CH 6&10
If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is
5 utils.
If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is
57 utils.
A consumer maximizes her total utility from a bundle of goods when her marginal utility from each good is equal.
False
The economic model of consumer behavior explains how consumers' tastes and preferences are formed.
False
Suppose a professional basketball game is to be played at a suburbansuburban arena, which increases demand for parking on the night of the game. If the suburban area has the ability to create additional parking during periods of peak demand, then
the supply of parking will be more elastic and the price of parking will increase by a relatively small amount the night of the game.
As a consumer consumes more and more of a product in a particular time period, eventually marginal utility
declines.
Suppose Wendy's hamburgers haveWendy's hamburgers have manymany close substitutes available. If so, then an increase in the price of Wendy's hamburgers will likely
decrease the quantity of Wendy's hamburgersWendy's hamburgers demanded by a relatively large amount.
If total utility increases at a decreasing rate as a consumer consumes more coffee, then marginal utility must
decrease.
What explanation might an economist provide why some people smoke cigarettessmoke cigarettes when such behavior can lead to health consequences? Some people likely smoke cigarettes smoke cigarettes because
their preferences are not consistent over time.
Consider firms that introduce new products, such as DVDs in 2001. When firms introduce new products, how do they typically determine the price elasticity of demand for those products? Firms with new products often
estimate price elasticity of demand by experimenting with different prices.
An item has utility for a consumer if it
generates enjoyment or satisfaction.
Consider the demand for cigarettes. Suppose the government decreasesdecreases the price of cigarettes by loweringlowering cigarette taxes. How will this affect the demand for cigarettes over time? If the price of cigarettes decreases, then the quantity of cigarettes demanded will
increase, and this effect will likely become larger (in absolute value) over time.
MIT economist Jerry Hausman has estimated the price elasticity of demand for Post Raisin Bran cereal to be minus−2.5 and the price elasticity of demand for all types of breakfast cereals to be minus−0.9. The demand for Post Raisin Bran cereal is elastic, and the demand for all types of breakfast cereals is inelastic. Why might the demand for Post Raisin Bran cereal be more elastic than the demand for all types of breakfast cereals? Post Raisin Bran cereal
is defined more narrowly
Total utility
is equal to the sum of the marginal utilities of all units consumed.
Consumers have to make tradeoffs in deciding what to consume because
they are limited by a budget constraint.
Marginal utility can be
positive, negative, or zero.
If your total satisfaction increases when you consume another unit, your marginal utility must be
positive.
What role does utilityLOADING... play in the economic model of consumer behavior? When modeling consumer behavior, utility
reflects the satisfaction a consumer receives from consuming a particular set of goods and services.
Compare the demand for water with the demand for wine. The demand for wine is likely
relatively more elastic because wine is a luxury.
Utility is
subjective and cannot be measured.
If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the second candy bar is
unknown as more information is needed to determine the answer.
If, when you consume another unit of a good, your marginal utility is zero, then
you have maximized your total utility from consuming the good.
Over the past 30 years, the price of oil has been relatively unstable, fluctuating between $11.00 and well over $100 per barrel. Which of the following potentially contributes to oil-price instability? Oil prices are relatively unstable because
the supply of oil is inelastic.
What is the impact of an increase in worker productivity when demand is relatively more elastic?
An increase in sales revenue received by the firm
The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears. To maximize his utility, what should Harold do?
He should buy fewer pears and more oranges.
Marv Pilson has $50 worth of groceries in a shopping cart at his local Shop 'n Save. Assume that the marginal utility per dollar of the liter bottles of soft drink in Marv's cart equals 50. The marginal utility per dollar of the boxes of cereal in Marv's cart equals 20. Marv has only $50 to spend, but has not yet paid for his groceries. How can Marv increase his total utility without spending more than $50?
Marv should buy fewer boxes of cereal and more bottles of soft drink.
Which of the following is likely to occur as the result of the law of diminishing marginal utility?
Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.
Economist X. M. Gao and two colleagues have estimated that the cross-price elasticity of demand between beer and wine is 0.31. If so, then beer and winewine are substitutes. Gao and colleagues have estimated that the cross-price elasticity of demand between beer and spirits is 0.15 If the price of spirits increases by 10 percent, then the quantity of beer demanded will increase by 1.5 percent. (Enter your response rounded to one decimal place.) In addition, Gao and colleagues have estimated the income elasticity of demand for beer to be minus−0.09. If so, then beer is
an inferior good
Consumers maximize total utility within their budget constraint by
buying the goods with the largest marginal utility per dollar spent.
