Chapter 5 ECO

If a consumer buys two different goods, the rational spending rule requires that the

ratio of MARGINAL utility to price be equal for the two goods.

The goal of utility maximization is to allocate your ______ in order to maximize your ______.

resources; satisfaction

The law of demand indicates that as the cost of an activity

rises, less of the activity will occur.

The tendency for marginal utility to decline as consumption increases beyond some point is called

the law of diminishing marginal utility

According to economists, the satisfaction people get from their consumption activities is called

utility

When the price of a good rises, marginal utility per dollar spent on that good ______, leading consumers to purchase ______ of that good.

falls, less

Sven likes to water ski, but he can only water ski during the one week each year when he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven's vacation, Sven went blueberry picking all day. Sven's marginal utility from his first hour of skiing was ______ his marginal utility from his tenth hour of skiing.

greater than

During Thanksgiving you participated in a pumpkin pie-eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. Your total utility ______ with the first three pies you ate.

increased

For two goods, A and B, the rational spending rule is expressed as

(MUA/PA) = (MUB/PB).

Suppose Jamal's marginal utility from the first taco he eats is 15, and his marginal utility from the second taco he eats is 12. One can infer that

Jamal's total utility from eating two tacos is 27.

Jane is shopping for a new computer. A computer can be delivered to Jane's home for $1,200. Alternatively, Jane can pick up the same computer at the warehouse for $1,000. How should Jane buy the computer?

Jane should drive to the warehouse if her cost of driving to the warehouse is less than $200

The tendency for consumers to purchase more of a good or service as its price falls is captured by the

law of demand.

The additional utility gained from consuming an additional unit of a good is called

marginal utility

During Thanksgiving you participated in a pumpkin pie-eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ______ utility from eating the first pie than from eating the third pie.

more

Subsistence levels of consumption—the amount of food, shelter, and clothing required to maintain our health—are referred to as

needs

The absolute price of a good in dollar terms is the good's

nominal price