Micro Exam 2

If the marginal utility of the 3rd cup of coffee is 23 and the marginal utility of the 4th cup is 15, then:

there is evidence of diminishing marginal utility.

How do you maximize utility?

Marginal utility of one item must me equal to the MU of the other

how to calculate consumer surplus

1/2 base x height (of the left side of the triangle of the graph)

Sven likes to water ski, but can only water ski during the one week each year when he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven's vacation, Sven went blueberry picking all day. Sven's total utility ______ with each hour that he skied.

Increased While the additional utility Sven received from water skiing declined each day, his total utility must have increased otherwise he would not have gone water skiing.

The additional utility gained from consuming an additional unit of a good is called:

Marginal Utility

Pat's total utility after eating 99 Reese's Peanut Butter Cups was greater than his total utility after eating 100 Reese's Peanut Butter Cups. Therefore, Pat's marginal utility from the 100th peanut butter cup was:

Negative

Which of the following factors would impact a buyer's reservation price for a given good or service? Peer influence The cost of producing the item The price of a good

Peer influence

The goal of utility maximization is to allocate your ______ in order to maximize your ______.

Resources, Satisfaction

Joaquin's marginal utility from an additional slice of pumpkin pie is 4 utils and his marginal utility from an additional slice of pecan pie is 6 utils. If a slice of pumpkin pie costs $2.50, and a slice of pecan pie costs $3.00, then Joaquin:

Should spend more on pecan pie and less on pumpkin

shut down if:

TR<VC or P<AVC

The Law of Demand:

The law of demand states that people do less of what they want to do as the cost of doing it rises. This implies that there will be a negative relationship between the price of a product and the amount purchased.

If marginal utility is positive, then as consumption increases:

Total utility will increase

According to economists, the satisfaction people get from their consumption activities is called:

Utility

After subsistence levels of food, shelter, and clothing have been provided, economists refer to all other goods and services as:

Wants

How do you calculate Marginal Utility?

change in total utility/change in quantity or utility/cost

Consumer surplus measures:

the difference between the most a buyer would be willing to pay for a product and the price actually paid.