Microeconomics ch10

Income effect

The change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing​ power, holding all other factors constant.

In deciding between consuming more goods now or saving​ money, consumers should do which of the​ following?

Choose an amount of current spending on goods and savings so that the marginal utility per dollar of both are equal.

How does the fact that consumers apparently value fairness affect the decisions that businesses​ make?

Firms will not raise prices in response to an increase in demand.

​"When the price of a normal good​ falls, the income and substitution effects work in the same direction.​" This statement​ means:

If the price of a normal good falls, the income effect will increase quantity demanded while the substitution effect will also increase quantity demanded, so these two effects work in the same direction.

Is utility measurable?

No

What is the definition of marginal​ utility?

The change in utility from consuming an additional unit of a good or service.

Does purchasing a smaller​ (larger) quantity demanded when price falls​ (rises) mean that demand curves for inferior goods should slope​ upward?

This does not mean that the demand curves for inferior goods should slope upward as we must also take into account the substitution effect.

network externality

a situation in which the usefulness of a product increases with the number of consumers who use it

The law of diminishing marginal utility suggests that

consumers experience diminishing additional satisfaction as they consume more of a good or service.

The rule of equal marginal utility per dollar spent suggests that consumers maximize utility by

equalizing the marginal utility per dollar spent across goods and services.

When the price of a product​ changes,

it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.

Marginal utility is more useful than total utility in consumer decision making because

optimal decisions are made at the margin.

When the price of pizza falls along the demand curve for​ pizza,

the consumer adjusts the consumption of both pizza and Coke following the rule of equal marginal utility per dollar.

What is the economic definition of​ utility?

the enjoyment or satisfaction people receive from consuming goods and services.

Path dependence is where

the technology that was first available has advantages over better technologies that were developed later.