Chapter 7: Utility Maximization

Which of the following does total utility refer to?

Amount of satisfaction a person gets from a good or service

An individual's demand curve for a product shows how much of the product the individual will ____ at various ___

Field 1: buy, consume, purchase, demand, or pay Field 2: prices or costs

A family that does not own a refrigerator likely has a strong desire for one, whereas a family with two refrigerators likely has a much-reduced desire for a third. Which of the following best explains this decrease in desire?

Law of diminishing marginal utility

The law of diminishing ___ utility states that added satisfaction declines as a consumer acquires additional units of a given product.

Marginal

Which of the following offers insight into the preference for cash gifts over noncash gifts?

Marginal-utility analysis

According the utility-maximizing rule, consumers achieve the greatest amount of satisfaction by doing which of the following?

Purchasing a combination of goods or services whereby the last dollar spent on each good yields the same amount of marginal utility

When consumers seek to maximize their total utility, they are engaging in which of the following?

Rational behavior

Which of the following contributes to the inverse relationship between price and quantity demanded that is illustrated by a downward sloping demand curve for a normal good?

Substitution effect Income effect

Which of the following explains why the demand curve for a given product is downward sloping?

The law of diminishing marginal utility

Consumer choice is influenced not only by the ______ utility that extra units of a good will yield, but also by how much ______ must be given up to obtain extra units of the good.

marginal; income

Consumers are willing to pay a much lower price for water than for diamonds because ______.

the marginal utility of water is low while the marginal utility of diamonds is high

Utility is defined as

the satisfaction or pleasure obtained by consumers from consuming a good or service.

Reginald buys a six-pack of soda. The amount of satisfaction he derives from his purchase is described in terms of ______.

total utility

The pleasure, satisfaction, or happiness obtained from consuming a good or service is known as

utility

Given the different combinations of goods and services consumers can obtain within their budget, the ______ can determine the specific combination that will yield the most utility or satisfaction.

utility-maximizing rule

When people exchange a gift for a different item or for a cash refund, they are doing which of the following?

Attempting to maximize their total utility

Which of the following best describes how a consumer's demand schedule or curve can be derived?

By considering alternative prices at which a good or service might be sold and then determining the quantity a consumer will purchase

Which of the following best describes consumer choice in relation to preferences for goods and services?

Consumers have a good idea of how much marginal utility they will get from successive units of various products they might purchase.

Which of the following best describes the meaning of the utility-maximizing rule?

To maximize satisfaction, consumers should allocate income so that the last dollar spent on each product yields the same marginal utility.

People achieve ______ when they have "balanced their margins" according to the utility-maximizing rule.

consumer equilibrium

A consumer's choices are directly influenced by all of the following except ______.

costs of production

The iPad disrupted consumer equilibrium because spending shifted from alternative products with a(n) ______ marginal-utility-to-price ratio to iPads as a way to increase total utility.

lower

If successive units of a good yield smaller and smaller amounts of marginal utility then the consumer will buy additional units of a product only if its price ______.

falls

The iPad disrupted consumer equilibrium because consumers concluded en masse that iPads had a marginal-utility-to-price ratio (MU/P) that was ______ the ratios for other products.

higher than

The substitution effect contributes to the ____ relationship between price and quantity demanded that is found along the demand curve.

inverse

The marginal utility (MU) of an additional unit of water consumed by a typical consumer is ______, and the MU of an additional unit of diamond purchased by a consumer is ______.

low; high