Economics chp 6

The term -blank- refers to the additional utility provided by one additional unit of consumption.

Marginal utility

Explain the idea of mental accounting

Mental accounting is the notion of putting dollars in different mental categories where they take different values

Approximately what portion of annual consumption is typically spent by American households on shelter?

One-Third

Jay and Jen are married with two children. They are preparing a household budget for the coming year. Based on statistical information for American households, approximately what portion of this family's annual consumption will most likely be budgeted for food and vehicle expenses?

One-third

Consumer equilibrium

Point in the budget line where the consumer gets the most satisfaction; this occurs when the ratio of the prices of goods is equal to the ratio of the marginal utilities

total utility

Satisfaction derived from consumer choices

budget constraint (budget line)

Shows the possible combinations of two goods that are affordable given a consumer's limited income

The -blank- arises when a price changes because consumers have an incentive to consume less of the hood with a relatively higher price and more of the hood with a relatively lower price.

Substitution effect

Which of the following occurs simultaneously with an income effect?

Substitution effect

Economist are able to determine total utility by:

Summing up the marginal utilities of each unit consumed

Marginal utility per dollar

The additional satisfaction gained from purchasing a good given the price of the product (MU/Price)

Marginal utility

The additional utility provided by one additional unit of consumption

Behavioral economics

A branch of economics that seeks to enrich the understanding of decision-making by integrating the insights on psychology and by investigating how given dollar amounts can mean different things to individuals depending on the situation

Income effect

A higher price means that, in effect, the buying power of income has been reduced, even though actual income has not changed; always happens simultaneously with a substitution effect

Economic theory offers -blank- about the full range of possible events and responses which can prevent -blank- about how households will respond to changes in prices or incomes.

A systematic way of thinking. Misguided conclusions

Marginal utility can:

Be positive, negative, or zero

How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices of Americans?

Consumer Expenditure Survey

The term -blank- is used to describe the common pattern whereby each marginal unit of a consumed hood provides less of an addition to utility than the previous unit.

Diminishing marginal utility

Which of the following is most likely to cause variation in American household spending pattern?

Each of the above will cause a variation

Says that a tax on alcohol leads to a higher price at the liquor store. Which of the following is NOT likely to occur?

His tax on alcohol only impacts supply and demand trends within liquor industry.

The term -blank- describes a situation where a -blank- causes a reduction in the buying power of income, even though actual income has not changed.

Income effect, higher price

When economist attempt to predict the spending patterns of US households, they will typically view the -blank- as a primary determining factor that influences the individual consumption choices that each will make

Income level of each household

Marginal utility is defined as the increment to total utility that results from the consumption of one more unit of some good or service. The equation for marginal utility is:

The change in total utility / the changes in quantity

Diminishing marginal utility

The common pattern that each marginal unit of a good consumed provides less of an addition to utility than the previous unit

Kimberly has $1,000 per year to spend between $50 concert tickets and $200 per night getaways. Her utility maximizing combination is 8 concerts and 3 overnight getaways.

The degree to which concerts and overnight getaways are normal goods or inferior goods.

Fungible

The idea that units of a good, such as dollars, ounces of gold, or barrels of oil are capable of mutual substitution with each other and carry equal value to the individual

You were presented with a utility maximizing rule which states: If you always choose the item with the greatest marginal utility per dollar spent, when your budget is exhausted, the utility maximizing choice should occur here the marginal utility per dollar spent is the same for both goods

The marginal utility associated with good 1 / the price of good 1 = the marginal utility associated with good 2 a the price of good 2

Which of the following best describes the income effect?

The price of designer jeans increased, so the buying power of your income has been reduced. You purchase 2 new pairs of new jeans instead of 3 that year.

What is loss aversion?

The tendency to focus more on the loss than the gain.

What is the goal of behavioral economics?

To integrate the insights of psychology into economics to enrich our understanding of decision-making.

The goal of the consumer is to maximize the total utility or satisfaction derived from their purchase choices, given the unique budget constraint. To calculate total utility of a given combination of T-Shirts and movies, one would use the following approach:

Use Utica as a measure of utility, assigning a specific number to T-shirts and movies, and then add those together

In microeconomics terms, the ability of a hood or a service to satisfy wants is called:

Utility

Substitution Effect

When a price changes, consumers have an incentive to consume less of the food with a relatively higher price and more of the hood with a relatively lower price always happens simultaneously with an income effect.