EC120 Lecture Notes - Lecture 18: Inferior Good, Demand Curve, Marginal Utility

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30 Oct 2020

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Maximizing utility = mux/px = muy/py or alternative interpretation = mux/muy = px/py. Mu marginal utility of (x or y) p price (marginal utility per dollar) Consumer"s demand curve = mu of juice/mu of y < price of juice/ price of y. A rise in the price of a product (with all other determinants of demand held constant) leads each utility- maximizing consumer to reduce the quantity demanded of the product. Market demand curves the horizontal sum of all individual demand curves. Real income income expressed in terms of purchasing power of money income that is, the quantity of goods and services that can be purchased with the money income. Substitution effect the change in the quantity of a product demanded resulting from a change in its relative price (holding real income constant) Substitution effect increases the quantity demanded of a product whose price has fallen and reduces the quantity demanded of a product whose price has risen.

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

interval (or arc) elasticity

cross-price elasticity

price elasticity of demand

elastic demand

income elasticity

inelastic demand

inframarginal units

marginal revenue

point elasticity

price effect

quantity effect

total revenue

unitary elastic demand

1. __________________ A measure of consumersâ sensitivity or responsiveness to changes in the price of a good or service.

2. ___________________ When the percentage change in price (in absolute value) is more than the percentage change in quantity demanded (in absolute value).

3. ___________________ When the percentage change in quantity demanded (in absolute value) is more than the percentage change in price (in absolute value).

4. ___________________ When the percentage change in quantity demanded (in absolute value) is just equal to the percentage change in price (in absolute value).

5. ___________________ Total amount paid to a producer for a good or service P * Q.

6. ___________________ The effect on total revenue of a change in price, holding quantity constant.

7. ___________________ The effect on total revenue of a change in quantity, holding price constant.

8. ___________________ An elasticity calculated over an interval of a demand curve or demand schedule.

9. ___________________ Elasticity at a specific price or point on a demand curve.

10. ___________________ A measure of how responsive quantity demanded is to a change in income, all other things constant.

11. ___________________ A measure showing how responsive the quantity demanded of one good is to changes in the price of another good, other factors constant.

12. ___________________ The additional revenue received by producing and selling one more unit of output.

13. ___________________ Units of output that could have been sold at a higher price had the firm not lowered its price to sell additional (marginal) units.

coffeehornet269

Which of the following describes the substitution effect of a price change?

a. The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of a price change on consumer purchasing power.

b. The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant.

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EC120 Lecture Notes - Lecture 18: Inferior Good, Demand Curve, Marginal Utility

EC120 Full Course Notes

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