MICRO ECON CHAPTERS 4 & 5

Sociopsychiatric explanations of consumer behavior include the

Desire for ego and status

Complete Table 19.3 below. Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit. In Table 19.3, what is the marginal utility of the fifth unit of cola? Units TU of MU of Units of TU of MU of Cola Cola Cola Pretzels Pretzels Pretzels 1 40 40 1 30 30 2 _______ 32 2 ______ 20 3 96 24 3 66 16 4 112 _______ 4 78 _______ 5 124 _______ 5 84 _______ Table 19.3 Michael's Utility Schedule

12

Complete Table 19.2 below: In Table 19.2, the total utility when four units are consumed is Quantity Total Marginal Consumed Utiltiy Utility 1 15 15 2 _______ 9 3 30 _______ 4 _______ 3 Table 19.2

33

Marginal utility is the

Change in total utility obtained by consuming one extra unit of a good or service

The term market mechanism refers to

The use of market prices and sales to signal desired output

If public goods were marketed like private goods, then

There would be market failure

Complete Table 19.3 below. Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit. Refer to Table 19.3. If Michael has $28 dollars to spend, why will three colas and four pretzels not be optimal? Units TU of MU of Units of TU of MU of Cola Cola Cola Pretzels Pretzels Pretzels 1 40 40 1 30 30 2 _______ 32 2 ______ 20 3 96 24 3 66 16 4 112 _______ 4 78 _______ 5 124 _______ 5 84 _______

This combination is not affordable

From an economic standpoint, government intervention is justified

When the market mechanism fails to achieve the optimal mix of output

Complete Table 19.3 below. Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit. In Table 19.3 the marginal utility per dollar of the second cola is Units TU of MU of Units of TU of MU of Cola Cola Cola Pretzels Pretzels Pretzels 1 40 40 1 30 30 2 _______ 32 2 ______ 20 3 96 24 3 66 16 4 112 _______ 4 78 _______ 5 124 _______ 5 84 _______ Table 19.3 Michael's Utility Schedule

4

Complete Table 19.3 below. Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit. The marginal utility per dollar of the third pretzel is Units TU of MU of Units of TU of MU of Cola Cola Cola Pretzels Pretzels Pretzels 1 40 40 1 30 30 2 _______ 32 2 ______ 20 3 96 24 3 66 16 4 112 _______ 4 78 _______ 5 124 _______ 5 84 _______ Table 19.3 Michael's Utility Schedule

4

Which of the following is consumed jointly?

A missile shield.

The law of diminishing marginal utility states that

As a consumer enjoys successive units of a good, eventually marginal utility will fall

Resources are directed from one industry to another by

Changes in market prices

The benefit that consumers get when they buy goods at the equilibrium price is called

Consumer surplus

In the market economy, producers will produce the goods and services that

Consumers demand

Which of the following is an example of a public good?

Flood control

Complete Table 19.3 below. Assume the price of cola is $8 per unit and the price of pretzels is $4 per unit. Refer to Table 19.3. If Michael has $48 to spend on cola and pretzels, what combination should he purchase in order to maximize his utility? Units TU of MU of Units of TU of MU of Cola Cola Cola Pretzels Pretzels Pretzels 1 40 40 1 30 30 2 _______ 32 2 ______ 20 3 96 24 3 66 16 4 112 _______ 4 78 _______ 5 124 _______ 5 84 _______ Table 19.3 Michael's Utility Schedule

Four colas and four pretzels

Complete Table 19.2 below: Quantity Total Marginal Consumed Utiltiy Utility 1 15 15 2 _______ 9 3 30 _______ 4 _______ 3 Table 19.2 Utility Schedule

In Table 19.2, the marginal utility of the third unit is 6.

If an individual demands a good, it means that he or she

Is willing and able to purchase the good at some price

Which of the following explains why flood control is a public good?

It is not divisible and therefore cannot be kept from people who do not pay.

Assume Amanda always maximizes her total utility given her budget constraint. Every morning for breakfast she has two eggs and three sausages. If the marginal utility of the last egg is 10 utils and the price of the eggs is $1 each, what can we say about the marginal utility of the last sausage if the price of each sausage is $27

It must be equal to 20 utils

The market tends to underproduce public goods because

Joint consumption allows those who do not pay for the good to still benefit from the good

A consumer maximizes total utility from a given amount of income when the

Marginal utility obtained from the last dollar spent on each good is the same

Any imperfection in the market mechanism that prevents optimal outcomes is known as

Market failure

Governments usually build highways because it is difficult to exclude individuals who don't pay for the highways from using them. What type of market failure is involved?

Public goods

The optimal mix of output is the most desirable combination of output attainable with existing

Resources, technology, and social values

Which of the following is not a determinant of demand

The cost of the factor inputs

Which of the following produces external benefits?

The inoculation of college students against the flu

If the consumption of a good yields external benefits, then

The social demand is greater than the market demand

Complete Table 19.2 below: In Table 19.2, diminishing marginal utility occurs Quantity Total Marginal Consumed Utiltiy Utility 1 15 15 2 _______ 9 3 30 _______ 4 _______ 3 Table 19.2

With all units after the first