Consumer Behavior

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The income effect indicates that:

D) when the price of a product falls, a consumer will be able to buy more of it with a specific money income.

If the price of normal good X rises, the income:

A) and substitution effects will both induce the consumer to buy less of X.

If the price of a product falls, that product becomes cheaper and people will want to purchase more of it in place of other goods. This statement best describes:

the substitution effect

A fall in the price of a good increases the real income or purchasing power of consumers so that they are able to buy more of the product. This statement best describes:

the income effect

Which of the following is correct? When the price of normal good Z falls:

both income and substitution effects cause the consumer to buy more.

If steak is a normal good and its price rises:

both the income and substitution effects suggest that less will be purchased.

The substitution effect indicates that:

when the price of a product falls, the lower price will induce the consumer to buy more of that product at the expense of other products.

The substitution effect causes a consumer to buy less of a product when its price rises because the:

product is now more expensive compared to other products

Suppose that Jean normally orders three tacos, but on seeing that their price has gone up, decides to buy only two. Jean’s decision is best explained by:

income and substitution effects.

Utility

is want-satisfying power.

Marginal utility can be:

positive, negative, or zero

Brenda says, "You would have to pay me $50 to attend that pro wrestling event." For Brenda, the marginal utility of the event is:

negative

The ability of a good or service to satisfy wants is called:

utility

A product has utility if it:

satisfies consumer wants.

The law of diminishing marginal utility states that:

beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:

26 units of utility.

If the price of product X rises, then the resulting decline in the amount purchased will:

increase the marginal utility of this good.

Marginal utility is the:

change in total utility obtained by consuming one more unit of a good.

Utility refers to the:

satisfaction that a consumer derives from a good or service.

Total utility may be determined by:

summing the marginal utilities of each unit consumed.

If total utility is increasing, marginal utility:

is positive, but may be either increasing or decreasing.

Where total utility is at a maximum, marginal utility is:

zero

Marginal utility:

diminishes as more of a product is consumed.

Which of the following is correct?

If marginal utility is diminishing and is a positive amount, total utility will increase.

Which of the following statements is correct?

A product may yield utility, but not be functionally useful.

The theory of consumer behavior assumes that :

consumers behave rationally, maximizing their satisfactions.

To maximize utility a consumer should allocate money income so that the:

marginal utility obtained from the last dollar spent on each product is the same.

Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy:

more of X and less of Y.

Mrs. Green is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that:

Mrs. Green should spend more on soda and less on pretzels.

19. Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase:

more of B and less of A.

The marginal utility of the last unit of A consumed is 12 and the marginal utility of the last unit of B consumed is 8. What set of prices for A and B respectively would be consistent with consumer equilibrium?

$6 and $4

Suppose you have a limited money income and you are purchasing products A and B whose prices happen to be the same. To maximize your utility you should purchase A and B in such amounts that:

their marginal utilities are the same.

A consumer is maximizing her utility with a particular money income when:

MUa/Pa = MUb/Pb = MUc/Pc = … = MUn/Pn.

Suppose that Ms. Spencer is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Spencer:

should buy less B and more A.

If a rational consumer is in equilibrium, which of the following conditions will hold true?

The marginal utility of the last dollar spent on each good purchased will be the same.

Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc and P d. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially:

In purchasing products A and B, a consumer is in equilibrium when:

MUa/Pa = MUb/Pb

A consumer who has a limited budget will maximize utility or satisfaction when the:

ratios of the marginal utility of each product purchased divided by its price are equal.

Mr. Chan has an income of $20 that he is spending on donuts and cheese in such amounts that he derives 25 utils of satisfaction from the donuts and 25 utils of satisfaction from the cheese. On the basis of this information we:

cannot say whether or not Chan is buying donuts and cheese in equilibrium amounts.

If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products b and c in consumer equilibrium:

are $105 and $140 respectively.

Assume that a consumer purchases products A, B, and C in quantities such that the last dollar spent on each yields the same marginal utility and the consumer’s income is totally spent. We can conclude that:

total utility is being maximized.

An increase in the price of product A will:

decrease the marginal utility per dollar spent on A.

