Chapter 7 - Consumer Behavior

Question 1

Utility

Answer 1

A measure of amount of satisfaction a person derives from something

Question 2

Revealed preference

Answer 2

The idea that people’s preferences can be determined by observing their choices and behavior

Question 3

Utility function

Answer 3

A formula for calculating the total utility that a particular person derives from consuming a combination of goods and services

Question 4

Bundle

Answer 4

A unique combination of goods and services that a person could choose to consume

Question 5

Marginal utility

Answer 5

The change in total utility that comes from consuming one additional unit of a good or service

Question 6

Diminishing marginal utility

Answer 6

The principle that the additional utility gained from consuming successive units of a good or service tends to be smaller than the utility gained from the previous unit

Question 7

Budget constraint

Answer 7

A line that is composed if all of the possible combinations of goods and services that a consumer can buy with her or his income

Question 8

Income effect

Answer 8

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

Question 9

Substitution effect

Answer 9

the change in consumption that results from a change in the relative price of goods

Question 10

Altruism

Answer 10

A motive for action in which a person’s utility increases simply because someone else’s utility increases

Question 11

Reciprocity

Answer 11

Responding to another’s action with a similar action

Question 12

Utility maximatization

Answer 12

When people make decisions by choosing to do the things they think will give them the most utility