micro ch 7

the theory of consumer behavior assumes that consumers attempt to maximize

total utility

ability of a good or service to satisfy its wants

utility

the law of diminishing MU states that

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

MU is the

change in TU obtained by consuming one more unit of a good

the marginal rate of substitution measures the

consumer's willingness to substitute one product for another so that total utility will remain constant

an increase in the price of product A will

decrease the marginal utility per dollar spent on A

the law of diminishing MU explains why

demand curves slope downward

newpaper dispensing devices seemingly "trust" people to take only a single paper, but the devices actually rely on the law of

diminishing MU

Edith is buying products X and Y with her money income. suppose her budget line shifts rightwards (outward). this might be the result of

her money income increasing more than proportionately to increases in the prices of X and Y

according to economists, gift registries, returning gifts for cash refunds, and "recycling gifts"

increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying

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

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

the lines on a topographical map are analogous to an

indifference map

an indifference curve

is downsloping and convex to the origin

which of the following has been a significant factor in the ability of ipads to compete effectively against laptop and desktop computers?

many consumers perceive that ipads are surperior to laptops and desktop computers for the consumption of digital media

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 MU of the third pepsi is

8 units of utility

which of the following is correct

A. Budget lines are linear and upsloping; indifference curves are downsloping and concave to the origin. B. Budget lines are linear and downsloping; indifference curves are downsloping and concave to the origin. *****C. Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin.******* D. Budget lines are downsloping and convex to the origin; indifference curves are linear and downsloping.

all of the following would reduce property crime by increasing its "price" except

A. imposing greater penalties for those who are caught and convicted. B. using more sophisticated security systems. C. enhancing the legitimate earnings of potential criminals. ****D. cutting out the middlemen ("fences") by selling stolen goods via Internet auction sites.*****

suppose you have a limited money income and you are purchasing products A and B, whose priced happen to be the same. To maximize your utility, you should purchase A and B in such amounts that

MU are the same

unlike newspaper dispensing, soft drink dispensing machines do not permit people to take more than one can or bottle with each payment. the reason is that the

MU of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later

Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that:

Mrs arnold should spend more on soda and less on pretzles

Susie buys two goods: rounds of golf and massages. Suppose that the price of a round of golf is $20 and the price of a massage is $30. In a typical week, Susie will play two rounds of golf, getting 20 units of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 units of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 units of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur?

Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect

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

Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase:

more of B and less of A

the diamond-water paradox occurs because:

price of a product is related to its MU, not its TU

the slope of a budget line reflects the

price ratio of the two products

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

ratios of the MU of each product purchased divided by its price are equal

noncash gifts

reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences

a change in the slope of a budget line is solely the result of a change in

the price of one good relative to the other

in moving along a given budget line

the prices of both products and money income are assumed to be constant

the "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

most people do not steal because

their MC, including guilt costs, are too high