ECON 1116 Chapter Notes - Chapter 10: Behavioral Economics, Switching Barriers, Sunk Costs

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pucealligator647

24 Mar 2017

School

Northeastern University

Department

Economics

Course

ECON 1116

Professor

Michael Stone

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Document Summary

Lecture 6- chapter 10- consumer choice and behavior. Utility and consumer decision making: utility- the enjoyment or satisfaction people receive from consuming goods or services, goal of consumer is to maximize utility, util- unit to measure utility, not possible to measure utility across people. Example of maximizing utility: (mu pizza/p of pizza) = (mu coke/ p of coke, spending on pizza + spending on coke = total budget. What if the rule of equal marginal utility does not hold: end up equalizing the marginal utility and raising total utility. Income effect- when the price of a good falls you have more purchasing power as a consumer (essentially an increase in income: normal good- increase in quantity demanded if increase in income. Where demand curves come from: market demand curves slope downwards, upward sloping curve- the good would have to be an inferior good and the income effect would have to be greater than the substitution (giffen goods)

Related Questions

One principle of utility analysis is Diminishing Marginal Utility. Think about some things, goods, or services, you "consume"?

Does the principle of Diminishing Marginal Utility apply, or as you "consume" more of the good or service do you experience "increasing" marginal utility, or is Marginal Utility constant as you consume additional units?

Explain the good or service to your classmates and whether you experience Diminishing, Constant, or Increasing Marginal Utility. Discuss why you and your classmates experience this effect.

tansnail701

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.

tansnake161

1.When Kelly Ziegenfuss buys five units of a particular good or service, __________.

a.she has no consumer surplus

b.she has a consumer surplus

c.there is no way of knowing whether she has a consumersurplus

2.Lauren Elise Ballard would be maximizing her total utility when__________.

a.she had a consumer surplus

b.her marginal utility was zero

c.her marginal utility was equal to her total utility

d.she had no consumer surplus

3.Which statement is true?

a.Most people have the same utility schedules.

b.Most people enjoy a consumer surplus for at least some of thethings they buy.

c.We will consume additional units of a product until our consumersurplus is zero.

d.The utility of a product is measured by its usefulness.

4.Which statement is false?

a.The water-diamond paradox can be resolved with the help of the law of diminishing marginal utility.

b.We will consume a service when its marginal utility is equal toits price.

c.The law of diminishing marginal utility has little validity today.

d.None is false.

5.As Keith Collins buys more and more of any good or service, his__________.

a.total utility and marginal utility both decline

b.total utility and marginal utility both rise

c.total utility rises and marginal utility declines

d.total utility declines and marginal utility rises

6.Doug Horn will buy more and more of a good or service until__________.

a.marginal utility is greater than price

b.price is greater than marginal utility

c.price is equal to marginal utility

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ECON 1116 Chapter Notes - Chapter 10: Behavioral Economics, Switching Barriers, Sunk Costs

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