micro ch 7
the theory of consumer behavior assumes that consumers attempt to maximize
total utility
ability of a good or service to satisfy its wants
utility
the law of diminishing MU states that
beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer
MU is the
change in TU obtained by consuming one more unit of a good
the marginal rate of substitution measures the
consumer's willingness to substitute one product for another so that total utility will remain constant
an increase in the price of product A will
decrease the marginal utility per dollar spent on A
the law of diminishing MU explains why
demand curves slope downward
newpaper dispensing devices seemingly "trust" people to take only a single paper, but the devices actually rely on the law of
diminishing MU
Edith is buying products X and Y with her money income. suppose her budget line shifts rightwards (outward). this might be the result of
her money income increasing more than proportionately to increases in the prices of X and Y
according to economists, gift registries, returning gifts for cash refunds, and "recycling gifts"
increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying
if the price of product X rises, then the resulting decline in the amount purchased will
increase the marginal utility of the last unit consumed of this good
the fact that most medical care purchases are financed through insurance
increases the amount of health care consumed by reducing the price of additional units of care
the lines on a topographical map are analogous to an
indifference map
an indifference curve
is downsloping and convex to the origin
which of the following has been a significant factor in the ability of ipads to compete effectively against laptop and desktop computers?
many consumers perceive that ipads are surperior to laptops and desktop computers for the consumption of digital media
the first pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. his total utility from three pepsis is 38 units of utility. the MU of the third pepsi is
8 units of utility
which of the following is correct
A. Budget lines are linear and upsloping; indifference curves are downsloping and concave to the origin. B. Budget lines are linear and downsloping; indifference curves are downsloping and concave to the origin. *****C. Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin.******* D. Budget lines are downsloping and convex to the origin; indifference curves are linear and downsloping.
all of the following would reduce property crime by increasing its "price" except
A. imposing greater penalties for those who are caught and convicted. B. using more sophisticated security systems. C. enhancing the legitimate earnings of potential criminals. ****D. cutting out the middlemen ("fences") by selling stolen goods via Internet auction sites.*****
suppose you have a limited money income and you are purchasing products A and B, whose priced happen to be the same. To maximize your utility, you should purchase A and B in such amounts that
MU are the same
unlike newspaper dispensing, soft drink dispensing machines do not permit people to take more than one can or bottle with each payment. the reason is that the
MU of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later
Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that:
Mrs arnold should spend more on soda and less on pretzles
Susie buys two goods: rounds of golf and massages. Suppose that the price of a round of golf is $20 and the price of a massage is $30. In a typical week, Susie will play two rounds of golf, getting 20 units of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 units of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 units of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur?
Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect
If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium:
are $105 and $140 respectively
Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase:
more of B and less of A
the diamond-water paradox occurs because:
price of a product is related to its MU, not its TU
the slope of a budget line reflects the
price ratio of the two products
a consumer who has a limited budget will maximize utility or satisfaction when the
ratios of the MU of each product purchased divided by its price are equal
noncash gifts
reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences
a change in the slope of a budget line is solely the result of a change in
the price of one good relative to the other
in moving along a given budget line
the prices of both products and money income are assumed to be constant
the "essential" water is cheaper than "nonessential" diamonds because:
the supply of water is great relative to demand and the supply of diamonds is small relative to demand
most people do not steal because
their MC, including guilt costs, are too high