Section 6: Utility

Marginal Utility can

be positive, negative, or zero

When given the marginal utility of the first five units of a product, you can calculate the total utility by:

adding the marginal utilities of the first five units.

The old saying "getting the biggest bang for your buck" means that:

consumers maximize their utility.

If you consume pasta every day of the week, the marginal utility of pasta is likely to ________ at the end of the week, ceteris paribus, and this demonstrates the law of ________.

decline; diminishing marginal utility

When marginal utility is negative, total utility:

decreases.

Diminishing marginal utility:

occurs when the additional utility for each good declines as consumption increases.

Utility theory seeks to measure:

satisfaction

In May and June, Tammy spent all her clothing budget on bathing suits and beach bags. Each bathing suit cost $75. At Tammy's optimal choice, her marginal utility from the last bathing suit purchased is 300 and her marginal utility from the last beach bag purchased is 200. This means that each handbag must cost:

$50

Kim has $24 per week in her entertainment budget. She splits her time between going to the movies and yoga classes. Each movie costs $8 while each yoga class costs $3. The total utility from each of these activities is set out in table below. What is Kim's total utility maximizing points. (requires calculations) Movies Total Utility Yoga Classes Total Utility 0 0 0 0 1 40 1 30 2 75 2 55 3 105 3 76 4 130 4 92 5 160 5 106 6 114 7 116 8 117

1 movie, 5 yoga classes

Price is $5 good A Price is $4 good B Quantity TU MU Quantity TU MU 1 21 1 23 2 41 2 40 3 59 3 52 4 74 4 60 5 85 5 65 6 91 6 68 7 91 7 70 The marginal utility per dollar for the 6th unit of Good A is?

6 (incorrect) 1.2(guess)

Units of A Total utility Marginal utility 0 0 0 1 5 5 2 9 4 3 12 3 4 14 2 5 15 1 6 15 0 7 12 -3 IF 2 units of A are consumed, the total utility received is ______, and the marginal utility of the second unit is ________.

9; 4

At Nice Price for the Ice, an ice cream parlor, customers routinely buy a scoop of ice cream for $3. If consumers purchase one scoop of ice cream at $3, then why don't they keep buying more and more scoops for $3 until the store sells out?

At some point, customers do not value an additional scoop at $3, so they will not pay $3 for a scoop after they reach that point.

Dave gets 20 utils from consuming guacamole and 15 utils from consuming salsa; Buster gets 30 utils from the same guacamole and 15 utils from salsa. Given this information, a researcher can conclude that:

Dave and Buster both prefer guacamole to salsa.

Which of the following statements is true about utility?

Economists measure utility with a unit they refer to as a util.

Which of these statements best fits how a behavioral economist might view a situation?

If you find $100 on the street, you will be more likely so spend if freely than you would be to take $100 out of your bank account

Kati-Lyn has to choose between eating Chinese food and Indian food. Both Chinese food and Indian food cost the same. Which of the following equations, where MU is marginal utility and U is total utility, will lead to the optimal level of consumption?

MU per dollar Chinese = MUper dollar Indian

What economic concept is defined as the value, or satisfaction, that people derive from the goods and services they consume and the activities they pursue?

Utility

A budget line for Shannon shows her consumption options for two of her favorite goods. An increase in Shannon's income would lead to:

a parallel shift in her budget line to the right, allowing her to buy more of both goods

Phillip is deciding between consuming Good X and Good Y. At his current level of consumption, his marginal utility per dollar for Good X is less than the marginal utility per dollar for Good Y. To achieve the consumer optimum, Phillip needs to:

consume less of Good X or more of Good Y until the marginal utility per dollar for Good X and Good Y is equal.

Joanna is deciding between consuming Good X and Good Y. At her current level of consumption, her marginal utility per dollar for Good X is greater than the marginal utility per dollar for Good Y. To achieve the consumer optimum, Joanna needs to:

consume more of Good X or less of Good Y until the marginal utility per dollar for Good X and Good Y is equal.

