ECN 104 Lecture Notes - Lecture 5: Budget Constraint, Consumer Choice, Demand Curve

1. Economists use ____________ as a measure of the relative level of satisfaction when someone consumes a good or service.

2. Sue likes brownies. However, Sue notices that the more brownies she eats the less satisfaction she receives from each extra brownie. We can say that Sue is experiencing ___________________ from each extra brownie.

3. When total utility is maximized, the marginal utility will be

4. Consider Dirk and Lee. They are both eating pizza. Which of the following statements is true regarding their satisfaction and utility?

5. For many products, the total utility curve is

6. When consumers get the biggest bang for the buck, we say they

7. By choosing to consume at the consumer optimum, consumers will

8. A consumer is in equilibrium when consuming two goods when which of the following holds?

9. If the marginal utility of good 1 is 15 and its price is $3, and the marginal utility of good 2 is 12, and its price is $4, then the consumer

10.Suppose the price of an iPod decrease and the price of HD TVs remains the same; what noticeable effect(s) occur(s)?

11. The ______________ paradox was described by Adam Smith in 1776.

12. What is the key to solving the diamond-water paradox?

13. When solving the diamond-water paradox we notice that the marginal utility of

14. The consumer surplus for water is

15. Suppose a consumer consumes only diamonds and water, and the price of diamonds increases. All else being equal, a consumer’s marginal utility for diamonds

1. Due to the law of diminishing marginal utility, _____.

a. the marginal utility curve is upward sloping

b. when marginal utility becomes positive, total utility declines

c. when marginal utility becomes negative, total utility increases

d. marginal utility is zero when total utility is zero

e. the first unit of a product offers more satisfaction than the last unit of the same product

2. True or False. If a product has an elastic demand, it means that consumers are relatively insensitive to a change in the price of the product. 

3. If one were to plot the data with utility on the vertical axis and quantity of the good on the horizontal axis:

a. the total utility curve would begin to decline after the second unit of the good.

b. the marginal utility curve would intersect the horizontal axis at the second unit of the good.

c. the total utility curve would rise from the first unit to the fifth unit.

d. the marginal utility curve would intersect the horizontal axis at the third unit of the good.

e. the marginal utility curve would begin to decline after the third unit of the good.

4. If the average variable cost of a firm is falling, then the:

a. marginal cost must be falling.

b. average fixed cost must be rising.

c. marginal cost lies below the average variable cost.

d. marginal cost must be rising.

e. marginal cost lies above the average variable cost.

5. According to economic theory, the difference between the long run and the short run is:

a. the ability for a firm to vary all resources

b. about two years

c. about two months

d. not relevant for executive decision-makers

e. strictly theoretical so that in practice there is no difference between them

Marginal utility is defined as the

a. extra satisfaction the consumer receives from an extra $1 of income.

b. total level of satisfaction a consumer receives upon the consumption of a certain number of goods.

c. number of hours a consumer would be willing to work to receive a certain product.

d. extra satisfaction a person derives from consuming an additional unit of a good.