Micro Economics Chapters 10 and 11

Consider the ultimatum game​, where an​ "allocator" is​ given, say, ​$100.00100.00 to decide how to divide with a​ "recipient," who then decides whether to accept or reject the​ allocation, ultimately determining whether the pair receives the allocation or nothing. What is the optimal play in the ultimatum​ game? The optimal play in the ultimatum game is for the allocator to propose a division of the money such that the recipient receives

$0.01 and the recipient then accepts the division.

For​ example, if the total cost of producing three units of output is ​$2 comma 1202,120 and the total cost of producing four units of output is ​$3 comma 0173,017​, then the marginal cost of the fourth unit is ​$

$897

Economists assume that firms search for the​ cost-minimizing combination of inputs that will allow them to produce a given level of output. On what two factors does the​ cost-minimizing combination of inputs​ depend? The​ cost-minimizing combination of inputs depends on

technology and input prices

What explanation might an economist provide why some people smoke cigarettes when such behavior can lead to health​ consequences? Some people likely smoke cigarettes because

they overvalue the utility from current choices

What explanation might an economist provide why some people smoke cigarettes when such behavior can lead to health​ consequences? Some people likely smoke cigarettes because

they underestimate the future costs of current choices

It is not possible for the consumer to be indifferent between bundles A and B on one indifference curve and bundles B and C on another indifference curve because this would mean that the consumer must also be indifferent between bundles A and C which are on two different indifference​ curves, and this would violate

transitivity.

What affects the desirability of a​ product? Products become more desirable when

-movie stars use a product because consumers who use the same product may feel more fashionable. -celebrities use a product because consumers who use the same product may feel closer to famous people. -professional athletes use a product because consumers perceive them to be particularly knowledgeable about it.

Consider a form of public consumption such as wearing clothes. An​ individual's demand for clothes depends on

-the cost of the clothes. -the individual's tastes and preferences. -the popularity of the clothes

Economies of scale The situation when a​ firm's long-run average costs fall as it increases output. Firms may experience economies of scale for several​ reasons:

1. A​ firm's technology may make it possible to increase production with a smaller proportional increase in at least one input. 2. Both workers and managers can become more​ specialized, enabling them to become more​ productive, as output expands. 3. Large firms may be able to purchase inputs at lower costs than smaller competitors. 4. As a firm​ expands, it may be able to borrow money less​ expensively, thereby lowering its costs

Indifference curve A curve that shows the combinations of consumption bundles that give the consumer the same utility. Characteristics of indifference curves​ include:

1. Consumer preferences are ​complete: The consumer prefers bundle A to bundle​ B, bundle B to bundle​ A, or the consumer is indifferent between both bundles. 2. Indifference curves that are further from the origin provide greater utility. 3. Preferences are transitive. That​ is, if consumption bundle X is preferred to consumption bundle Y and if consumption bundle Y is preferred to consumption bundle​ Z, then consumption bundle X must be preferred to consumption bundle Z. If indifference curves​ cross, the transitivity assumption is violated

Indifference curve A curve that shows the combinations of consumption bundles that give the consumer the same utility. If a consumer is able to rank different combinations of goods and services in terms of how much utility they​ provide, then the consumer is able to determine whether he or she prefers bundle A or bundle B even if the consumer is unsure exactly how much utility he or she would receive from consuming these goods. ​Therefore, if the consumer can rank the​ bundles:

1. Consumer preferences are​ complete: The consumer prefers bundle A to bundle​ B, bundle B to bundle​ A, or the consumer is indifferent between both bundles. 2. Indifference curves that are further from the origin provide greater utility. 3. Preferences are transitive. That​ is, if consumption bundle X is preferred to consumption bundle Y and if consumption bundle Y is preferred to consumption bundle​ Z, then consumption bundle X must be preferred to consumption bundle Z

The marginal rate of substitution​ (MRS): Equal to the ratio of the marginal utility of the good measured on the horizontal axis to the marginal utility of the good measured on the vertical axis. The slope of the indifference​ curve: Equal to​ (minus) the marginal rate of substitution. The slope of the budget​ constraint: Equal to​ (minus) the price of the good measured on the horizontal axis divided by the price of the good measured on the vertical axis

1. Consumers maximize utility when they consume each good up to the point where the marginal utility per dollar spent is the same for every good. 2.​ Graphically, consumers maximize utility when they are on the highest indifference​ curve, given the budget constraint. 3. The two conditions are equivalent because at the point of optimal​ consumption, the indifference curve and the budget constraint are​ tangent, so they have the same slope. ​Therefore, at the point of optimal​ consumption, the marginal rate of substitution is equal to the ratio of the price of the product on the horizontal axis to the price of the product on the vertical axis.

