Lab 4

The table below shows the relationship between the number of movies seen per month and the total utility received. Fill in marginal utility in the table below. ​(Enter your responses as​ integers.)

24, 16, 8, 4, 2

Use the information in the following table to calculate the marginal utility from consuming the second ice cream cone.

8

Bob consumes food and housing. Suppose his marginal utility from an additional unit of food is 20 and his marginal utility from an additional unit of housing is 140. ​ Furthermore, suppose the price of a unit of food is ​$1.00 and the price of a unit of housing is ​$4.00. Can Bob increase his utility without changing his total expenditures on food and​ housing? Holding expenditures​ constant,

Bob can increase utility by spending less on food and more on housing.

In deciding between consuming more goods now or saving​ money, consumers should do which of the​ following?

Choose an amount of current spending on goods and savings so that the marginal utility per dollar of both are equal.

The following table shows​ William's utility from consuming slices of pizza and cans of Sprite. Suppose William has ​$13.20 per week to spend on pizza and Sprite. The price of a slice of pizza is ​$1.80 and the price of a can of Sprite is ​$2.00.

If William wants to maximize his​ utility, he should buy 4 ​slice(s) of pizza and 3 ​can(s) of Sprite.

Considering only the income effect​, if the price of a normal good declines​, would a consumer want to buy a larger quantity or a smaller quantity of the​ good?

If the price of a good declines, the consumer has greater purchasing power, so he would want to purchase more of a normal good.

​Instead, suppose ham is an inferior good.

If the price of ham​ increases, then consumers will demand more ham due to the income effect and less ham due to the substitution effect.

What is a budget​ constraint?

It is the limited amount of income available to consumers to spend on goods and services.

The following table shows​ Madison's utility from consuming popcorn and Coke. Suppose that Madison has income of $10.00​, the price of popcorn is $2.00​, and the price of Coke is $3.00. If Madison wants to maximize her​ utility, how much popcorn and Coke should she​ buy?

Madison should buy 2 boxes of popcorn and 2 cans of Coke. ​(Enter your responses as​ integers.)

In a column of​ forbes.com, Patrick​ Rishe, an economist at Washington​ University, notes that in recent years the National Football League has significantly expanded the number of games it broadcasts. As a​ result, he​ argues: "The NFL has oversaturated the market with its product.... TV​ ratings, consequently, have fallen. At least in​ part, diminishing marginal utility is a likely explanation as to​ why." ​ Briefly explain his reasoning.

NFL fans experience less additional satisfaction as they watch more NFL games.

Is utility​ measurable?

No

What is the definition of marginal​ utility?

The change in utility from consuming an additional unit of a good or service.

What would need to be true for a demand curve to be upward​ sloping?

The good would have to be an inferior​ good, and the substitution effect would have to be smaller (in absolute​ value) than the income effect.

Does purchasing a smaller​ (larger) quantity demanded when price falls​ (rises) mean that demand curves for inferior goods should slope​ upward?

This does not mean that the demand curves for inferior goods should slope upward as we must also take into account the substitution effect.

Explain how a​ downward-sloping demand curve results from consumers adjusting their consumption choices to changes in price.

When the price of a good rises​, the ratio of the marginal utility to price falls​, leading consumers to buy less of that good.

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

A market demand curve is derived by...

adding horizontally the individual demand curves.

Suppose a consumer is trying to decide how much to spend on food and how much to spend on all other ​(non-food​) consumption. The economic model of consumer behavior predicts that the consumer will...

choose the combination of food and non-food consumption that makes her as well off as possible from among the combinations of food and non-food items she can afford.

The law of diminishing marginal utility suggests that...

consumers experience diminishing additional satisfaction as they consume more of a good or service.

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.

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.

Suppose ham is a normal good. How will consumers adjust their buying decisions if the price of ham​ changes? If the price of ham​ increases, then consumers will demand...

less ham due to the income effect because their purchasing power decreases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher.

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 role does utility play in the economic model of consumer​ behavior? When modeling consumer​ behavior, utility...

reflects the enjoyment a consumer receives from consuming a particular set of goods and services.

What is the economic definition of​ utility? Utility is...

the enjoyment or satisfaction people receive from consuming goods and services.

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.

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