Unit 2 Chapter 5: Demand

The absolute value of the slope of an indifference curve is

Marginal rate of substitution

Suppose most people either fly or drive when they go on vacation. If airfare increases, then you would expect ____ people to fly and _____ people to drive.

fewer; more

Law of demand

people do less of what they want to do as the cost of doing it rises

nominal price

the absolute price of a good in dollar terms

Once people have achieved bare subsistence levels of consumption, economists emphasize that we can talk mainly in terms of people's

wants

A(n) _______ traces out the set consumption bundles that a consumer likes equally well.

Indifference curve

If the price of bananas decreases, then which of the following will occure

The horizontal intercept will not change and the vertical intercept will increase

horizonal addition

a term used to emphasize that we are adding quantities, which are measured on the horizonal axes of individual demand curve

Economists assume that people

allocate their income between different goods and services to make themselves as happy as possible

A parallel shift outward in the budget constraint is consistent with

an increase in income

Wants (preferences or tastes)

are clearly an important determinant of a consumer's reservation price for a good.

The line that describes the set of all bundles a consumer can purchase given the consumer's income and prices is called

budget constraint

A ____ of goods is the term used to describe a particular combination of goods

bundle

As we move downward to the right along an indifference curve, the marginal rate of substitution generally

decreases

An indifference curve map tells us _____, while a budget constraint tells us _____.

how various bundles are ranked in order of preference; which bundles are affordable

Suppose that when you eat chocolate cake, you enjoy every bite, but each bite is never quite as good as the one before it. Thus, with each bite of chocolate cake, your total utility ______ while your marginal utility _______

increase; decrease

Affordable combination of goods that yields the highest total utility for a consumer

is the optimal combination of goods for a consumer

The number written on a price tag is a good's _____

nominal price

A consumer's best affordable bundle will typically lie:

on the consumer's budget constraint

concept of utility

represent the satisfaction people derive from their consumption activities

rational spending rule

spending should be allocated across goods so that the marginal utility per dollar is the same for each good

Marginal utility

the additional utility gained from consuming an additional unit of a good

optimal combination of goods

the affordable combination that yields the highest total utility

Which of the following best illustrates the income effect of an increase in the price of peanut butter?

the change in quantity of peanut butter demanded that results because of the reduction in purchasing power

substitution effect

the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes

If a consumer likes two consumption bundles equally well, then

the consumer is indifferent between the two consumption bundles

consumer surplus

the difference between a buyer's reservation price for a product and the price actually paid

real price

the dollar price of a good relative to the average dollar price of all other goods

The slope of a budget constraint will not change if

the prices of all goods change by the same proportion

Suppose that in response to an increase in the price of sugar, people switch from using sugar to corn syrup. This is an example of ______ of a price change

the substitution effect

law of diminishing marginal utility

the tendency for the additional utility gained from consuming an additional unit of a good to diminish as consumption increases beyond some point

The total amount that consumers would be willing to pay, in the aggregate, for the right to participate in a market is

total consumer surplus in that market