Ch 7

Question 1

___ is a measure of the amount of satisfaction that a person derives from something.

Answer 1

Utility

Question 2

___ explains how we can tell what maximizes other people’s utility by observing their behavior.

Answer 2

Revealed preference

Question 3

A(n) ___ is a formula for calculating the total utility that a particular person derives from consuming a combination of goods and services.

Answer 3

Utility function

Question 4

A(n) ___ is each unique combination of goods and services that a person could choose to consume.

Answer 4

bundle

Question 5

A baseline assumption in the way economists think about the world is the idea that people are…

Answer 5

rational utility-maximizers

Question 6

Utility is a(n) ___ measure of the satisfaction that people derive from consuming goods and services.

Answer 6

subjective

Question 7

___ is the change in total utility that comes from consuming one additional unit of a good or service.

Answer 7

Marginal Utility

Question 8

As utility increases what is true about marginal utility?

Answer 8

It will decrease

Question 9

A(n) ___ is a line composed of all of the possible combinations of goods and services that a consumer can buy with his/her income.

Answer 9

Budget constraint

Question 10

The ___ describes the change in consumption that results from a change in effective wealth due to higher or lower prices.

Answer 10

Income effect

Question 11

The ___ describes the change in consumption that results from a change in the relative price of goods.

Answer 11

Subsitution effect

Question 12

___ are items for which quantity demanded is higher when prices are higher.

Answer 12

Veblen goods

Question 13

___ is a motive for action in which a person’s utility increases simply because someone else’s utility increases.

Answer 13

Altruism

Question 14

___ means responding to another’s action with a similar action.

Answer 14

Reciprocity