ECON Exam 1 Chapter 4

Assume a price elasticity of demand of 0.50. If the tobacco lobby is successful in reducing a tax on the price of cigarettes by 10 percent, the quantity demanded will

increase by 5 percent. Since elasticity is measured in terms of percentages, a coefficient of 0.50 would cause the quantity demanded to increase by 50% of the decrease in price (50% ? 10% = 5%).

A good whose demand is not very responsive to a change in price is

inelastic. Inelastic means insensitive or not very responsive to changing market conditions.

When marginal utility is negative, total utility

is decreasing. If marginal utility is negative, additional units of a good provide negative utility, which means that total utility must be going down.

In economic theory, total utility refers to

the amount of utility obtained from the consumption of a certain amount of a good or service. Total utility is the total amount of satisfaction derived from the consumption of a single good or service.

The response of quantity demanded to price changes is shown by

the price elasticity of demand. The responsiveness (or sensitivity) of consumers to a price change is measured by the price elasticity of demand.

Total revenue is

the price of a product times the quantity sold in a given time period. The sale of a good multiplied by its price equals total revenue—or the money a firm earns by selling its products.

Suppose a university raises its tuition by 8 percent and as a result the enrollment of students decreases by 4 percent. The absolute value of the price elasticity of demand is

0.5. The elasticity of the demand for tuition is the percentage change in quantity demanded (4%) divided by the percentage change in price (8%).

When the additional satisfaction from a good or service declines as more of it is consumed, this illustrates the law of

diminishing marginal utility. At some point, the consumption of additional units of a good or service yields less and less additional utility, ceteris paribus.

Suppose the local government decides to reduce traffic congestion on a bridge by imposing a toll. The toll will be most effective if the price elasticity of demand for the bridge is

elastic. If the percentage change in quantity is greater than the percentage change in price, a small price increase will lead to a larger quantity reduction. This would be most beneficial to reduce congestion as more drivers would respond by avoiding the bridge.

Which of the following best represents the law of diminishing marginal utility?

Marginal utility of a good eventually declines as more of it is consumed in a given time period. For a normal good, each successive unit consumed yields less and less additional utility, ceteris paribus.

Total utility for a certain number of units is equal to the sum of the marginal utilities for all units consumed to that point.

SEE UTILITY TABLE EXAMPLES

Demand is defined as the

ability and willingness to buy specific quantities of a good or service at alternative prices in a given time period, ceteris paribus. Demand relies on both your want for a good or service and your ability to pay for it.

Marginal utility refers to the

additional utility from consuming the last unit of a good or service. Marginal utility is the extra utility that a consumer derives from one more unit of a good or service.

Ceteris paribus means

only one variable is allowed to change while all others remain constant. Ceteris paribus means that factors other than those being considered are constant so that the effect of the change in one factor, whether price or a determinant of a variable, can be measured.

The price elasticity of demand is defined as the

percentage change in quantity demanded divided by the percentage change in price. Using percentages rather than absolute amounts to measure price elasticity allows us to compare different products with different prices.

The law of demand states that

price and quantity demanded are inversely related. It is an inverse relationship because for most goods the higher (lower) the price, the less (more) quantity demanded.

As the marginal utility of a good diminishes, so does the

price consumers are willing to pay. If the satisfaction with a product decreases, consumers will not be as willing to purchase the product. In other words, the price the consumer is willing to pay for additional units of the produce will decrease.

Price elasticity of demand indicates the consumer's response to changes in

price. Price elasticity of demand measures consumers sensitivity to price changes.

In economics, elasticity means

responsiveness to price changes The word elasticity is synonymous with responsiveness or sensitivity.

In economic theory, utility refers to the

satisfaction obtained from a good or service. Marginal utility refers to the additional satisfaction obtained from one more unit of a good or service whereas utility is a measure of overall satisfaction acquired from consuming a specific quantity of a good or service.

The goal of an advertising campaign is to

shift a product's demand curve to the right. increase product sales. change consumer tastes and preferences. Answers shift a product's demand curve to the right, increase product sales, and change consumer tastes and preferences are all correct because each relates to increasing the demand for a product.