ECON 1000 Chapter Notes - Chapter 8: Normal Good, Utility, Marginal Utility

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30 Jan 2018

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Consumption choices: the choices you make as a buyer and your consumption choices are summarized by two very broad headings: consumption possibilities: all the things that a consumer can afford to buy. You can buy many combinations of things, but they are all limited by your income and the prices you must pay. A co(cid:374)su(cid:373)er"s budget line: consumption possibilities are limited by income and by the prices of the goods. When a consumer spends all their income, they reach the limits to their consumption possibilities. This limit is described with a budget line, which marks the boundary between those combinations of goods and services a household can afford to buy and those it cannot. Changes in consumer possibilities: consumption possibilities change when income or prices change. A rise in income shifts the budget line outward but leaves its slope unchanged. A change in a price changes the slope of the line: preferences: a consu(cid:373)er"s (cid:272)hoi(cid:272)es are (cid:271)ased o(cid:374) their prefere(cid:374)(cid:272)es.

Related Questions

Respond True or False to the following, and explain why each answer is True or False:

a. If two goods x and y are perfect complements, then if the price of x falls, the entire change in demand for x is due to the income effect.

b. A consumer has the utility function given by U=min{x1,2x2}. If good 2, has a price of zero, the consumer will always strictly prefer more of good 2 to less.

c. Ivan spends his entire income on two goods. One of them is a Giffen good. If the price of the Giffen good rises, demand for the other good must fall.

d. Jimmy's utility function is U(a,b) = ab, where a is his consumption of apples and b is his consumption of bananas. If prices and income change in such a way that Jimmy's old consumption bundle lies on his new budget line, then Jimmy will not change his consumption bundle.

blueantelope865

budget line

marginal utility

complete property of preferences

market demand

consumption bundle

substitution effect

Giffen good

total effect

income effect

transitive property of preferences

indifference curves

utility

the marginal rate of substitution

utility function

1.	_____	The satisfaction or benefit that consumers receive from consuming goods or services.
2.	________________ _	A particular combination of specific quantities of goods or services
3.	________________ _	Consumers can rank all conceivable bundles of goods or services
4.	_____	If A is preferred to B, and B is preferred to C, then A is always preferred to C.
5.	_____	Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services.
6.	_____	A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.
7.	_____	The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.
8.	_____	The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.
9.	_____	The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.
10.	_____	The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.
11.	_____	The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.
12.	________________ _	The sum of the substitution and income effects.
13.	_____	A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.
14.	_____	A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.

blushwildebeest943

QUESTION 1

Assume there are two basic goods produced in a nation, consumer goods and capital goods. The production possibilities graph for these two goods is bowed out from the origin. This reason for this shape of the graph is because of:

	A.	the other-things-equal assumption.
	B.	the law of increasing opportunity costs.
	C.	diminishing marginal utility.
	D.	present choices and future possibilities.

1 points

QUESTION 2

From an economic perspective, when a student decides to attend another year of college, the student has concluded that the:

	A.	marginal costs of attending college are reduced by the availability of grants and subsidies.
	B.	marginal benefits of attending college have increased because the future is brighter.
	C.	marginal benefits of attending college are greater than the marginal costs.
	D.	marginal costs of attending college have decreased to make college affordable.

1 points

QUESTION 3

A person observes that as consumer prices fall, economic growth increases. The person concludes that fall consumer prices leads to economic growth. This conclusion would be an example of:

	A.	confusing correlation with causation.
	B.	the fallacy of composition.
	C.	trade-offs among economic goals.
	D.	the other-things-equal assumption.

1 points

QUESTION 4

The problem of unlimited wants and limited income is known as

	A.	the scientific method.
	B.	unequal wealth distribution.
	C.	normative economics.
	D.	the economizing problem.

1 points

QUESTION 5

A point outside the production possibilities curve is:

	A.	unattainable without economic growth.
	B.	attainable and the economy is efficient.
	C.	unattainable without inflation.
	D.	attainable, but the economy is inefficient.

1 points

QUESTION 6

Which one of the following would be an example of loaded terminology?

	A.	market forces
	B.	tentative hypothesis
	C.	entrepreneurial functions
	D.	creeping socialism

1 points

QUESTION 7

Suppose there are two economies, Alpha and Beta, both of which have the same production possibilities curves. If Beta devotes more resources to produce investment goods than consumer goods as compared to Alpha, then in the future:

	A.	Alpha will not be able to achieve full employment.
	B.	Beta will not be able to achieve full employment.
	C.	Alpha will experience greater economic growth than Beta.
	D.	Beta will experience greater economic growth than Alpha.

1 points

QUESTION 8

Macroeconomics, as opposed to microeconomics, is concerned with

	A.	individual businesses.
	B.	new computer technology.
	C.	the stock market.
	D.	the economy as a whole.

1 points

QUESTION 9

Which one of the following is an example of a positive economic statement?

	A.	The size of the Federal government should be reduced.
	B.	Midwest states affected by drought should be given more federal disaster aid.
	C.	Education and income are highly correlated.
	D.	The minimum wage for workers should be raised to help low-income workers.

1 points

QUESTION 10

Economics is primarily concerned with

	A.	interactions between the government and market participants.
	B.	how scarce resources are used.
	C.	the production and distribution of capital goods.
	D.	how income is divided among individuals.

1 points

QUESTION 11

The production possibilities table below shows the hypothetical relationship between the production of guns (national defense) and butter (social goods) in an economy.

A B C D E

Guns 0 4 7 9 10

Butter 4 3 2 1 0

If the economy is producing at alternative C, what is the opportunity cost of producing another unit of butter?

	A.	3 units of guns.
	B.	1 units of guns.
	C.	2 units of guns.
	D.	4 units of guns.

1 points

QUESTION 12

Assume that a consumer can buy only two goods X and Y, and has an income of $120. The price of X is $10 and the price of Y is $20. If the consumer spends all of her money on X and Y, which of the following would be a possible combination:

	A.	4X and 2Y
	B.	5X and 3Y
	C.	6X and 3Y
	D.	8X and 1Y

1 points

QUESTION 13

In the production possibilities model of an economy, when there is full employment of resources

		a nation will be operating at an interior point within its production possibilities curve.
		a nation will be operating on the production possibilities curve.
		the production possibilities curve will shift outward to the right.
		the production possibilies curve will shift inward to the left.

1 points

QUESTION 14

In economics the concept that there is "no free lunch" means

	A.	scarce resources were used to produce these "free" goods so there is an opportunity cost to producing them.
	B.	consumers are irrational when they ask for a free lunch unless they can make the case that the free lunch benefits business.
	C.	the marginal cost of the "lunch" is greater than the marginal benefit.
	D.	businesses could not make a profit if they gave away free goods to consumers.

1 points

QUESTION 15

Assume that a consumer can only purchase two goods with her income. A straight-line budget constraint indicates that the opportunity cost of obtaining an additional unit of one good is:

	A.	negative.
	B.	constant.
	C.	increasing.
	D.	decreasing.

carmineferret43

ECON 1000 Chapter Notes - Chapter 8: Normal Good, Utility, Marginal Utility

ECON 1000 Full Course Notes

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