EC 110 Lecture Notes - Lecture 5: Substitute Good, Demand Curve, Marginal Utility

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

Michael spends all of his income on coffee and donuts. A coffee costs $2.50 and a donut costs $2.00. At his current consumption level, the marginal utility for coffee is 30 utils, and the marginal utility for a donut is 60 utils. Which statement best describes what Michael needs to do to maximize his utility?

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Question 2

What is it called when the marginal utility derived from the last dollar spent on each good is the same across all goods and the last dollar spent uses all of the available budget for the purchase of those goods?

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Question 3 (1 point)

What does the economic theory of marginal utility infer?

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Question 4

Kate is addicted to chocolate and does not care how much it costs. In fact, she spends more than $20 a week on chocolate. What can be concluded about elasticity in her buying decisions?

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Question 5 (1 point)

Why does the demand for a good become relatively more elastic?

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Question 6 (1 point)

Assume the price of chicken per pound is $3.49 and that Americans purchase 10 million pounds per chicken every month. If the price of chicken increases to $5.49 per pound, identify what will occur to consumer surplus?

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Question 7 (1 point)

What is another name for the difference between the price that consumers are willing to pay for a good and a lower price that they may actually have to pay?

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Question 8

Adam, Brian, Robert, and Sam all want to attend a football game. The admission price is $48. Adam is willing to pay $59 for the ticket. Brian is willing to pay $39. Robert is willing to pay $45, and Sam is willing to pay $55. Based on this information, who will go to the game?

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Question 9 (1 point)

Lily is willing to pay $10 for one bracelet and $5 for a second. Patty is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, identify what is the total consumer surplus after Lily and Patty make their purchases?

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Question 10 (1 point)

Manfred is willing to shovel one driveway for $25, a second for $30, and a third for $35. Assume that the market rate for shoveling driveways is $32. How many driveways will Manfred shovel, what will be his total revenue, and what will be his producer surplus?

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Question 11 (1 point)

What would the difference between the price that producers receive and the lower price at which they are willing to sell the good be called?

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Question 12 (1 point)

What will happen when there is an increase in the price of eBook downloads?

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Question 13 (1 point)

When is price elasticity of demand utilized to measure how an individual changes the quantity they demand?

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Question 14 (1 point)

Assume Mary consumes only tea and pastries. A cup of tea costs 5 euros and a pastry costs 8 euros. Her weekly income is 450 euros. Mary always drinks 2 cups of tea for every pastry she consumes. What is Mary’s optimal weekly consumption bundle?

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Question 15 (1 point)

When is producer surplus a positive value?

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