Consumer Choice Review

What is the difference between Total Utility and Marginal utility?

*Total Utility*: The total amount of satisfaction/pleasure a person derives from consuming some specific quantity of a good or service (eg. 10 cookies) *Marginal Utility*: the Extra satisfaction a consumer gets from one additional unit of that product (the 10th cookie)

What is the Bang for the Buck Rule? Bang for the buck rule:

- To maximize satisfactions, consumers should allocate their money income so that the last dollar spent on each product yields the same amount of extra utility. MUx/Px=MUy/Py

How does the Income and Substitution effects play a role in Utility?

-If the price of one product falls, the marginal utility of tht product will increase! This is the SUBSTITUTION effect. It causes her to deviate from th other product to consume more of the discounted product- thus restoring consumer equilibrium. -On the Income Effect: The dcline of price now frees up more room within the budget.. Meaning you can buy more of a product. How many? this is decided using the utility-maximizing rule. REVIEW: DEFINE THE INCOME AND SUBSTITUION EFFECTS

What is Marginal Utility per Dollar spent?

-Makes the amount of extra utility derived from differently priced goods comparable. (you can see how much additional utils you get on each good relative to the added cost of each good) Helps you determine which good to buy more of.

-What does it mean when the MU is negative?

-Means that those additional items will lower utility, and will not provide max utility combo.

Alyssa is maximizing her utility buying bagels and bread. This​ week, the price of bagels has decreased. Alyssa considers these goods to be close substitutes (so they give similar levels of happiness). Which of the following best describes what Alyssa would be expected to​ do? A. Alyssa will buy more bagels and less bread. B. Alyssa will buy less bagels and less bread. C. Alyssa will buy more bagels and more bread. D. Alyssa will buy less bagels and more bread.

A. Alyssa will buy more bagels and less bread.

Your daily consumption of bottled water is 2 and your daily consumption of apples is 6 when the prices per unit are ​$1.00 and ​$0.60​, respectively. As the price of bottled water rises to ​$1.25​, and more apples and less bottled water are​ consumed, the marginal utility of bottled water ​_____ and the marginal utility of apples ​_____. A. rises, falls. B. ​falls, falls. C. falls, rises. D. rises, rises. E. does not change.

A. rises, falls.

In economics, utility is A. the​ happiness received from an action such as consuming a good or service. B. the worth of a good in comparison with other goods. C. the usefulness of a good or service in performing several different functions. D. the relation a good or service has to​ gas, electric and water services.

A. the​ want-satisfying power of a good or service.

Your daily consumption of bottled water is 2 and your daily consumption of apples is 6 when the prices per unit are ​$1.00 and ​$0.60​, respectively. If the Marginal utility of another bottle of water is 30 utils and the Marginal utility of another apple is 20 utils, how should you change your consumption patterns to optimize your utility subject to your budget constraint? A. more apples, less water . B. more water, less apples. C. more water, more apples. D. keep both water and apples at the same amount.

A: more apples, less water

What is the law of diminishing marginal utility?

Added satisfaction declines as a consumer acquires additional units of a given product.

The campus bookstore sells a campus mug for ​$10. When you buy a second campus mug​, ​however, its price is only ​$6. How does this relate to marginal​ utility? A. The bookstore must not understand economics as all B. Since marginal utility falls as additional units of the good are​ consumed, consumers are only willing to purchase more as the price falls. C. Increases in total utility from the consumption of campus mugs become larger as more is consumed so consumers will pay more. D. As more is​ consumed, the marginal utility increases so consumers are willing to purchase more at higher prices.

B. Since marginal utility falls as additional units of the good are​ consumed, consumers are only willing to purchase more as the price falls.

Using indifference curve​ analysis, the consumer optimum occurs A. where the marginal rate of substitution is the greatest. B. at the point of tangency between an indifference curve and a budget line. C. on the​ upward-sloping portion of the indifference curve. D. on the midpoint of the budget constraint.

B. at the point of tangency between an indifference curve and a budget line.

At a consumer optimum involving goods X and​ Y, the marginal utility of good X equals 5 utils. The price of good Y is three times the price of good X. What is the marginal utility of good​ Y? A. 5. B. 3. C. 15. D. There is not enough information.

C. 15.

What is the difference between total utility and marginal​ utility? A. Marginal utility is typically greater than total utility B. Marginal utility represents the consumer optimum while total utility gives the total utility per dollar spent on the last unit. C. Total utility is the total amount of satisfaction derived from consuming a certain amount of a good while marginal utility is the additional satisfaction gained from consuming an additional unit of the good. D. Total utility represents the consumer optimum while marginal utility gives the total utility per dollar spent on the last unit.

C. Total utility is the total amount of satisfaction derived from consuming a certain amount of a good while marginal utility is the additional satisfaction gained from consuming an additional unit of the good.

The law of diminishing marginal utility insures that as long as MU remains positive, A. the total utility curve will eventually increase at an increasing rate. B. the total utility curve will eventually increase at a constant rate. C. the total utility curve will eventually increase at a decreasing rate. D. All of the above.

C. the total utility curve will eventually increase at a decreasing rate.

Total utility A. falls as long as marginal utility is negative. B. rises at a decreasing rate as long as Marginal Utility is positive C. rises as long as marginal utility is positive. D. All of the above.

D. All of the above.

If MU of A gives you 6 Utils and costs $1 and the MU of B gives you 18 Utils and costs$2.... then what should the consumer do?

It means that the consumer needs to buy MORE of product B and less of A.