Ch 10 Econ

both on the characteristics of the product and on the social status of other people buying the good.

Consider a good whose consumption takes place publicly (for example: The Presidential Suite at JW Marriot). Your decision to buy that good depends

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

A network externality occurs when

there may be large switching costs to consumers of changing products, so consumers end up using products with inferior technologies.

A significant downside to network externalities is that

all the factors listed

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 individuals/consumers make?

declines

As a consumer consumes more and more of a product in a particular time period, eventually marginal utility

where consumers and firms do not appear to be making choices that are economically rational.

Behavioral economics refers to the study of situations

They are limited by a budget constraint

Consumers have to make tradeoffs in deciding what to consume because

make themselves as well off as possible or maximize 'utility'.

Economists assume that the goal of consumers is to

the ultimatum game; the dictator game

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

the income effect would have to be larger than the substitution effect.

For a demand curve to be upward sloping, the good would have to be an inferior good, and

Giffen goods

Goods with upward sloping demand curves are referred to as

The marginal utility per dollar spent on all goods will be equal.

If a consumer always buys goods rationally, then

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

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

decreasing.

If your total utility is increasing at a decreasing rate as you consume more beer, then your marginal utility from each additional bottle of beer must be

positive, negative, or zero

Marginal utility can be

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

Marginal utility is the

Since the cost of the movie ticket is a sunk cost, it should not influence your decision. Your decision should be based solely on whether you want to see the movie or not

Suppose you pre-ordered a non-refundable movie ticket to Guardians of the Galaxy Vol. 2. On the day of the movie, you decide that you would rather not go to the movie. According to economists, what is the rational thing to do?

maximized.

Suppose your marginal utility from consuming the 3rd slice of cake is zero, then your total utility from consuming cake is

3 pita wraps and 4 bubble teas

What is Keegan's optimal consumption bundle? In other words, what combination of the two goods satisfies the necessary conditions for maximizing utility?

diminishing marginal utility

The nature of consumer behavior described in the previous question is referred to in economic terms as the law of

endowment effect

The observation that people tend to value something more highly when they own it than when they don't is called the

2 units of utility

What is Keegan's marginal utility per dollar spent on the fifth bubble tea?

5 units of utility

What is Keegan's marginal utility per dollar spent on the third pita wrap?

the income effect.

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 and substitution effects account for:

When the price of ice-creams increases from $2 to $3, quantity demanded decreases from 4 units to 3 units. This change in quantity demanded is due to

the substitution effect.

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

Consumers maximize total utility within their budget constraint by

buying the good with the largest marginal utility per dollar spent.