Technological change A change in the ability of a firm to produce a given level of output with a given quantity of inputs. Examples​ include:

1. The ability to produce more output using the same inputs or the same output using fewer inputs. 2.​ Alternatively, quantity of output that can be produced from a given quantity of inputs declines

The most obvious reason why consumers might not act rationally would be that they do not realize that their actions are inconsistent with their goals. For​ example, consumers commonly commit the following three mistakes when making decisions​

1. They take into account monetary costs but ignore nonmonetary opportunity costs. 2. They fail to ignore sunk costs. 3. They are overly optimistic about their future behavior

Sunk cost

A cost that has already been paid and cannot be recovered. Once you have paid money and​ can't get it​ back, you should ignore that money in any later decisions you make

Sunk cost

A cost that has already been paid and cannot be recovered. Once you have paid money and​ can't get it​ back, you should ignore that money in any later decisions you make. If you prefer baseball games to musicals​, then the fact that you have already paid for a ticket to the musical is irrelevant. This is because the cost of the ticket to the musical is a sunk cost.​ Therefore, you should attend the baseball game

Network externality

A situation in which the usefulness of a product increases with the number of consumers who use it. For​ example, if you owned the only cell phone in the​ world, it would not be very useful. If a network externality is​ present, then consumers may be more likely to buy the product because it is more useful.​ Unfortunately, network externalities may result in market failure due to two​ reasons:

An example of technological change is

A. being able to produce the same output using fewer inputs. B. being able to produce more output using the same inputs. C. a decline in the quantity of output that can be produced from a given quantity of inputs

Characterize utility maximization. When consumers maximize​ utility,

A. they consume each good up to the point where the marginal utility per dollar spent is the same for each good. B. the slope of the indifference curve equals the slope of the budget constraint at the point of optimization. C. the marginal rate of substitution equals the price of the good on the horizontal axis divided by the price of the good on the vertical axis at the point of optimization

Isocost line

All the combinations of two​ inputs, such as capital and​ labor, that have the same total cost.

In recent​ years, some economists have begun studying situations in which people do not appear to be making choices that are economically rational. This new area of economics is called

Behavioral Economics The study of situations in which people make choices that do not appear to be economically rational

Path dependence

Due to switching​ costs, the technology that was first available may have advantages over better technologies that were developed later. The path along which the economy has developed is important.

Nonmonetary opportunity​ costs

Economist Richard Thaler studies how businesses often make use of​ consumers' failure to take into account nonmonetary opportunity costs. For​ example, credit card companies do not allow stores to charge a fee if a consumer pays with a credit card but allow stores to provide a discount if they pay in cash. There really is no difference in terms of opportunity cost between being charged a fee and not receiving a discount. The credit card company is relying on the fact that not receiving a discount is a nonmonetary opportunity costlong dash—​and, ​therefore, likely to be ignored by consumerslong dash—but a fee is a monetary cost that people do take into account. Other examples​ include: 1. Firms requiring consumers to pay to develop every picture on a role of​ film, even for fuzzy​ pictures, but then offering them a refund for those pictures. 2. Firms competing over the price of a​ "base good," such as a​ printer, but then hiding the prices of​ "add-ons," such as ink cartridges

Unrealistic future​ behavior:

Economists suggest that when people overeat or smoke​ cigarettes, they are overvaluing the utility from current choiceslong dash—eating chocolate cake or smokinglong dash—and undervaluing the utility to be received in the future from being thin or not getting lung cancer. That​ is, economists argue that many people have preferences that are not consistent over time. In the long​ run, people would like to be thin or give up​ smoking, but each​ day, they make decisions​ (such as to eat too much or​ smoke) that are not consistent with this​ long-run goal. If consumers are unrealistic about their future​ behavior, then they will underestimate the costs of choiceslong dash—like overeating or smokinglong dash—that are made today

Unrealistic future​ behavior:

Economists suggest that when people overeat or smoke​ cigarettes, they are overvaluing the utility from current choices—eating chocolate cake or smoking—and undervaluing the utility to be received in the future from being thin or not getting lung cancer. That​ is, economists argue that many people have preferences that are not consistent over time. In the long​ run, people would like to be thin or give up​ smoking, but each​ day, they make decisions​ (such as to eat too much or​ smoke) that are not consistent with this​ long-run goal. If consumers are unrealistic about their future​ behavior, then they will underestimate the costs of choices—like overeating or smoking—that are made today.

