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ECON 1000 Lecture Notes - Lecture 6: Inferior Good, Substitute Good, Indifference Curve

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coffeeduck671
24 May 2012
School
York University
Department
Economics
Course
ECON 1000
Professor
George Georgopoulos

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ECON 1000 Full Course Notes
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Document Summary

Utility benefit or satisfaction received from consuming a good. Total utility benefit from consumption of all the different goods. Marginal utility change in total utility from 1-unit increase (positive and diminishes) Principle of diminishing utility marginal utility decreases as consumption increases. Consumer equilibrium allocated all of the income to maximize total utility (choices are being made at the margin) must spend entire income. Equalize marginal utility per dollar marginal utility from a good obtained by spending 1 more dollar on that good. When marginal utilities per dollar is equal, you have maximum utility. If marginal gain from an action exceeds the marginal loss, take the action. There are no units for utility (it is an index such as temperature) Price changes don"t change the preference; it just changes the marginal utility per dollar. A larger income will allow the buyer to buy more of a normal good.

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Related Questions

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

  consumer happiness
  utility
  a happiness index
  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.

  sugar sickness
  total utility
  diminishing marginal utility
  increasing marginal utility

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

  positive.
  zero.
  negative.
  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?

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

5. For many products, the total utility curve is

  strictly increasing because of increasing marginal utility.
  strictly decreasing because of diminishing marginal utility.
  increasing initially because of increasing marginal utility, but eventually decreases.
  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

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

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

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

minimize the amount they spend on each good.

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

  MUa/ Pa = MUb/ Pb
  MUa/ Ph =MUb/ Pa
  Pa/ MUa = Pb/ MUb
  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

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

  the substitution effect only
  the real-income effect only
  the substitution effect and real-income effect, if there is a noticeable change in purchasing power
  the substitution effect and real-income effect, if there isn’t a noticeable change in purchasing power

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

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

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

  more water and fewer diamonds
  marginal utility
  total utility
  consumer demand

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

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

14. The consumer surplus for water is

  greater than that for diamonds because water is nonessential.
  greater than that for diamonds because water is essential.
  less than that for diamonds because water is nonessential.
  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 consumer’s marginal utility for diamonds

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

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

budget line

marginal utility

complete property of preferences

market demand

consumption bundle

substitution effect

Giffen good

total effect

income effect

transitive property of preferences

indifference curves

utility

the marginal rate of substitution

utility function

 

1.

_____

The satisfaction or benefit that consumers receive from consuming goods or services.

 

 

2.

________________ _

A particular combination of specific quantities of goods or services

3.

________________ _

Consumers can rank all conceivable bundles of goods or services

4.

_____

If A is preferred to B, and B is preferred to C, then A is always preferred to C.

5.

_____

Equation showing a consumer’s perception of the total utility forthcoming from consuming each bundle of goods and services.

6.

_____

A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.

7.

_____

The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.

8.

_____

The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.

9.

_____

The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.

10.

_____

The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.

11.

_____

The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.

12.

________________ _

The sum of the substitution and income effects.

13.

_____

A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.

14.

_____

A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.