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ECON 22060 Lecture Notes - Lecture 3: Inverse Relation, Demand Curve, Marginal Utility

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plummuskrat399
1 May 2017
School
Kent State University
Department
Economics
Course
ECON 22060
Professor
Thomas Sahajdack

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Document Summary

If you have ,000,000 dollars, might not mean as much: *utility only works for one person at a time* Suppose you have 3 apples and 2 oranges, and that gives you a utility of 14. The maximum utility of price of x needs to equal maximum utility of price of y. If these two sides are not equal that means you"re not at an optimal point. Buy more of what gives you more utility. How do we get to market demand: add up individual demands. The law of demand: as price increases, quantity demand will decrease. Inverse relationship: a (cid:272)ha(cid:374)ge i(cid:374) the (cid:271)uyer"s willi(cid:374)g(cid:374)ess to (cid:271)uy (cid:272)ha(cid:374)ges de(cid:373)a(cid:374)d. Preferences: an external and independent change in the tastes of the consumers. Income: a change in the buying power of consumers, two types of goods, normal- as income increases, demand also increases, steak, houses. Inferior- as income increases, demand decreases: bus travel.

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Related Questions

When deciding consumption levels of more than one good, the utility-maximizing rule states that you are maximizing utility when

the marginal utility o two goods are equal

the marginal utility of two goods are zero

the ratio of marginal utility to price of two goods is zero

the ratio of marginal utility to price for the two goods are equal

10 points

QUESTION 2

My brother says the law of diminishing marginal utility is nonsense because he is way happier after his sixth beer than after his first one. Pick the best response.

He has a point, maybe this is something behavioral economists should take a look at.

True, but marginal utility refers only to the utility gained (or lost) by drinking that last beer, not to his total utility

There are always exceptions, but in general this law will hold.

True, but the law of diminishing marginal utility is really just saying that eventually he will prefer a glass of wine to another beer.

10 points

QUESTION 3

Frank spends $75 on 10 magazines and 25 newspapers. The magazines cost $5 each and the newspapers cost $2.50 each. Suppose that his marginal utility from the final magazine is 10 utils while his marginal utility from the final newspaper is also 10 utils. According to the utility-maximizing rule, Frank should:

Reallocate spending from magazines to newspapers

Reallocate spending from newspapers to magazines

Be satisfied because he is already maximizing his total utility

None of the above

10 points

QUESTION 4

Marginal utility can be:

Positive, negative, or zero

Decreasing but not negative

Positive or negative, but not zero

Positive, but not negative

10 points

QUESTION 5

In economics, a product provides utility if it:

is useful

violates the law of demand

takes more and more resources to produce successive units of it

satisfies consumer wants

Which of the following is true of an indifference curve?

Along an indifference curve utility is fixed.

If a consumer is rational then indifference curves may cross.

Indifference curves further from the origin are associated with lower levels of utility than those that are closer to the origin.

Because they are indifference curves, microeconomics students should be indifferent towards them.

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

Ā  consumer happiness
Ā  utility
Ā  a happiness index
Ā  a satisfaction index

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.

Ā  sugar sickness
Ā  total utility
Ā  diminishing marginal utility
Ā  increasing marginal utility

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

Ā  positive.
Ā  zero.
Ā  negative.
Ā  none of these.

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

Ā  Dirk and Lee both receive 10 utils from eating pizza.
Ā  Dirk and Lee both receive the same level of satisfaction from eating pizza.
Ā  Dirk gets more twice as much satisfaction as Lee from eating pizza.
Ā  It is difficult to determine because the utility is subjective.

5. For many products, the total utility curve is

Ā  strictly increasing because of increasing marginal utility.
Ā  strictly decreasing because of diminishing marginal utility.
Ā  increasing initially because of increasing marginal utility, but eventually decreases.
Ā  increasing initially at a decreasing rate because of diminishing marginal utility but eventually decreases.

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

Ā  used the loudest gun in hunting season.
Ā  reached a consumer optimum.
Ā  minimized consumer satisfaction.
Ā  maximized marginal utility.

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

Ā  maximize their total utility.
Ā  minimize their total utility.
Ā  maximize the amount they spend on each good.
Ā 

minimize the amount they spend on each good.