In many​ cases, it is not just the number of people who use a product that makes it desirable but the types of people who use it

For​ example, if consumers believe that movie stars or professional athletes use a​ product, demand for the product will often​ increase, partly because consumers believe public figures are particularly knowledgeable about products. Many consumers also feel more fashionable and closer to famous people if they use the same products these people do

A price increase decreases a​ consumer's purchasing​ power, which, if an inferioran inferior ​good, causes the quantity demanded to increaseincrease due to the income effect. A price increase also raises the opportunity cost of consuming the​ good, which causes the quantity of the good demanded to decrease due to the substitution effect.

If ham is an inferioran inferior good and the price of ham​ increases, then consumers will demand moremore ham due to the income effect and less ham due to the substitution effect

How can marginal cost be expressed​ mathematically? Marginal cost​ (MC) can be expressed as

MC= DeltaTC/DeltaQ, where TC is total cost and Q is output

Because consumers differ in their incomes and their preferences for​ products, consumers often demand different quantities of a good at a given price

Market demand is the sum of the quantities demanded by each consumer at each price.

Miriam consumes tacos and Coke. Suppose the price of a taco is ​$3.003.00​, the price of a Coke is ​$1.001.00​, and that Miriam is currently consuming tacos and Coke such that her marginal utility of tacos is 8484 and her marginal utility of Coke is 6969. Is Miriam behaving​ optimally? If​ not, then what should she​ do?

Miriam is not maximizing​ utility; she should instead consume more Coke and fewer tacos

Optimal decisions are made at the margin. The key to making the best consumption decision is to maximize utility by following the rule of equal marginal utility per dollar spent. In this​ example, the marginal utility per dollar spent renting movies is 4.004.00​, from marginal utility of 2020 divided by a rental price of​ $5.00. The marginal utility per dollar spent on CDs is 3.203.20​, from marginal utility of 3232 divided by a price of​ $10.00.

Since the marginal utility per dollar spent renting movies is not equal to the marginal utility per dollar spent on​ CDs, you are not maximizing utility

The​ cost-minimizing combination of inputsd epends on two​ factors:

Technologylong dash—which determine how much output a firm receives from employing a given quantity of inputs and Input priceslong dash—which determine the total cost of each combination of inputs

The substitution effect

The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other​ goods, holding constant the effect of the price change on consumer purchasing power.

The 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

Public consumption of goods and​ services

The decision to buy a product depends partly on the characteristics of the product and partly on how many other people are buying the product. ​Therefore, an​ individual's demand for clothesclothes depends on the cost of the clothesclothes​, the​ individual's tastes and​ preferences, and social forces such as the popularity of the clothesclothes and how many other people are wearing the clotheswearing the clothes

Short Run

The period of time during which at least one of a​ firm's inputs is fixed

Long Run

The period of time in which a firm can vary all its​ inputs, adopt new​ technology, and increase or decrease the size of its physical plant.

Long run

The period of time in which a firm can vary all its​ inputs, adopt new​ technology, and increase or decrease the size of its physical plant. There are no fixed costs in the long run. In other​ words, total cost equals variable cost and average total cost equals average variable cost. ​Therefore, the cost of fire insurance becomes a variable cost

Law of diminishing marginal utility

The principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time. This example illustrates the law of diminishing marginal utility because each additional movie generates less additional satisfaction

Technology

The processes a firm uses to turn inputs into outputs of goods and services. When we use the term​ "technology" in everyday​ language, we usually refer to the deveopment of new products. From an economic​ perspective, "technology" has a broader definition.

The production function

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs.

