Ch. 5- Introduction to Consumer Behavior (Demand)

On the consumer's budget constraint

A consumer's best affordable bundle will typically lie: a. Below the consumer's budget constraint. b. On the consumer's budget constraint. c. Outside the consumer's affordable triangle.

A decrease in income

A parallel shift inward in the budget constraint is consistent with...

Allocate their income between different goods and services to make themselves as happy as possible.

Economists assume that people: a. Spend as little money as they possibly can. b. Only purchase things they need. c. Allocate their income between different goods and services to make themselves as happy as possible.

A decrease in the quantity of pasta demanded

If pasta is a normal good, and the price of pasta increase, then the income effect will lead to...

Increase

If the dollar price of ibuprofen increases, and the average dollar price of all other goods stays the same, then the real price of ibuprofen will a. Increase b. Stay the same c. Decrease

Nominal Price

The absolute price of a good in dollar terms.

The total amount that consumers would be willing to pay, in aggregate, for the right to participate in that market.

Total consumer surplus in a market is...

Total satisfaction that people derive from all of their consumption activities.

Total utility refers to the: a. Amount of money that people spend on all their consumption activities. b. Total satisfaction that people derive from all of their consumption activities. c. the total amount that people consume.

Outside their affordable triangle

A consumer will never purchase a bundle that lies_____________ because they won't be able to afford it.

Indifference Curve

A(n) traces out the set consumption bundles that a consumer likes equally well. a. Supply Curve b. Indifference Curve c. Demand Curve

A consumer's preferences; what a consumer can afford.

An indifference curve map describes ___________, while a budget constraint describes ________.

Concept of Utility

Used to represent the satisfaction people derive from their consumption activities.

Increases

When Mike goes from watching 2 to 3 hours of TV per day, his total utility _________. a. increases b. decreases

Switch to less expensive substitutes

When the price of a good or service goes up, consumers will tend to... a. Switch to more expensive substitutes. b. Maintain their current purchasing patterns. c. Switch to less expensive substitutes

Substitution at Work

When the price of a good or service goes up, rational consumers generally turn to less expensive substitutes.

Will lie at that point of tangency

Whenever there's a point of tangency between a consumer's indifference curve and his or her budget constraint, then the consumer's best affordable bundle...

Likes equally well.

An indifference curve traces out all of the consumption bundles to that a consumer a. Will never choose. b. Cannot afford c. Can just afford d. Likes equally well.

Decreases

As we move downward to the right along an indifference curve, the marginal rate of substitution generally____________. a. Doesn't change b. Increases c. Decreases

Consumers like variety

As we move downward to the right along an indifference curve, the marginal rate of substitution is typically decreasing, implying that....

Likes both bundles equally well

If two points lie on the same indifference curve, then we know the consumer...

You should reallocate your spending away from clothes and towards shoes.

If you get 5 additional utils per dollar spent on clothes and 8 additional utils per dollar spent on shoes then... a. You should reallocate your spending away from clothes and towards shoes. b. You shouldn't reallocate your spending between clothes and shoes. c. You should reallocate your spending away from shoes and towards clothes.

Bundle of Goods

Is the term used to describe a particular combination of goods.

Law of Demand

People do less of what they want to do as the cost of doing it rises.

Wants

Provided people have achieved bare subsistence level of consumption, economists speak mainly in terms of people's _________. a. needs b. must-haves c. wants

Rational Spending Rule

Spending should be allocated across goods so that the marginal utility per dollar is the same for each good.

Increases; Decreases

Suppose that when you eat chocolate cake, you enjoy every bite, but each bite is never quite as good as the one before it. Thus, with each bite of chocolate cake, your total utility __________ while your marginal utility ____________.

False

T/F If your marginal utility from watching a second hour of television is less than your marginal utility from the first hour, then watching a second hour of television will decrease your total utility.

False

T/F: Economists believe that our preferences for different goods and services do not change over time.

Marginal rate of substitution

The absolute value of the slope of an indifference curve is called the: a. Marginal rate of substitution b. Total rate of substitution c. Optimal consumption bundle d. Price ratio

Marginal Utility

The additional utility gained from consuming an additional unit of a good.

Optimal Combination

The affordable combination that yields the highest total utility.

Utility Maximization

The assumption is that people try to allocate their incomes so as to maximize their satisfaction, a goal

Consumer Surplus

The difference between a buyer's reservation price for a product and the price actually paid.

Real Price

The dollar price of a good relative to the average dollar price of all other goods.

Real Price

The dollar price of a good relative to the average dollar price of all other goods. a. Nominal Price b. Real Price

Budget Constraint

The line that describes the set of all bundles a consumer can purchase given the consumer's income and prices.

Nominal Price

The number written on a price tag is a good's ___________. a. Reservation price b. Nominal price c. Real price

Nominal Prices

The prices listed on the menu at your favorite restaurant are _______. a. Reservation prices. b. Nominal prices c. Real prices.

The prices of all goods change by the same proportion.

The slop of a budget constraint will not change if:

Law of Diminishing Marginal Utility

The tendency for the additional utility gained from consuming an additional unit of a good to diminish as consumption increases beyond some point.