Consumer choice 2

Jane is willing to pay​ $80 for a pair of shoes. The actual price of the shoes is​ $50. Her marginal benefit from the pair of shoes is a$80. b$30. c$1300. d$50.

A

Consider the demand Q=40-2P (or inverse demand P=20-0.5Q). What is the consumer surplus at a price of $10? a$80 b$100 c$120 d$150

B

A drought in the Midwest over the summer brought a sharp increase in the price of corn. The increase in the price of corn a increases consumer surplus if demand is elastic and decreases consumer surplus if demand is inelastic. b always increases consumer surplus. c always decreases consumer surplus. d does not affect consumer surplus because this change reflects only a movement along the demand curve.

C

Consider the Figure below representing a market demand. Suppose the market price is PM. What does area A represent on the graph? aConsumer Surplus bConsumers' total willingness to pay for the good cConsumers' total expenditure on the good dConsumers' net gain from buying the good

C

The law of demand refers to​ ________. athe negative relationship between the​ consumer's income and the quantity demanded of a commodity bthe positive relationship between the price and the quantity demanded of a commodity cthe negative relationship between the price and the quantity demanded of a commodity dthe positive relationship between the​ consumer's income and the quantity demanded of a commodity

C

The concept of diminishing marginal benefits means that​ _________. athe more of a good that you​ consume, the lower is your overall benefit from that good. bas you consume more of a​ good, your willingness to pay for that good increases faster than the benefit you receive. ceach additional unit consumed is worth more to you than the previous​ one, but the additional benefit grows at a diminishing rate. deach additional unit consumed is worth less to you than the previous one.

D

If income​ falls, then in the new consumer equilibrium a total utility from normal goods increases. B the marginal utility from normal goods decreases. c total utility from inferior goods decreases. d the marginal utility from inferior goods increases. e the marginal utility from normal goods increases

E

complementary goods

Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely).

substitute goods

Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

movement along the demand curve

a change in the quantity demanded of a good that is the result of a change in that good's price

diminishing marginal benefit

as you consume more of a good, your willingness to pay for an additional unit declines

Law of Demand

consumers buy more of a good when its price decreases and less when its price increases

change in quantity demanded

movement along the demand curve showing that a different quantity is purchased in response to a change in price

normal goods (superior goods)

products whose demand varies directly with money income

consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

quality demand

the amount of a good that buyers are willing and able to purchase

Market demand

the sum of the quantity demanded by each potential buyer.

If the market price of an ICU2 computer​ monitor, whose demand curve is shown​ above, increases from ​$120 to ​$180 due to more restrictive disposal fees for​ producers, the ____ in consumer surplus would be ​$____ million. ​(round your response to the nearest million​ dollars) a Loss; 2,250 bGain; 2,250 cLoss; 1,800 dGain; 1,800

A

What is meant by "holding other things constant" and how is this concept used when discussing the demand​ curve? aAll variables that can affect the demand for the good are held constant. b everything else in the economy is held​ constant, including the price of the good. cAll variables in the model are set to equal values. dAll of the above.

A

Assume used cars are inferior goods. What will happen to the demand for used cars if consumers' income decreases? a The demand for used cars will increase. b The demand for used cars will decrease. c The quantity demanded for used cars will increase. d The quantity demanded for used cars will decrease.

A Used cars may be inferior goods for many individuals. As their incomes increase, they will likely buy fewer used cars and more new cars. However, if their incomes decrease, they will be more likely to buy a used car instead of a new automobile. If used cars were classified as normal goods, the answer would be a decrease in demand.

Consumer surplus a The portion of consumer goods that are purchased in a given time period but not consumed. b The value or total benefits one receives from a good in excess of the price paid for it. c The​ quantity of a good not purchased in a market when the price is too high. d The income an individual has after his consumption plans are met.

B

Market demand is derived by​ ________. aFixing the quantity and adding up the prices that each buyer pays. bFixing the price and adding up the quantities that each buyer demands. cAdding up both the prices each buyer pays and the quantities that each buyer demands. dDividing each​ buyer's demand by the total number of consumers in the market.

B

Sam's demand curve for pizza alies above her marginal benefit curve for pizza. bis the same as her marginal benefit curve for pizza. chas one point in common with her marginal benefit curve for pizza. dlies below her marginal benefit curve for pizza.

B

Suppose Frank chooses to buy hot dogs at their current price. When the price of hot dogs increases, Frank's consumer surplus ________. aIncreases bDecreases cDoesn't change d Cannot be determined unless the size of the price increases is known

B An increase in price will lead to a decrease in consumer surplus since Frank now keeps less of his money when he purchases hot dogs. He will also buy fewer hot dogs. Both of those factors will reduce his consumer surplus.

What happens to consumer surplus in a market if the price of the good rises? Consumer surplus: aincreases bdecreases cdoes not change done cannot tell

B Demand is downward sloping, so if the price rises, consumers will buy a lower quantity. Therefore, the area below demand and above the price consumers pay shrinks.

"Some people predict, however, that the prices of chocolate will increase drastically in about three years because of some unhealthy crops." Given this expectation for the future, what will happen to the demand for chocolate now? What will the demand do? aDecrease as people switch to substitute goods bIncrease as consumers buy more now to avoid higher prices later cDecrease; when prices increase, demand decreases dStay the same as consumers plan to adjust to the prices in the future

B Expectations of future changes are an influence on demand. When consumers expect prices to increase, they will often purchase now to avoid the higher prices in the future. This will increase demand now. After the prices have increased, people will then search for cheaper substitutes and the demand for the more expensive item will decrease, so "decrease as people switch to substitute goods" cannot be the right answer. "Decrease; when prices increase, demand decreases" confuses quantity demanded and demand. The Law of Demand states that if everything else remains unchanged, then an increase in price will cause a decrease in the quantity demanded. "Stay the same as consumers plan to adjust to the prices in the future" indicates that there will be no market reaction, which does not seem likely given that the expectations do often influence current behavior.

