Acctg Ch 4

Question 1

An individual’s pleasure, happiness, or satisfaction is called?

Answer 1

Utility

Question 2

This theory argues that individual consumption decisions are always made because people desire to maximize their satisfaction from consuming various goods and services.

Answer 2

Consumer Theory

Question 3

What is the 1st assumption when measuring satisfaction?

Answer 3

The spending on any good or service is exactly equal to the individual’s savings and income.

Question 4

What is the 2nd assumption when measuring satisfaction?

Answer 4

People are aware of the range of products available in the market

Question 5

What is the 3rd assumption when measuring satisfaction?

Answer 5

People are aware of the prices of products in the market

Question 6

What is the 4th assumption when measuring satisfaction?

Answer 6

People are aware of the capacity of the product.

Question 7

These are certain combinations of 2 commodities that will yield them a certain level of utility.

Answer 7

Combination Bundle
-This forms the Indifference Curve

Question 8

The indifference curve depicts values that are considered by what?

Answer 8

Considered by the Utility Function

Question 9

This function shows an individual’s value of the utility attained from consuming each conceivable bundle of goods.

Answer 9

Utility Function

Question 10

This type of value of the utility function are based on the number of “util” or the unit of satisfaction. Also the most wildly used way in identifying utility.

Answer 10

Cardinal Values

Question 11

This law argues that as you increase your intake of a certain commodity, you will have a declining satisfaction on the next units of the same commodity that you would consume.

Answer 11

Law of diminishing marginal utility

Question 12

This type of value of the utility function are based on rankings.

Answer 12

Ordinal Values

Question 13

This is the maximum amount of a good that a consumer is willing to give up to obtain one additional unit of another good.

Answer 13

MRS or Marginal Unit of Substitution

Question 14

What is the formula of MRS?

Answer 14

MRS equation is
Average change in the values of commodity y
—————————–
Average change in the values of commodity X
^ that is equal to

Marginal Utility of X

Question 15

What are the 3 properties of consumer preferences that we have to take note of?

Answer 15

1. Completeness
2. Transitivity
3. Non-Satiation

Question 16

If X is preferred to Y, and Y is preferred to Z.
Then X must be preferred to Z.
That example describes what property?

Answer 16

Transitivity

Question 17

With a pair of bundles (x&Y)
Its either
X is preferred to Y
Y is preferred to X
The consumer is indifferent to both (both have equal value to the consumer)
What property does that example describe?

Answer 17

Completeness

Question 18

This property can be summarized with “more is better”

Answer 18

Non-Satiation

Question 19

This graph contains a set of indifference curves showing two commodities among which describe a person’s preference.

Answer 19

Indifference Map

Question 20

What happens when 2 indifference curves intersect?

Answer 20

It violates one of the assumptions of the consumer theory

Question 21

What is a budget line?

Answer 21

Graph that shows the combination of goods and services of a person where the total amount of money spent is proportionate to their income. (It assumes that everyone spends their income)

Question 22

What happens to a budget line when income increases/decreases

Answer 22

It shifts to the right/left in parallel

Question 23

What happens to a budget line when price increases/decreases

Answer 23

Increase of price of good x makes the line rotate clockwise
Decrease of price of good x makes the line rotate counter clockwise

Question 24

To maximize the utility of an individual, it must satisfy 2 conditions. Those are?

Answer 24

1. The decision must lie on the budget line
2. The decision must lie on the indifference curve (That also depicts the most preferred combination)

Question 25

This curve shows the relationship between the amounts of products that people are willing to buy and their income

Answer 25

Engels Curve

Question 26

Can indifference curves intersect?

Answer 26

No

Question 27

It is the study of individuals, groups, organizations, and all the activities associated with the purchase, use, and disposal of goods and services.

Answer 27

Consumer Behavior

Question 28

The change in consumption that results when a price change moves the consumer to a higher or lower indifference curve.​​

Answer 28

Income Effect

Question 29

The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution.​​

Answer 29

Substitution Effect