Chapter 6 Flashcards
Utility theory is based on the hypothesis that the ___________ received from each additional unit of the good __________ as total consumption of the good increases.
utility, decreases
A utility-maximizing consumer will allocate expenditure such that the _________ per dollar spent on each product is _____ for all products.
marginal utility, the same
An equation that represents a utility-maximizing pattern of consumption of two goods, A and B, is
MUa/Pa = MUb/Pb
Suppose that a consumer’s total utility decreases with consumption of one additional unit of a good. In this case, we know that marginal utility must be _________.
negative
Suppose Lori is maximizing her utility as she allocates her monthly budget between two
goods—golf games and ski passes. If the price of ski passes falls, then, ceteris paribus, the marginal utility per dollar spent on ski passes __________. To maximize her utility, she will buy more __________ and less _________.
increases, ski passes, golf games
Suppose Jeff has a monthly family budget to allocate between food and clothing. The price of food is $10 per unit, the price of clothing is $15 per unit, and the marginal utility from the last unit of clothing is 75. If he is maximizing utility, the marginal utility from the last unit of food is
50
Marginal utility analysis tells us that a rise in the price of a good, ceteris paribus,
leads each consumer to reduce the ___________ of the good. This, in turn, predicts a ____________ demand curve.
quantity demanded, negatively sloped
Why are newspaper publishers prepared to use vending machines that allow customers to pay for one newspaper and remove several, whereas candy and soft-drink producers use vending machines that allow customers to remove only the single product that is purchased?
A. The government program against obesity forbids selling several units of candy or soft drink at a time.
B. People who buy newspapers are considered to be more honest than people who like candies and soft drinks.
C. The marginal cost of producing an extra unit of newspaper is very close to zero, so that publishers don’t take into account losses of several units of newspaper.
D. Unlike candies and soft drinks, the marginal value of an extra unit of newspaper is very close to zero; hence most people will take only one newspaper.
D. Unlike candies and soft drinks, the marginal value of an extra unit of newspaper is very close to zero; hence most people will take only one newspaper.
If the marginal utility from consuming more of a good is zero, total utility is:
A. negative
B. neither increasing nor decreasing
C. zero
D. decreasing
E. increasing
B. neither increasing nor decreasing
Suppose a utility-maximizing consumer is usually purchasing two substitutes, good A and good B. What would be the likely impact of
an increase in the price of
good A on this consumer’s usual consumption bundle?
A. a decrease in the consumption of good B and an increase in the consumption of good A
B. a decrease in the consumption of good A and an increase in the consumption of good B
C. an increase in the consumption of both goods
D. a decrease in the consumption of both goods.
B. a decrease in the consumption of good A and an increase in the consumption of good B
For a normal good (positive income elasticity of demand), the income and substitution effects of a price increase work in _______. The substitution effect will lead to ______ n quantity demanded and the income effect will lead to _________ in quantity demanded.
the same direction, a decrease, a decrease
For an inferior good (negative income elasticity of demand), the income and substitution effects of a price increase work in ________. The substitution effect will lead to ______ in quantity demanded and the income effect will lead to __________ lead to in quantity demanded.
opposite directions, a decrease, an increase
In what situations do the substitution effect and the income effect work in the same direction to produce a downward-sloping demand curve?
A. Any normal good
B.A normal good for which the income effect is greater than the substitution effect
C.A Giffen good
D. An inferior good for which the income effect is greater than the substitution effect
E. Any inferior good
F. A normal good for which the income effect is less than the substitution effect
G. An inferior good for which the income effect is less than the substitution effect
A, B, F
In what situations do they have opposing effects?
A. A normal good with an upward-sloping demand curve
B. A Giffen good
C. An inferior good with an upward-sloping demand curve
D. A normal good with a downward-sloping demand curve
E. An inferior good with a downward-sloping demand curve
F. Any inferior good
G. Any normal good
B,C,E,F
Suppose that a utility-maximizing consumer is usually purchasing two
complements,ketchup (a normal good) and french fries. Suppose that the price of ketchup decreases and as a result the quantity purchased of french fries decreases, ceteris paribus. We can thus say that french fries are…
A. inferior goods
B. luxuries
C. necessities
D. normal goods
A. inferior goods
Total consumer surplus is the area
________ the demand curve and ______ the price line. Consumer surplus on any one unit is the difference between the maximum price the consumer is willing to pay for that unit and the ____________.
below, above, price that is actually paid
A consumer will continue to purchase a good as long as the marginal value received from the last unit purchased is __________ than the market price.
greater
When the market is in equilibrium, consumer surplus on the final unit purchase is ________.
zero
Since water (in Canada) has a very low price, consumers continue to use it to the point where the marginal value they place on the last unit they consume is ________. At the same time, the total value placed on the water consumed is ______________.
also very low, very high
The paradox of value refers to the situation where a good with low total value can command a _______ price, while a good with a high total value may only command a ______, price.
high, low
Many medical and hospital services in Canada are provided at zero direct cost to all Canadians and are financed out of general government revenues.
a. If the government provided the necessary resources to satisfy all demand, the marginal value of such services consumed by each Canadian would be
zero