If the price of an Xbox player​ falls, then in the market for Xbox​ games, athere is a movement downward along the demand curve for Xbox games. bthe demand curve for Xbox games shifts rightward. cthere is a movement upward along the demand curve for Xbox games. dthe demand curve for Xbox games shifts leftward.

B The rule with complementary goods is that when the price of one decreases, the demand for the complementary good increases.

Frank is willing to pay $1,000 for the first class he takes this semester, $850 for the second, $700 for the third and $500 for the fourth. If the price of a class is $750, how many classes will he take? a1 b2 c3 d4

B The third class costs more than he is willing to pay ($750 in cost compared to $700—what he's willing to pay), so he will only take 2 classes.

Marginal benefit a is the same as the total benefit received from consuming a good. b is the difference between total benefit and total cost. c Is the maximum amount a person is willing to pay for one more unit of a good. dincreases as consumption increases.

C

Suppose Brendan consumes haircuts and compact discs. Initially, his budget line is the middle one in the figure, and he originally consumes at point A. If his income falls and compact discs are a normal good but haircuts are an inferior good then he will begin consuming at a point such as aF. bB. cG. dE.

C

Using the graph, if the price increases from $1 to $1.50, consumer surplus will decrease by _____. a $1.50 b $2.50 c $3.50 d$4.50

C At $1.50, the area is $1.50 x 6 x ½ = $4.50. At $1, the consumer surplus was $8, so the difference is $3.50.

In the diagram: Area A represents ; Area B represents ; Area A+B represents . aConsumers' total expenditure; Consumer surplus; Consumers' total benefit. bConsumers' total benefit; Consumer surplus; Consumers' total expenditure. cConsumer surplus; Consumers' total expenditure; Consumers' total benefit. dConsumer surplus; Consumers' total benefit; Consumers' total expenditure. eConsumers' total expenditure; Consumers' total benefit; Consumer surplus. fConsumers' total benefit; Consumers' total expenditure; Consumer surplus.

C The demand curve represents consumers' marginal benefit (i.e. their willingness to pay for each unit), so the entire area below the demand curve represents consumers' total benefit (i.e. their total willingness to pay for the total quantity they're buying). So area A+B represents consumers' total benefit. If consumers pay a price P per unit and buy a total quantity Q, they spend a total PQ, so area B represents consumers' total expenditure. Consumer surplus is consumers' total benefit minus their expenditure (i.e. their "net" benefit), so it is area A.

Beverly is currently in consumer equilibrium. An increase in her income a increases her consumption of all goods. b decreases her marginal utility from all goods. c increases her marginal utility from all goods. d increases her total utility. e decreases her total utility.

D

Consider the market for hot dogs. As long as the marginal benefit of consuming hot dogs is greater than the price of hot​ dog a the price of hot dogs will rise. b there is no decreasing marginal benefit of eating hot dogs. c the value of hot dogs will rise. d people receive consumer surplus from eating hot dogs.

D

Rachel wants to maximize her benefit of consuming apples and​ bananas, given her fixed budget of​ $10 for these two fruits. The price of an apple is​ $1, and the price of a banana is​ $0.50. In order to derive​ Lily's demand curve for​ bananas, we need to​ ______. adraw a downward sloping line with slope of -2 bsolve the​ buyer's problem for her​ once, and find the optimal number of​ bananas, when price of a bananas is​ $0.50 cdraw a downward sloping line with slope of -1 dsolve the​ buyer's problem for her multiple times and find the optimal number of​ bananas, when price of a bananas is at a different level each time

D

Suppose Gail is willing to pay $89 for a new pair of shoes and Karen is willing to pay $60. What is the gain in total consumer surplus if the price of the shoes falls from $70 to $50? a$10 b$19 c$29 d$30

D At a price of $70, only Gail will buy the shoes and the consumer surplus is $19 ($89-$70). At a price of $50, both will buy the shoes and total consumer surplus is $39 + $10 = $49. Therefore, the gain in consumer surplus is $49-$19 or $30.

Max has allocated​ $100 toward meats for his barbecue. His budget line and an indifference map are shown in the figure. What happens if Max receives a​ $100 cash grant to buy either meat or​ chicken? aMax will double his consumption of both meats. bMax will take advantage of the gift by buying all chicken because it is the more expensive meat. cMax will spend it all on burger. Because of its lower​ price, he can buy more of it. dThere is not enough information to answer the question.

D We do not know enough about his preferences to be able to tell what decisions he would make

Suppose Brad's daily budget for fruit is $10, the price of a plum is $1 and the price of an apple is $1. Figure 10 below shows the number of plums on the x-axis and the number of apples on the y-axis. Prices are Px​=$1 for plums and Py​=$1 for apples. Brad's budget line is initially L1​ (with a slope of -1): given his preferences (the shape of his indifference curves), his optimal consumption bundle is initially at point A (2 plums and 8 apples). What happens when the price of plums falls to Px​=$0.50 ? Suppose the price of plums falls even further, to Px​=$0.25.

The budget line pivots counterclockwise to a new budget constraint L3​, with a new slope of -0.25. It is tangent to a new, higher indifference curve at point C, which is the new optimal consumption bundle, with 16 plums and 6 apples. -When the price of plums is $1, Brad's quantity demanded is 2 plums -When the price of plums is $0.50, Brad's quantity demanded is 10 plums -When the price of plums is $0.25, Brad's quantity demanded is 16 plums