chapter 6, chapter 5

Total utility is defined as the

sum of the amounts of satisfaction a person receives from consuming a good.

The diamond-water paradox is the observation that

those things that have the greatest value in use often have little value in exchange and those things that have little value in use often have the greatest value in exchange.

A good can have high total utility and low marginal utility.

true

Suppose that the quantity demanded of good X rises by 8 percent when the price of good X falls by 2 percent. This information indicates that the price elasticity of demand equals

0.25.

Refer to Exhibit 19-9. What is the price elasticity of demand between $4 and $2? Hint: this is anc elasticity or average elasticity between $4 and $2. Measure the % change in quantity demanded if the price falls from 4 to 2 but base it by the average quantity between 250 and 350 and divide that % by the % change in price, again base it on average price between 2 and 4. Here is the % change for quantity demanded: (350-250)/ average quantitiy= 100/300=0.3333 or 33.33% change in quantity demanded.

0.50

Refer to Exhibit 19-9. What is the price elasticity of supply between $2 and $4? Hint: this is arc elasticity or average elasticity between $4 and $2. Measure the % change in quantity supplied if the price increases from 2 to 4 but base it by the average quantity between 150 and 250 and divide that % by the % change in price, again base it on average price between 2 and 4. Here is the % change for quantity: (250-150)/ average quantitiy= 100/200=0.5 or 50% change in quantity. Calculate the % change in price in a similar fashion and then divide 50% quantity by the % change in price.

0.75

Refer to Exhibit 19-9. What is the price elasticity of supply between $4 and $6? Hint: this is arc elasticity or average elasticity between $4 and $2. Measure the % change in quantity supplied if the price falls from increases from 4 to 6 but base it by the average quantity between 250 and 350 and divide that % by the % change in price, again base it on average price between 4 and 6. Here is the % change for quantity supplied: (350-250)/ average quantitiy= 100/300=0.3333 or 33.33% change in quantity supplied. Calculate the % change in price in a similar fashion and then divide 33.33% by the % change in price.

0.833

Refer to Exhibit 19-9. What is the price elasticity of demand between $4 and $6? Hint: this is arc elasticity or average elasticity between $4 and $2. Measure the % change in quantity demanded if the price increases from 4 to 6 but base it by the average quantity between 250 and 150 and divide that % by the % change in price, again base it on average price between 4 and 6. Here is the % change for quantity: (250-150)/ average quantitiy= 100/200=0.5 or 50% change in quantity. Calculate the % change in price in a similar fashion and then divide the 50% change in quanity by the % change in price.

1.25

Suppose that when the price of a good rises from $12 to $14, the quantity demanded of that good falls from 220 units to 180 units. What is the approximate price elasticity of demand between these two prices?

1.30

Suppose that when the price of a good falls by 10%, the quantity demanded of that good rises by 15%. What is the approximate price elasticity of demand?

1.5

Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 80, 116, 136, 146, respectively. The marginal utility of the seventh wing is __________ utils.

10

Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 80, 116, 136, 150, respectively. The marginal utility of the sixth wing is __________ utils.

20

Rich has $100,000 and Poore has $1,000. Which of these statements is most strongly supported by the theory of consumer choice?

An extra dollar is worth less to Rich than it is to Poore.

Economists contend that the goal of individuals is to maximize marginal utility.

False

Economists use the term utility to mean usefulness.

False

If a demand curve is a straight downward sloping line, demand is

There is not enough information to answer the question.

Adam Smith observed that often things that have the greatest value in use, or are the most useful, have a relatively low price, and things that have little or no value in use have a high price.

True

If the price of substitute (alternative) goods decrease, people will switch their consumption to those substitutes. In the process, people subconsciously increase their total utility.

True

The existence of substitutes for a good and the percentage of one's budget spent on the good are among the factors that determine how elastic the demand for the good will be.

True

When the price of a good rises, total revenue will fall if the good is elastic in demand.

True

If the demand for a given good is perfectly elastic, it follows that__________________________.

as price changes only a small percentage, quantity demanded falls to zero.

If the price of good A decreases by 10 percent and the quantity demanded of good B increases by 10 percent, this is evidence that goods A and B are

complement goods to one another

Many people think what they own is more valuable than the same product in the market. This consumer behavior is called____________________.

endowment effect

If the seller of good X raises the price of good X, it follows that the total revenue of good X will __________, if demand is __________. Hint: Note that total revenue is quantity demanded times price. So if price falls a little bit, but demand increases more than the proportional fall in price, total revenue increases.

fall; elastic

Economists assume that the goal of consumers is to maximize marginal utility.

false

If a good is perfectly inelastic in a given price range, it will be perfectly inelastic at all prices.

false

Marginal utility can never be negative.

false

Price elasticity of demand is the ratio of the percentage change in price of one good to the percentage change in quantity demanded of another good. -true -false

false

When the price of a good rises, the total revenue received by the seller of that good always rises.

false

If a 5 percent reduction in the price of a commodity results in a 3 percent increase in the quantity demanded, demand is said to be

inelastic

The elasticity of demand for prescription medications are generally_________________.

inelastic

If demand for a given good is elastic, then a given percentage change in price will bring about a(n) __________ percentage change in quantity __________.

larger; demanded

If the price of good X rises and the demand for good X is inelastic, then the percentage fall in quantity demanded is __________ the percentage rise in price, and total revenue __________.

less than, increases

For economists, framing refers to the

manner in which a problem or statement is presented.

If the price of good X falls and the demand for good X is inelastic, then the percentage __________ in quantity demanded is __________ the percentage fall in price, and total revenue __________. Hint: note that total revenue is quantity times price.

rise; less than; falls

A util is an artificial measurement used as a means of measuring the

satisfaction one receives from the consumption of a good.

The fewer substitutes for a good,_______________________

the lower its price elasticity of demand.

The law of diminishing marginal utility says that

the marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases.

If the price elasticity of demand for a given product is 0.7, this means that

the percentage change in quantity demanded is 0.7 times the percentage change in price.

Cross elasticity of demand measures consumer responsiveness to a change in the price of one good, in terms of the quantity demanded of some other good.

true

It is very important for the seller of a good to know whether the good is elastic, unit elastic, or inelastic in demand so that she will know what will happen to total revenue when she changes the price of the good.

true

Marginal utility is the amount of utility one gets from consuming one more unit of the good.

true

One's utility (satisfaction) of a good is a subjective measurement and therefore utility cannot be precisely measured in real life.

true

The same good may have different utility for different people.

true

Suppose you are eating slices of pizza and after consuming the first slice you satisfaction is 14 utils of total utility, after the second you satisfaction is 22 utils of total utility, and after the third, your satisfaction is 25 utils of total utility. Then______________________

your total utility is 25 utils, and the marginal utility of the third slice is 3 utils.