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

Ā  MUa/ Pa = MUb/ Pb
Ā  MUa/ Ph =MUb/ Pa
Ā  Pa/ MUa = Pb/ MUb
Ā  MUa x Pa = MUbxPb

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

Ā  has achieved a consumer optimum.
Ā  should increase his or her consumption of good 1.
Ā  should increase his or her consumption of good 2.
Ā  should decrease his or her consumption of good 1.

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

Ā  the substitution effect only
Ā  the real-income effect only
Ā  the substitution effect and real-income effect, if there is a noticeable change in purchasing power
Ā  the substitution effect and real-income effect, if there isnĆ¢Ā€Ā™t a noticeable change in purchasing power

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

Ā  diamond-carbon
Ā  diamond-water
Ā  diamond-life
Ā  water-utility

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

Ā  more water and fewer diamonds
Ā  marginal utility
Ā  total utility
Ā  consumer demand

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

Ā  diamonds are equal to the marginal utility of water.
Ā  diamonds are greater than the marginal utility of water.
Ā  diamonds are less than the marginal utility of water.
Ā  water is equal to its price, and therefore lower than the marginal utility of diamonds.

14. The consumer surplus for water is

Ā  greater than that for diamonds because water is nonessential.
Ā  greater than that for diamonds because water is essential.
Ā  less than that for diamonds because water is nonessential.
Ā  less than that for diamonds because water is essential.

15. Suppose a consumer consumes only diamonds and water, and the price of diamonds increases. All else being equal, a consumerĆ¢Ā€Ā™s marginal utility for diamonds

Ā  decreases and the marginal utility for water stays the same.
Ā  increases and the marginal utility for water decreases.
Ā  decreases and the marginal utility for water increases.
Ā  increases and the marginal utility for water stays the same.

1. Suppose that the total utility from consuming one unit of good X is 54 utils, the total utility of two units of good X is 74 utils, and the total utility of three units of good X is 84 utils. The marginal utility of the third unit is

a.70.67 utils.

b.10 utils.

c.12.25 utils.

d.20 utils.

2. If income rises, the budget constraint

a. Moves outward away from the origin

b. Does not move

c. Moves inward toward the origin

d. Moves farther down the vertical axis

3. Economists assume that the goal of consumers is to maximize total utility.

true/false

4. The budget constraint cuts the horizontal axis at 12 units of good X and it cuts the vertical axis at 20 units of good Y. If the price of good X is $20 and the price of good Y is $12, then what does income equal?

a. $200

b. $240

c. $520

d. $280

e. not enough information to answer this question

5. Consumer equilibrium exists when an individual

a. can be made better off by buying more of a normal good and less of an inferior good.

b. is receiving the same total utility from each of the goods he or she purchases.

c. is receiving the same marginal utility from each of the goods he or she purchases.

d. has the same MU/P ratio for each of the goods he or she purchases.

e. none of the above

6. Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 30, 50, 65, 72, respectively. In this situation we have __________ marginal utility, which is generally __________ in the analysis of consumer choice.

a. diminishing; not assumed

b. increasing; assumed

c. diminishing; assumed

d. increasing; not assumed

7. Which of the following best describes an interpersonal utility comparison?

a. Usually, Smith seems a lot happier than Jones.

b. Smith gets more utility from working on his computer than Jones gets from working on his computer.

c. Smith usually eats more in a day than Jones eats in a day.

d. ones likes computers produced by Dell Computer Corporation and Smith likes computers produced by Apple Computer Inc

e. Smith got less utility from eating the 30th cookie than eating the 29th cookie, and the same holds for Jones.

8. We would expect the total utility of water to be high but its marginal utility to be low. Why?

a. Because we need water to live and there is so much of it.

b. Because we need water to live and there is very little of it.

c. Because water is a fluid and we don't need fluids to live as much as we need food

d. Because water's price is low.

9.The marginal utility curve for units 6 through 8 of good Z lies below the horizontal axis. What does this imply must be true about the total utility curve for units 6 through 8 of good Z?

a. That portion of good ZĆ¢Ā€Ā™s total utility curve must also lie below the horizontal axis.

b. That portion of good ZĆ¢Ā€Ā™s total utility curve must be upward sloping.

c. That portion of good ZĆ¢Ā€Ā™s total utility curve must be horizontal.

d. That portion of good ZĆ¢Ā€Ā™s total utility curve must be downward sloping.

10. Research presented in the text shows that people are more concerned with their absolute income position in a group than their relative income position in the group.

true/false