Suppose a consumer is trying to decide how much to spend on clothingclothing and how much to spend on all other (non-clothingclothing) consumption. The economic model of consumer behavior predicts that the consumer will
choose the combination of clothing and non-clothing consumption that makes her as well off as possible from among the combinations of clothing and non-clothing items she can afford.
What effect does a network externality have on the market for a product? If a network externality is present for a product, then
consumers may be more likely to buy the product because it is more useful.
The economic model of consumer behavior predicts that
consumers will choose to buy the combination of goods and services that make them as well off as possible from those combinations that their budgets allow them to buy.
Suppose income increases by 2020 percent and, as a result, the quantity of a particular brand of automobile demanded (holding the price for this particular automobile constant) increases by 16 percent. The income elasticity of demand for this brand of car is 0.80. (Enter your response rounded to two decimal places and include a minus sign if appropriate.) This particular brand of automobile is a(n) normalnormal good. In another example, suppose market research shows that a particular brand of truck is a normal good and a necessity. If so, then the income elasticity of demand for this truck is
less than 1 but greater than 0.
Suppose your marginal utility from consuming the 3rd slice of cake is zero, then your total utility from consuming cake is
maximized.
Compare the demand for pencils with demand for gasoline. The demand for pencils is likely
more inelastic because pencils tendpencils tend to represent a smaller fraction of a consumer's budget.
Compare the demand for pencilspencils with demand for clothesclothes. The demand for pencils is likely
more inelastic because pencils tendpencils tend to represent a smaller fraction of a consumer's budget.
Suppose the price of pepper increases by 1010 percent and, as a result, the quantity of salt demanded (holding the price of salt constant) increases by 11 percent. The cross-price elasticity of demand between pepperpepper and saltsalt is 0.10.1. (Enter your response rounded to two decimal places and include a minus sign if appropriate.) In this example, pepperpepper and saltsalt are substitutessubstitutes. Instead, suppose pepperpepper and saltsalt were complementscomplements. If so, then the cross-price elasticity of demand between pepperpepper and saltsalt would be
negative
Suppose the price of pepper increases by 2020 percent and, as a result, the quantity of salt demanded (holding the price of salt constant) increases by 44 percent. The cross-price elasticity of demand between pepper and salt is 0.20.2. (Enter your response rounded to two decimal places and include a minus sign if appropriate.) In this example, pepper and salt are substitutes. Instead, suppose pepper and salt were complements. If so, then the cross-price elasticity of demand between pepper and salt would be
negative
Suppose you have a monthly entertainment budget that you use to rent movies and purchase CDs. You currently use your income to rent 5 movies per month at a cost of $5.00 per movie and to purchase 5 CDs per month at a cost of $10.00 per CD. Your marginal utilityLOADING... from the fifth movie is 4040 and your marginal utility from the fifth CD is 90. Are you maximizing utility? You are
not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs. You could increase utility by consuming more CDs and fewer movies .
Between 1950 and 2017, the price of wheat fell dramatically from $19.23 per bushel to $3.85 per bushel. Suppose between 1950 and 2017, the supply of wheat increased substantially due to increases in productivity, shifting the wheat supply curve to the right. With this supply shift, the amount by which the price of wheat falls will be larger the more inelastic the demand for wheat. In addition, assume that between 1950 and 2017 the income of the average American increased substantially and that wheat is a normal good. With this increase in income,
the amount by which the price of wheat rises will be smaller the lower the income elasticity of wheat.
What information must economists have to estimate the price elasticity of demand? To estimate the price elasticity of demand, economists need to know
the demand curve for a product.
The law of diminishing marginal utility states that
the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.
When demand is price elastic, a fall in price causes total revenue to rise because
the increase in quantity sold is large enough to offset the lower price.
If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of
the law of diminishing marginal utility.
Which of the following is a primary determinant of the price elasticity of supply? The price elasticity of supply is affected by
the passage of time. In particular, the supply curve for a particular product will be increasingly more elastic over a longer period of time.
How is the price elasticity of demand measured? The price elasticity of demand is measured as
the percentage change in the quantity demanded divided by the percentage change in price.