Endowment effect

The tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they​ didn't already own it. The endowment effect illustrates the inconsistency that comes from a failure to take into account nonmonetary opportunity costs. For​ example, being unwilling to sell a paintingpainting for a price that is greater than the price you would be willing to pay to buy the paintingpainting if you​ didn't already own it is an example of the endowment effect

If people were only interested in making themselves as well off as possible in a material​ sense, they would not be concerned with fairness. There is a great deal of evidence that people like to be treated fairly and that they usually attempt to treat others fairly even if doing so makes them worse off financially

Two examples where people willingly part with money when they are not required to do so and receive nothing material in return are donations to charity and tips in restaurants that will never be visited again​ (such as dining while on​ vacation)

switching costs

When a product becomes​ established, consumers may find it to costly to a new product that contains better technology

Marginal Product and Marginal​ Cost:

When the marginal product of labor is​ rising, the marginal cost of production is falling. When the marginal product of labor is​ falling, the marginal cost of production is rising. We can conclude that the marginal cost of production falls and then riseslong dash—forming a U shapelong dash—because the marginal product of labor rises​ (due to specialization and division of​ labor) and then falls​ (due to diminishing​ returns). The relationship between marginal cost and average cost follows the usual relationship between marginal and average​ values: When marginal cost is below average total​ cost, average total cost falls. When marginal cost is above average total​ cost, average total cost rises.

Which of the following is true of the relationship between the average product of labor and the marginal product of labor?

Whenever the marginal product of labor is less than the average product of​ labor, the average product of labor must be decreasing

Marginal product and average​ product:

Whenever the marginal product of labor is greater than the average product of​ labor, the average product of labor must be increasing. Whenever the marginal product of labor is less than the average product of​ labor, the average product of labor must be decreasing. This is because the average product of labor equals the average of the marginal products of labor. The relationship between the marginal product of labor and the average product of labor is the same as the relationship between the marginal and average values of any variable such as your​ "marginal" GPA and your cumulative GPA.​ Therefore, since your​ "marginal" GPA will be above your cumulative​ GPA, your cumulative GPA will increase.

Optimal decisions are made at the margin. The key to making the best consumption decision is to maximize utility by following the rule of equal marginal utility per dollar spent. In this​ example, the marginal utility per dollar spent renting movies ​(4.004.00​, from marginal utility of 2020 divided by a rental price of​ $5.00) is greatergreater than the marginal utility per dollar spent on CDs ​(3.203.20​, from marginal utility of 3232 divided by a price of​ $10.00). You could increase utility by consuming more moviesmovies and fewer CDsCDs ​(by spending more of your entertainment budget on moviesmovies and less of your entertainment budget on CDsCDs​).

You could increase utility by consuming more

What could you do to increase​ utility?

You could increase utility by consuming more movies and fewer CDs

The marginal cost of production shows the change in a​ firm's total cost from producing one more unit of a good or service. What is the shape of the marginal cost​ curve? ​Graphically, the marginal cost curve is

a U​ shape, initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling

To maximize​ utility, the consumer needs to be on the highest indifference​ curve, given the budget constraint. This means that the optimal consumption bundle is a

a point of tangency between the indifference curve and the budget linelong dash—the MRS equals the price ratio

The constant slope of the budget line tells us the rate at which the consumer is

able to trade off one product for another and equals the price of the good on the horizontal axis divided by the price of the good on the vertical axis multiplied by​ -1

Suppose a company mows yards with workers and​ lawn-mowing equipment. The​ firm's isocost line will show

all the combinations of workers and equipment that have the same total cost

Are consumers only interested in making themselves as well off as possible in a material​ sense? Consumers are

also concerned with fairness as exemplified by tipping in restaurants that will never be visited again.

The assumption that utility is measurable is unrealistic. The more realistic assumption is that consumers

are able to rank different combinations of goods and services in terms of how much utility they provide

A​ consumer's budget constraint indicates all consumption bundles the consumer can buy given income and prices. Consumption bundles inside and on the budget line

are affordable, while those outside the budget line are unaffordable.

What is the difference in the short run and the long​ run? In the short​ run

at least one of the​ firm's inputs is​ fixed, while in the long​ run, the firm is able to vary all its​ inputs, adopt new​ technology, and change the size of its physical plant

Economists assume the goal of a consumer is to spend

available income so as to maximize utility. In this​ context, utility is the enjoyment or satisfaction people receive from consuming goods and services

Suppose you bought a ticket to a musical. The ticket is nonrefundable​ (and can't be​ resold) and must be used on Saturday.​ Then, a friend calls and invites you to a baseball game on Saturday. You only have time to attend one of the​ events, and your friend offers to pay the cost of going to the baseball game. If you prefer baseball games over musicals​, then you should attend the

baseball game

How should sunk costs be used in consumer​ decision-making? In consumer​ decision-making, sunk costs should

be ignored

Why might consumers not act​ rationally? Consumers might

be overly optimistic about their future behavior

Your company incurs a cost for machinery, which in the short run, is fixed. What happens to this cost in the long run? In the long run, the cost of machinery

becomes a variable cost.