Total utility is determined by:

adding the marginal utilities of each unit consumed

If the price of a good increases, the marginal utility per dollar spent __________ and consumers buy __________ of the good.

decreases; less

Individuals who haven't studied economics may not understand how all-you-can-eat buffets manage to make money. This can be explained by the concept of __________, which makes each trip to the buffet line less satisfactory than the previous one.

diminishing marginal utility

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.

diminishing marginal utility

When marginal utility declines as consumption increases, the consumer is experiencing:

diminishing marginal utility.

A big concern with trying to measure utility is that:

each individual has a unique personal scale for her or his utility measures.

A budget line for Ralph shows his consumption choices between hot dogs (on the vertical axis) and hamburgers (on the horizontal axis). If the price of hamburgers goes up, it:

has no effect on Ralph's ability to buy hot dogs but decreases the number of hamburgers he can buy. His budget line therefore rotates inward as if on a hinge from the vertical axis.

If the price of a good decreases, the marginal utility per dollar spent ___________ and consumers buy __________ of the good.

increases; more

For many products, the total utility curve is

increasing initially at a decreasing rate because of diminishing marginal utility but eventually decreases.

Marginal utility:

is the additional satisfaction derived from consuming one more unit of a good or service.

If a consumer purchases a combination of commodities x and y such that MUx/Px = 40 and MUy/Py = 50, to maximize utility, the consumers should buy.

less of x and more of y

The step-by-step process of finding the choice with the maximum utility involves a comparison of the:

marginal utility gained and lost from different choices along the budget constraint

Assume that you can afford to buy as many candy bars and ice cream cones as you want. You would continue to consume both candy bars and ice cream until the:

marginal utility of each becomes negative.

The additional satisfaction derived from consuming one more unit of a good or service is called:

marginal utility.

If a consumer buys more of good X and less of good Y, the _______ of good X will _______, and the ________ of good Y will _____________.

marginal utility; fall; marginal utility; rise

Timothy is trying to figure out what combination of bags of peanuts and bags of popcorn he should buy with his $13 budget. The price of peanuts is currently $5 per bag and the price of popcorn is currently $2 per bag. If Timothy's marginal utility from consuming his third bag of peanuts is 15 utils and his marginal utility from consuming his second bag of popcorn is 6 utils, Timothy should:

not change his consumption

One difference between total utility and marginal utility is that

total utility is cumulative, and marginal utility is not

The typical pattern revealed when consumers choose is that, as the quantity consumed of some product rises,

total utility rises, but marginal utility falls

In microeconomics terms, the ability of a good or a service to satisfy wants is called

utility

A measure of the relative levels of satisfaction that consumers enjoy from the consumption of goods and services is called:

utility.

The utility an individual will receive from consuming a good is determined by:

that individual's own preferences

The combination of goods and services that maximizes utility for a given income is called:

the consumer optimum.

Maximizing utility:

requires that consumers get the most satisfaction out of every dollar they spend.

Receiving less and less enjoyment from a second and then a third serving of ice cream is an example of ________.

the law of diminishing marginal utility

Which of the following is considered to be a tell-tale signal that the choice with the maximum total utility has been found?

the marginal utility for per dollar is the same for both goods

Which of the following statements most fully explains a driver's decision to pay to use a highway express lane?

the marginal utility per dollar spent on the lane must be greater than the marginal utility per dollar spent on the next best alternative

Economists believe that:

Utility is personal and subjective

When marginal utility is positive, total utility:

increases.

By choosing to consume at the consumer optimum, consumers will

maximize their total utility.

Cellphone companies rely on the ___________ of conversation to make unlimited night and weekend minutes on cellphone plans profitable.

diminishing marginal utility

To maximize your satisfaction when deciding between two goods:

you must get the most satisfaction out of every dollar you spend.

When total utility is maximized, marginal utility will be

zero.

# of units Total Utility 0 0 1 20 2 35 3 45 4 50 5 50 6 45 7 35 Using the table above the marginal utility for the second unit is:

15

Which of the following statements is always true when determining the consumer optimum?

Maximizing utility requires the marginal utility per dollar to be equal for each good consumed.

Which of the following statements is always true when determining the optimum level of two goods to purchase ( maximize utility)?

Maximizing utility requires the marginal utility per dollar to be equal for each good consumed.

Traditional economists, as opposed to behavioral economists, assume that ________.

People think rationally when making decisions