ECON 208 Lecture Notes - Ceteris Paribus, Consumer Behaviour, Complementary Good

39 views3 pages

lilacrabbit206

13 Jul 2012

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

selin.aksezgin and 39983 others unlocked

ECON 208 Full Course Notes

Verified Note

27 documents

Document Summary

Utility: the value that you get (it is not an absolute measure) Utility maximizing consumers adjust their expenditure until the marginal utility per dollar spend is equalized across products. Any change in price generates both an income and a substitution effect. Consumer surplus is the bargain the consumers gets by paying less for the product than the maximum price he or she is willing to pay. Diminishing marginal utility- marginal utility is about that last unit you are consuming. Marginal utility (difference) falls as consumption rises. You"re still better off which each successive thing (if it wasn"t getting better you wouldn"t consume it) but the utility decreases with each one. Consumers must decide how to adjust their expenditure to maximize total utility. A utility-maximizing consumer allocates expenditures so that the utility obtained from the last dollar spent on each product is equal.

Related Questions

1. If marginal utility is negative, total utility is

a. Positive

b. Negative

c. Decreasing

d. Constant

e. Increasing

2. If utility-maximizing consumers face identical prices, they will have identical

a. Marginal utilities for each good

b. Ratio of marginal utilities for each good

c. Preferences

d. Ratios of total utilities for each good

e. Total utilities for each good

3. The substitution effect

a. Always increases quantity demanded of a good whose relative price has fallen

b. Is opposite in sign to the income effect for all normal goods

c. Is opposite in sign to the income effect for all normal goods

d. May cause demand curves to be upward sloping

e. Is always dominated by the income effect for normal goods

4. Demand curves for normal goods slope downward because

a. The substitution effect of a price change is greater than the income effect

b. Substitution and income effects work in the same direction

c. The income effect is always greater than the substitution effect

d. The income effect is always less than the substitution effect

e. None of the above

5. The idea that a consumer derives less additional satisfaction from consuming successive units of a good is called

a. Diminishing consumer surplus

b. The paradox of value

c. Diminishing marginal utility

d. Diminishing total value of consumption

e. Diminishing total utility

indigolocust149

A consumer finds only three products, X, Y, and Z, are for sale. The amount of utility that their consumption will yield is shown in the table below. Assume that the prices of X, Y, and Z are $10, $2, and $8, respectively, and that the consumer has an income of $74 to spend.
(a) Complete the following table by computing the marginal utility per dollar for successive units of X, Y, and Z to one or two decimal places.
(b) How many units of X, Y, and Z will the consumer buy when maximizing utility and spending all income? Show this result using the utility maximization formula.
(c) Why would the consumer not be maximizing utility by purchasing 2 units of X, 4 units of Y, and 1 unit of Z?

Product X		Product Y		Product Z
Quantity	Utility	Marginal Utility per $	Quantity	Utility	Marginal Utility per $	Quantity	Utility	Marginal Utility per $
1	42	_____	1	14	_____	1	32	_____
2	82	_____	2	26	_____	2	60	_____
3	118		3	36	_____	3	84	_____
4	148	_____	4	44	_____	4	100	_____
5	170	_____	5	50	_____	5	110	_____
6	182	_____	6	54	_____	6	116	_____
7	182	_____	7	56.4	_____	7	120	_____