Behavioral economists attribute some consumer behavior to the endowment effect. Which of the following is an example of the endowment​ effect? An example of the endowment effect is

being unwilling to sell a paintingpainting for a price that is greater than the price you would be willing to pay to buy the paintingpainting if you​ didn't already own it.

The assumption of transitivity means that indifference curves

can never intersect.

Suppose a consumer is trying to decide how much to spend on housing and how much to spend on all other (non-housing) consumption. The economic model of consumer behavior predicts that the consumer will...

choose the combination of housing and non-housing consumption that makes her as well off as possible from among the combinations of housing and non-housing items she can afford.

We assume that the​ consumer's preferences over choices of commodity bundles is

complete-the consumer can decide if he or she prefers bundle A to bundle​B, prefers bundle B to bundle​A, or is indifferent between bundle A and bundle B. We also assume that the​consumer's preferences are transitive- if a consumer prefers bundle A to bundle B and prefers bundle B to bundle​C, then the consumer prefers bundle A to bundle C.

What explanations have economists offered for why firms​ don't raise prices when doing so would seem to increase​ profits? Firms might not raise prices when doing so might increase profits because

consumers find it unfair for firms to increase prices after an increase in demand.

What effect does a network externality have on the market for a​ product? If a network externality is present for a​ product, then

consumers may be more likely to buy the product because it is more useful

Behavioral economist Richard Thaler has studied several examples of how businesses make use of inconsistencies in consumer​ decision-making. Which of the following is an example of​ this? An example of businesses taking advantage of inconsistencies in consumer​ decision-making is

credit card companies not allowing stores to charge a fee to consumers if they pay with a credit card but allowing stores to provide a discount to consumers if they pay in cash.

experimental

economics such as the ultimatum game and the dictator game is used to test the importance of fairness in consumer decision making.

In addition to making themselves as well off as possible in a material​ sense, consumer choice is influenced by social factors such as​ culture, customs, and religion. Some people are concerned with

fairness for themselves and for others. For​ example, that fact that people donate to charities and leave tips in restaurants that they will never visit again suggests these people derive more utility from doing so than from keeping the money and spending it on themselves

Greater amounts of both goods in any consumption bundle provide

greater​ utility, and this is reflected in indifference curves that are further from the origin

The market demand curve is therefore obtained by adding individual demand curves

horizontally and is downward sloping for virtually all goods in keeping with the law of demand.

According to the law of​ demand, whenever the price of a product​ falls, the quantity demanded

increases

Can indifference curves ever​ cross? In consumer​ theory

indifference curves cannot cross because this would violate the assumption of transitivity.

Given these two​ assumptions, we can draw

indifference curves- different combinations of consuption bundles that give the consumer the same utility-to map a​consumer's preferences. In the simple two good​case, every possible combination of each good has an indifference curve passing through it.

market demand curves are constructed from the

individual demand curves for all the consumers in a market.

When the ultimatum game experiment is carried​ out, both allocators and recipients act as if fairness

is important

A firm produces output using capital and labor. The​ firm's marginal product of labor ​(MP Subscript Upper LMPL​) is 4040 and its marginal product of capital ​(MP Subscript Upper KMPK​) is 1010. Suppose the wage per unit of labor​ (w) is ​$14.0014.00 and the cost per unit of capital​ (r) is ​$7.007.00. Is the firm minimizing the cost of​ production? What should the firm​ do, if​ anything, to produce the same level of output at lower​ cost? The firm

is not minimizing the cost of production and should use more lavor and less capital.

A declining slope means​ that, to have the same level of​ utility, the consumer is willing to trade

less of the commodity on the vertical axis as he or she obtains more of the commodity on the horizontal axis

The slope of an indifference curve- the

marginal rate of substitution (MRS)- tells us the rate at which the consumer is willing to trade off one product for another while keeping utility constant. Indifference curves are usually bowed in​(or convex to the ​origin)long dash—the slope becomes less steep as we move down the curves and eventually becomes relatively flat

The budget line intersects the vertical and horizontal axes at the

maximum number of units of the respective product the consumer can buy given its price.

​Instead, suppose ham is an inferior good. If the price of ham​ increases, then consumers will demand

more ham due to the income effect and less ham due to the substitution effect.

