ECON 103 Chapter Notes - Chapter 6: Conspicuous Consumption, Demand Curve, Giffen Good

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coffeechinchilla73

31 May 2018

School

Simon Fraser University

Department

Economics

Course

ECON 103

Professor

Neil Roberts

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Sunday, March 11, 2018

Economics Chapter 6 Review

Subject

-Utility: The satisfaction that a consumer receives from consuming some good or

service.

-Total Utility: The consumer’s total satisfaction resulting from the consumption of a

given product.

-Marginal Utility: The additional satisfaction obtained from consuming one additional

unit of a product.

-Law of diminishing marginal utility: The utility that any consumer derives from

successive units of a particular product consumed over some time period diminishes

as total consumption of the production increases.

-Total utility rises but marginal utility decreases as consumption increases.

-A utility-maximizing consumer allocates expenditures so that the marginal utility

obtained from the last dollar spent on each product is equal.

-The condition required for a consumer to be maximizing utility, for any pair of products

is, MUx/Px=MUy/Py .That represents a utility-maximizing pattern of

consumption of two goods,

-If we rearrange the marginal utility equation we can get this MUx/MUy=Px/Py .

The right side of this equation is the relative price of the two products (marginal rate

of subsituion). It is determined by the market and is beyonds Alison’s control. She

reacts to these market prices but is powerless to change them. The left side of the

equation is her relative ability of the two products to add to her utility. This is within her

control because in determining the quantities of different products to buy, she also

determines the marginal utility. If the two sides of the equation are not equal, Alison

can increase her total utility by rearranging her purchases of x and y.

-The utility theory is used by economists to predict how consumers will behave when

faced with such events as changing prices and incomes. The theory is an interesting

way of discovering the implication of consumer maximizing behaviour.

-A rise in the price of a product leads each utility maximizing consumer to reduce the

quantity demanded of that product whose price increased.

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Document Summary

Utility: the satisfaction that a consumer receives from consuming some good or service. Total utility: the consumer"s total satisfaction resulting from the consumption of a given product. Marginal utility: the additional satisfaction obtained from consuming one additional unit of a product. Law of diminishing marginal utility: the utility that any consumer derives from successive units of a particular product consumed over some time period diminishes as total consumption of the production increases. Total utility rises but marginal utility decreases as consumption increases. A utility-maximizing consumer allocates expenditures so that the marginal utility obtained from the last dollar spent on each product is equal. The condition required for a consumer to be maximizing utility, for any pair of products is, mux/px=muy/py . that represents a utility-maximizing pattern of consumption of two goods, If we rearrange the marginal utility equation we can get this mux/muy=px/py .

Related Questions

Marginal utility is defined as the

a. extra satisfaction the consumer receives from an extra $1 of income.

b. total level of satisfaction a consumer receives upon the consumption of a certain number of goods.

c. number of hours a consumer would be willing to work to receive a certain product.

d. extra satisfaction a person derives from consuming an additional unit of a good.

tanfish840

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.

sugar sickness

total utility

diminishing marginal utility

increasing marginal utility

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?

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?

MU_a/ P_a = MU_b/ P_b

MU_a/ P_h =MU_b/ P_a

P_a/ MU_a = P_b/ MU_b

MU_a x P_a = MU_bxP_b

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 isnât a noticeable change in purchasing power

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

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 consumerâs 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.