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.