MGEA02H3 Lecture 3: Week 3 study guide

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.

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. 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