Chapter 6: The Consumer Behavior

Question 1

Utility

Answer 1

denotes satisfaction, a subjective pleasure that an individual can derive from consuming a good or service. In economics, it explains how individuals divide their limited resources among the commodities that provide them satisfaction.

Question 2

Tastes/Preferences and Income

Answer 2

The factors that make an individual decide what bundle of goods to consume.

Question 3

Economic theory of consumers

Answer 3

The consumer prefers the best bundle of goods that he or she can afford

Question 4

Cardinal Ranking of Preferences and Ordinal Ranking of Preferences

Answer 4

Two ways of measuring utility

Question 5

Cardinal Ranking of Preferences

Answer 5

attaches a specific number to different levels of satisfaction

Question 6

Ordinal Ranking of Preferences

Answer 6

Rank or ordering preferences

Question 7

Tastes and Preferences

Answer 7

Subjective in Nature

Question 8

Taste and Preferences

Answer 8

Means that an individual has a distinctive way of choosing what is best for him in gaining satisfaction.

Question 9

The Law of Diminishing Marginal Utility

Answer 9

States that each successive incremental improvement in health generates less and less additions to total utility.

Question 10

The Law of Diminishing Marginal Utility

Answer 10

Means that as more goods are consumed, the extra satisfaction or marginal utility received decreases.

Question 11

Utils

Answer 11

Refers to a measurement of utility

Question 12

Saturation Point

Answer 12

Point where utility starts to decrease or diminish

Question 13

The Consumer’s Equilibrium

Answer 13

If total utility is maximized with regard to ones income, it means that they are in ______

Question 14

The Consumer’s Equilibrium

Answer 14

Spending the last peso of his income on two goods until the total utility or satisfaction derived in consuming both goods is the same.

Question 15

Completeness
Non-Satiation
Transitivity

Answer 15

The three assumptions of rational preferences

Question 16

Completeness

Answer 16

Bundle of goods can be ranked as Preferred, indifferent, or less preferred

Question 17

Non-Satiation

Answer 17

More is better

Question 18

Transitivity

Answer 18

If A is greater than B, but B is greater than C. Therefore, A is greater than C.

Question 19

Indifference Curve

Answer 19

a curve which shows the different combinations of Good X and Good Y which yield the SAME LEVEL OF UTILITY

Question 20

Indifference Curves are:
Negatively Sloped
Convex to the Origin
Do not Intersect

Answer 20

Three Characteristics of the Indifference Curve

Question 21

Marginal Rate of Substitution (MRSxy)

Answer 21

The amount of Good Y that a consumer is willing to give up in exchange for Good X and still lie on teh same indiference curve.

Question 22

MRS

Answer 22

Slope of the Indifference Curve is also known as

Question 23

Marginal Rate of Substitution (MRS)

Answer 23

This is the cause for the negatively sloped indifference curve.

Question 24

Diminishing Marginal Rate of Substitution

Answer 24

This causes Indifference Curves to be convex with the origin

Question 25

Violates the transitivity Principle

Answer 25

This causes Indifference Curves not to intersect

Question 26

MRSxy = ∆Qy/∆Qx

Answer 26

Formula for Marginal Rate of Substitution

Question 27

Budget Line

Answer 27

Shows the different combinations of Good X and Good Y that a consumer can purchase given his income and the prices of goods.

Question 28

Consumer’s Equilibrium

Answer 28

When the tangency of the budget line and the indifference curve is achieved.

Question 29

Income Consumption Curve

Engel Curve

Answer 29

By varying the income of the consumer and holding the tastes and prices of Good X and Good Y, we can obtain the _____ and the ______

Question 30

Income Consumption Curve

Answer 30

Defined as a collection of points of consumer equilibrium resulting from varying income.

Question 31

Engel Curve

Answer 31

Shows the amount of a commodity that the consumer would buy per unit of time at different levels of income.

Question 32

Price Consumption Curve

Answer 32

Collection of points of consumer’s equilibrium resulting from varying the price of Good Y.