The economic model of consumer behavior also tells us ​that, if the marginal utility per dollar spent on good 1 is higher than the marginal utility per dollar spent on good​ 2, then a person should consume

more of good 1 and less of good 2 to maximize utility

Suppose you have a monthly entertainment budget that you use to rent movies and purchase CDs. You currently use your income to rent 5 movies per month at a cost of​ $5.00 per movie and to purchase 5 CDs per month at a cost of​ $10.00 per CD. Your marginal utilityLOADING... from the fifth movie is 2020 and your marginal utility from the fifth CD is 3232. Are you maximizing​ utility? You are

not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs

What role does utilityLOADING... play in the economic model of consumer​ behavior? When modeling consumer​ behavior, utility

reflects the satisfactionsatisfaction a consumer receives from consuming a particular set of goods and services

When there is a large increase in​ demand, firms will

sometimes not raise prices and will give up someprofits in the short run because they are afraid their customers will consider the price increases unfair and may buy elsewhere. Many people consider it fair for firms to raise their prices following an increase in​ costs, but unfair to raise prices following an increase in demand.​ Furthermore, if the products are popular​ products, the consumption of which is related to how much of the product other people are​ consuming, firms that increased their prices enough to equate quantity demanded with quantity​ supplied, might also eliminate the popularity of the products

Average product of labor The total output produced by a firm divided by the quantity of workers. Marginal product of labor The additional output a firm produces as a result of hiring one more worker. As a​ result,

the average product of labor is the average of the marginal products of labor. Whenever the marginal product of labor is greater than the average product of​ labor, the average product of labor must be increasing. Whenever the marginal product of labor is less than the average product of​ labor, the average product of labor must be decreasing. ​Therefore, the marginal product of labor equals the average product of labor for the quantity of workers where the average product of labor is at its maximum

Next, suppose a consumer prefers a chicken sandwich to a slice of pizza and a slice of pizza to a taco. If the​ consumer's preferences are​ transitive, then

the consumer will prefer a chicken sandwich to a taco

Suppose bundle A contains 5 CDs and 5 DVDs and bundle B contains 66 CDs and 44 DVDs. If a consumer is able to rank different combinations of goods and services in terms of how much utility they​ provide, then

the consumer will prefer bundle A to bundle B, B to bundle A and will recieve equal utility from the two bundles.

The economic model of consumer behavior allows us to derive demand curves for individuals. At each point along the demand curve for a​ good,

the individual maximizes​ utility, the marginal utility per dollar spent among goods is​ equal, and the budget constraint holds.

What is the production​ function? The production function is the relationship between

the inputs employed by a firm and the maximum output it can produce with those inputs

What is​ technology? Technology is

the processes a firm uses to turn inputs into outputs of goods and services.

While not conclusive

the results suggest that many people value fairness enough that they will often refuse to participate in transactions they consider​ unfair, even if they are made worse off financially as a result

As we move down the budget​ line, the consumer gives up

the same number of units of the good on the vertical axis for every additional unit of the good on the horizontal axis he or she buys.

What explanation might an economist provide why some people overeat when such behavior can lead to health​ consequences? Some people likely overeat because

their preferences are not consistent over time

A price increase decreases a​ consumer's purchasing​ power

which, if a normala normal ​good, causes the quantity demanded to decreasedecrease due to the income effect. A price increase also raises the opportunity cost of consuming the​ good, which causes the quantity of the good demanded to decrease due to the substitution effect. If ham is a normala normal good and the price of ham​ increases, then consumers will demand lessless ham due to the income effect and less ham due to the substitution effect.

Suppose that last semester your semester GPA was 1.801.80 and your resulting cumulative GPA was 2.542.54. ​Next, suppose that this semester your semester GPA will be 2.102.10. If​ so, then your cumulative GPA

will decrease because your​ "marginal" GPA will be below your cumulative GPA

Firms experience economies of scale for several reasons. What is one such​ reason? A firm might experience economies of scale because

workers become more specialized, enabling them to become more productive, as output expands.

Economists have provided two explanations for why firms sometimes do not raise prices when doing so would seem to increase profits

​First, economist Gary Becker has examined products that buyers consume together with other buyers and suggests that for those products the amount consumers wish to buy may be related to how much of the product other people are consuming. In this​ case, a firm that increases its prices enough to eliminate excess demand might find that it has also eliminated its popularity. ​Second, economists​ Kahneman, Knetsch, and Thaler have found that most people consider it fair for firms to raise their prices following an increase in costs but unfair to raise prices following an increase in demand. These explanations share the same​ idea: Sometimes firms will give up some profits in the short run to keep their customers happy and increase their profits in the long run