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ECON 302 Lecture 1: Class

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pucecicada191
26 Jan 2017
School
WKU
Department
Economics
Course
ECON 302
Professor
borland

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Document Summary

Consumers want to maximize the utility (the satisfaction) that they get from x and y. If you"re hungry and you want a hamburger, and you eat a hamburger, then you"re not hungry, that hamburger provided you utility. Utility = f (quantities of goods consumed; x and y) If you have more x in the basket, you get more utility if you consume more of x. A higher indifference curve has a higher utility than a lower curve- non-satiation. The slope decreases because of the indifference curve- convex to the origin. If they sit on the same line, they have same utility- a point above indifference curve is preferred. Budget constraint- keeps things on a certain indifference curve: finite income, prices > 0 (price of x * units of x) + (price of y x units of y) is less than or equal to income. Maximize utility when you spend all of your income due to non-satiation.

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Related Questions

1.

Suppose all consumers are maximizing utility with convex indifference curves. All face the same prices, and are perfectly rational. According to microeconomic models, at the maximization bundle they should

A. All have the same marginal rate of substitution

B. All buy more of the least expensive good

C. All end up with the same bundle of goods

D. All have the same level of satisfaction

2.

Consider an indifference map with food on the vertical axis and shelter on the horizontal axis.

If a consumer is willing to give up 3 units of food in exchange for 1 unit of shelter and food is priced at $5 per unit and shelter at $10 per unit, then the consumer is:

A. Purchasing too much food for utility maximization

B. Purchasing too much shelter for utility maximization

C. Purchasing just the right amount of each good for utility maximization

D. Purchasing less than the budget would allow

3.

If a consumer with convex indifference curves moves along her budget line, closer and closer to the horizontal axis, as she is moving:

A. The marginal utility she gets from good Y declines.

B. The marginal utility she gets from good X declines.

C. The marginal utility she gets from good X increases.

D. The price ratio of the two goods changes.

1. Dianna has a choice between lobster and steak for dinner. The lobster dinner costs $30, and gives her utility of 60, while the steak dinner costs $20 and gives her utility of 50. Which should Dianna choose?

Select one:

a. Dianna would be indifferent between the two choices.

b. The steak

c. The lobster

d. Dianna should have both dinners.

e. The answer cannot be determined without knowing Dianna's utility function.

2. Robert spends all his income on dancing shoes and CDs. The price of the shoes is three times the price of CDs. What should Roger do to maximize his utility?

Select one:

a. Robert should buy shoes and CDs until the total utility from shoes is three times the marginal utility from CDs.

b. Robert should buy shoes and CDs until the marginal utility from shoes is three times the marginal utility from CDs.

c. Robert should buy three times as many CDs as shoes.

d. Robert should buy equal amounts of shoes and CDs.

e. Robert should buy three times as many shoes as CDs.

3. You are currently trying to maximize your utility by buying 10 candy bars and 20 glasses of milk. The marginal utility of the 10th candy bar is 150, and the marginal utility of the 20th glass of milk is 200. You are spending all your income. The price of milk is $1 per glass, and the price of candy bars is $1.50 per bar. Are you maximizing your utility?

Select one:

a. No, the marginal utility of milk is greater than the marginal utility of candy, so you should consume more milk and less candy.

b. No, the marginal utility per dollar spent on the last unit of milk is greater than the marginal utility per dollar spent on the last unit of candy, so you should consume more milk and less candy.

c. No, the price of milk is less than the price of candy, so you should consume more milk and less candy.

d. Yes, and thus you should not change your choice.

e. No, the marginal utility per dollar spent on the last unit of candy is greater than the marginal utility per dollar spent on the last unit of milk, so you should consume more candy and less milk.

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.