Rosenbaum is purchasing products C and D in utility-maximizing amounts. If the price of C is $4 and the price of D is $2, then:

the marginal utility of C is twice that of D.

The theory of consumer behavior assumes that consumers attempt to maximize:

total utility.

When a consumer is maximizing total utility,

total utility cannot be increased by reallocating expenditures among various products.

When a consumer shifts purchases from product X to product Y the marginal utility of:

X rises and the marginal utility of Y falls.

Sam decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Sam:

has a higher "marginal utility to price ratio" for the hockey game than for the play.

Suppose that Dave normally orders two tacos, but on seeing they are on sale, decides to buy three. Dave’s decision is best explained by the:

the principle of utility maximization.

Diminishing marginal utility explains why:

demand curves are downsloping.

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

They all help explain the downsloping demand curve.

A consumer’s demand curve for a product is downsloping because:

A) marginal utility diminishes as more of a product is consumed.

The utility-maximizing rule:

is consistent with the law of demand.

Some modern theories of consumer behavior have:

introduced the opportunity cost of time as a component of product price.

In introducing the opportunity cost of time into the theory of consumer behavior we find that, all else equal:

one should consume less of time-intensive goods.

Assume you are spending your full budget and purchasing such amounts of X and Y that the marginal utility from the last units consumed is 40 and 20 utils respectively. Assume (a) the prices of X and Y are $8 and $4 respectively; (b) it takes 3 hours to consume a unit of X and 1 hour to consume a unit of Y; and (c) your time is worth $2 per hour. You

should consume less of X and more of Y.

Which of the following has been a significant factor in DVDs replacing video cassettes (VCs) in the retail home video market?

Most consumers perceive DVD sound and video reproduction to be of higher quality.

Consumer demand for DVDs has increased over time because the price of DVD players has:

decreased, and DVD players and video cassette players are complementary goods.

The diamond-water paradox arises because:

essential goods may be cheap while nonessential goods may be expensive.

The diamond-water paradox occurs because:

the price of a product is related to its marginal utility, not its total utility.

"Essential" water is cheaper than "nonessential" diamonds because:

the supply of water is great relative to demand and the supply of diamonds is small relative to demand.

The fact that most medical care purchases are financed through insurance:

increases the amount of health care consumed.

Most economists contend that:

noncash transfers are less efficient than cash transfers.

Which of the following statements is correct?

Noncash gift-giving create a value loss, but cash gifts do not.

Noncash gifts:

reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences.

If you receive a gift whose market price is $20, but you consider it to be worth only $10, then:

there is a $10 or 50 percent value loss.

(Consider This) Newspapers dispensing devices seemingly "trust" people to take only a single paper but the devices actually rely on the law of:

diminishing marginal utility

(Last Word) Theft and burglary:

can be viewed as attempts to maximize utility, given certain marginal costs and marginal benefits.

(Last Word) Most people do not steal because:

their marginal costs, including guilt costs, are too high.

(Last Word) All of the following would reduce property crime by increasing its "price," except:

cutting out the middlemen ("fences") by selling stolen goods via Internet auction sites.

The income effect explains an exception to the law of demand.

false

If marginal utility is diminishing, total utility must also be declining.

false

The substitution effect suggests that, when consumers judge product quality by price, they will substitute high-priced products for low-priced products.

false

When the price of a product falls, the income effect induces the consumer to purchase more of it while the substitution effect prompts her to buy less.

false

A rational consumer will cease purchasing a product at that quantity where marginal utility begins to diminish

false

Marginal utility is total utility divided by the number of units consumed.

false

When total utility is at a maximum, marginal utility is zero.

true

The limited money income of consumers results in a so-called budget constraint.

true

75. When a consumer is maximizing total utility, he or she cannot increase total utility by reallocating expenditures among different products.

true

The consumer demand curve for a product is downsloping because marginal utility is constant when price declines.

false

Water has greater marginal utility than diamonds, yet diamonds have greater total utility than water.

false

Noncash gift giving involves value loss when the marginal utility of the gift to the receiver is less than the product price

true

When a consumer shifts purchases from X to Y, the marginal utility of X falls and the marginal utility of Y rises.

false

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