income were cut from $52 to $28, and the prices of J and K remain at $8 and $4, respectively, she would maximize her satisfaction by purchasing

2 units of J and 3 units of K.

Refer to the data. The value for W is

20

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K. What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $52 and the prices of J and K are $8 and $4, respectively?

276 utils

While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed and would only receive 5 units of satisfaction from consuming a second slice, at the same price. Based on this information, we can conclude that

Alex may have to lower the price to convince Kara to buy a second slice.

How did Apple overcome consumers' diminishing marginal utility for iPads?

Apple introduced new features to entice previous buyers to purchase new models.

Refer to the table and graph. Suppose that the price of X falls from $2 to $1, while the price of Y remains at $4. Which of the following represents the demand curve for X if the consumer has money income of $10 to spend on X and Y?

D2

Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc and Pd. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially

MUcPc>MUdPd.

If a rational consumer is in equilibrium, which of the following conditions will hold true?

The marginal utility of the last dollar spent on each good purchased will be the same.

Which of the following statements about utility is true?

Utility is difficult to measure quantitatively.

When a consumer shifts purchases from product X to product Y, the marginal utility of

X rises and the marginal utility of Y falls.

If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium

are $105 and $140, respectively.

Refer to the diagram. Marginal utility

becomes negative after consuming 4 units of output.

The law of diminishing marginal utility states that

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

Marginal utility is the

change in total utility obtained by consuming one more unit of a good.

Diminishing marginal utility explains why

demand curves are downsloping.

The law of diminishing marginal utility explains why

demand curves slope downward.