AgEcon (micro) 1041 Exam 1

When marginal utility is at 0, total utility:

Is at its highest

A market demand curve:

Is the sum of the demand curves of all the individuals in a particular market

Marginal utility

The additional benefit from acquiring, using or doing one more thing. Ex. The benefit you get "one hour at a time" Measuring on that one unit

An opportunity cost is

The benefit of the highest valued alternative foregone

Opportunity cost

The highest value foregone opportunity resulting from a decision.

A normal good is a good for which demand increases as:

The income of the consumer increases

Utility is defined as:

The satisfaction or pleasure gained from consuming a good, obtaining a service or performing an activity.

Economics

The social science dealing with decision making under conditions of scarcity

Total Utility

The total amount of satisfaction obtained from consumption of a good or service. Ex. How satisfied you are during the first hour, and then plus the second hour. Acquired by summing total utility

The law of demand refers to the:

inverse relationship between the price of a good and the willingness of a consumer to buy it

In economics "goods" are products or services which provide utility, "bads" are undesirable products or services which do not provide utility.

true

inferior goods:

Consumers buy less of this good as income increases. These are the goods bought when income constraints are tight and normal goods are not affordable.

Demand

How much of a given product a household would be willing to buy at different prices. -Price and demand have an INVERSE relationships

Law of Demand

INVERSE RELATIONSHIP BETWEEN PRICE AND DEMAND - As price increases, quantity demanded decreases - vice versa

Assuming that hamburger and hotdogs are substitutes, and increase in the price of hamburgers, other things being equal, result in a:

rightward shift in the demand curve for hotdogs

A change in demand cannot be caused by a change in:

the price of a good itself

When economist use the term center paribus, they are indicating that:

All other variables except the ones specified are assumed to be constant.

Graphing demand

- Graph shifts right when increased quantities are demanded - graph shifts left when the demand for a quantity has decreased.

Non price determinants of demand

1) Number of Buyers: --More buyers in a market generally leads to an increase in demand 2) Utility: -- AKA taste and preferences -- Something that provides a benefit or value to the buyer. 3) Income of the consumer: -- Gives the ability to buy goods 4) Changes in prices of related goods: -- These goods can be substitutes, independent or complements of the good whose demand is being measured. 5) Expectations: -- consumers demand more anticipation of more income, or increases in utility, or in advance of anticipated price increases

Mid point formula to obtain elasticities:

Elasticity= % of quantity demanded/ % change in price. - A little different for each elasticity, just remember quantity is always on top.

Scarcity

Exists because resources are limited while human wants are unlimited

economics is the study of how individuals:

Make optimal choices under scarcity conditions

Indifference curves:

One level of utility by combining the consumption of two goods

Demand Elasticities:

Own Price: Deals with the response of quantity demanded to a change. Cross price: Income: this is a measure of how much demand shifts due to a change in income.

When considering cost, consumers maximize utility at consumption levels at which marginal cost and marginal utility equal.

True

Budget line

What constrains the utility level achievable by consumers - Change in budget line results in new optimal choices - A change in a price of one good changes the slope of the budget line.

Normal goods:

a good that is bought in more quantities as income increases is referred to as a "normal" good

An increase in the demand for a good means:

consumers are willing and able to purchase more of the good at each possible price.

If demand is price elastic, then when price decreases, total revenue:

increases

Consumer surplus def exists when the:

marginal benefit as reflected in the demand exceeds the price paid.