Econ Ch 10
Is it measurable?(utility)
no
In which of the following situations does the law of diminishing marginal utility not hold?
For methamphetamine addicts, the more dosages of the illegal drug, the more euphoric they become.
When does the law of diminishing marginal utility hold true?
It holds true in most situations involving the consumption of a good.
What is a budget constraint?
It is the limited amount of income available to consumers to spend on goods and services.
Source: Patrick Rishe, "2016 NFL TV Ratings Decline: Has Diminishing Marginal Utility Set In?" forbes.com, December 6, 2016. Briefly explain his reasoning.
NFL fans experience less additional satisfaction as they watch more NFL games.
What is the definition of marginal utility?
The change in utility from consuming an additional unit of a good or service.
LaToya is buying corn chips and soda. She has 4 bags of corn chips and 5 bottles of soda in her shopping cart. The marginal utility of the fourth bag of corn chips is 10, and the marginal utility of the fifth bottle of soda is also 10. Is LaToya maximizing utility?
This cannot be determined because we do not know the price of corn chips and soda and whether or not she fully spent her budget allocated to corn chips and soda.
The marginal utility per dollar you are spending on iTunes music downloads is less than the marginal utility per dollar you are spending on Red Bull. According to the rule of equal marginal utility per dollar spent, what can you do to increase your total utility from consumption of music downloads and Red Bull?
You can increase your consumption of Red Bull.
The substitution effect is the change in the quantity demanded of a good that results from ______________, holding constant the effect of the price change on consumer purchasing power.
a change in price making the good more or less expensive relative to other goods
The law of diminishing marginal utility suggests that
consumers experience diminishing additional satisfaction as they consume more of a good or service.
Maya spends her $50 budget on two goods, cans of tuna and bottles of ginger ale. Initially, the marginal utility per dollar she spends on tuna is equal to the marginal utility per dollar she spends on ginger ale. Then the price of ginger ale decreases, while her income and the price of tuna does not change. a. Her marginal utility from consuming ginger ale
does not change
The rule of equal marginal utility per dollar spent suggests that consumers maximize utility by
equalizing the marginal utility per dollar spent across goods and services.
Utility refers to how much consumers utilize a product or service.
false
d. As Maya adjusts to the change in the price of ginger ale, her marginal utility per dollar spent on tuna will
increase because she will buy less tuna.
b. The marginal utility per dollar she spends on ginger ale
increases
A budget constraint:
indicates the limited amount of income available to consumers to spend on goods and services
When the price of a product changes,
it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.
According to the law of diminishing marginal utility, as the consumption of a particular good increases,
marginal utility decreases.
Marginal utility is more useful than total utility in consumer decision making because
optimal decisions are made at the margin.
What is the economic definition of utility? Utility is
the enjoyment or satisfaction people receive from consuming goods and services.
The economic model of consumer behavior predicts that consumers will choose to buy the combination of goods and services that makes them as well off as possible from among all the combinations that their budgets allow them to buy.
true
The optimal combination of pizza and coke you should consume is the one
where your marginal utility per dollar spent on pizza equals your marginal utility per dollar spent on coke.
A student concludes: "When I got a raise from $9 per hour to $10 at my part-time job, I started renting more movies on iTunes. My response to the raise is an example of the income effect used in analyzing how consumers make their choices." Briefly explain whether you agree.
Disagree, because the student is confusing the income effect with the effect of a change in money income.
c. Because of the substitution effect, Maya will buy more ginger ale. Can we conclude that ginger ale is a normal good?
No, because normal and inferior good designations are related to the income effect, not the substitution effect.
The income effect causes quantity demanded to ________ when the price of a normal good decreases, and causes quantity demanded to ________ when the price of an inferior good decreases.
increase; decrease
